‘Less education can be worth more.’ While college grads have a net worth about 5x higher than high school grads, here’s what can matter even more than that college diploma

The average net worth for an American family is $748,000, but Americans’ median net worth is much lower — at just $121,700, according to the latest Survey of Consumer Finances published by the Federal Reserve in 2020 (the 2022 report will come out in 2023). One of the biggest factors in determining net worth is education. Indeed, the average college graduate has a net worth about four times greater than someone who started but didn’t finish college, and about five times greater than someone with just a high school diploma. The good news? Your net worth isn’t all about education, and Americans of all education and income levels can boost their bottom line. Here’s how. 

Average net worth, by education level

Source: Federal Reserve

What’s more, a 2019 study conducted by the College Board revealed that, “Over the course of a lifetime, and accounting for the costs of obtaining a degree, individuals with a bachelor’s degree can earn about $400,000 more than individuals with a high school degree.” 

While all this data seems to imply that college is always worth it, it’s not always as straightforward as that. Indeed, 36% of college graduates who are paying off student loans say that taking on student loan debt wasn’t worth it, according to a 2019 report by Merrill Lynch and Age Wave. 

And 2021 research from Georgetown University’s Center on Education and the Workforce finds a few interesting things: About one quarter of high school graduates earn more than an associate’s degree holders, and one quarter of workers with a bachelor’s degree earn more than half of workers with a master’s or a doctoral degree. According to the report, “Less education can be worth more. Some certificates pay more than some associate’s degrees, some associate’s degrees pay higher than some bachelor’s degrees, and some bachelor’s degrees result in higher earnings than some graduate degrees.” 

Consider: “Associate’s degree holders who studied STEM earn $60,000 annually. This is more than bachelor’s degree holders who majored in the humanities and liberal arts,” a 2018 CEW report found. Another example: “Education majors need a graduate degree to achieve the median earnings of a bachelor’s degree holder, as do arts and psychology and social work majors.” 

In other words, what you study plays a big part in how much you’ll be able to earn after you graduate. A February 2022 study by the Federal Reserve Bank of New York indicates that the best-paying college majors for recent grads include a variety of engineering degrees, computer science and pharmacy.  Conversely, the worst-paying college majors for recent grads include family and consumer sciences, general social sciences, performing arts, social services, anthropology, early childhood education, theology and religion, psychology and liberal arts.

How to build up your net worth no matter your level of education

That said, there are ways to overcome not graduating from high school or college — or picking a major that doesn’t lead you to make bank — and still building up your net worth. 

“My favorite recommendation is to let time do as much of the hard work as possible through compounding. The process involves saving and investing as early as possible, as much as possible and as consistently as possible,” says certified financial planner Bill Kan, founder of Candent Capital.

See the highest savings rates you may get now here.

If you were to save $50 per week for 40 years, starting at the time you’re 25, you’d have $332,020 if your interest rate were 5% annually. If you invest $50 every week for 40 years at a 7% return, you’d have $572,510. At a 9% return, your $50 investment each week would yield $1,025,112 after 40 years.

Other things to consider when the goal is to increase your net worth, include diversifying properly to manage risk, keeping costs low and having reasonable expectations. “Reasonable expectations include the size of returns, when returns will come and knowing that there will be periods, sometimes extended periods of disappointing outcomes that will resolve over time,” says Kan.

Of course, the amount of net worth one has or needs to retire is different for everyone. Kan says, “When I first started, people would ask me if $1 or $2 million was enough. I always found the figure to be arbitrary because they didn’t say anything about other resources available to them, their spending needs, when and where they expect to retire, or the amount of time they were to be in retirement.” 

One simple rule of thumb, according to certified financial planner Michael DeMassa of Forza Wealth Management, is to start saving and investing 20% of your earnings in your 20s. “Your net worth should take care of itself by age 30, 40, 50 and 60,” says DeMassa. See the highest savings rates you may get now here.

Because everyone’s financial situation is different and net worth can vary widely depending on life circumstances that go beyond age, Andy Rosen, investing spokesperson at NerdWallet, says the best ways to increase your net worth are by, “paying down debt, saving more money [and/]or making successful investments that increase in value over time.” 

He also recommends using a net worth calculator to determine how much you should have. More specifically, certified financial planner John Bovard of Incline Wealth Advisors, says at age 30, you should have 2X your annual salary, at age 40 you should have 4X your annual salary, at age 50  you should have 10X your annual salary and at age 60 you should have 15X your annual salary. “You will need at least 10X your annual salary saved by age 60 and since not all of your net worth is spendable, you will need a larger amount than 10X,” says Bovard.

He also recommends increasing net worth with small and big wins. “Increase retirement contributions by 1%, pay off high interest rate debt, automatically invest $100 per month into a brokerage account directly into an S&P 500 index fund, ask for a raise to increase your salary, use debt to purchase a rental property, or use a loan to purchase a business,” says Bovard.

And “it’s helpful to be wise about taking on liabilities. Some liabilities make sense, like a mortgage for a long-term appreciation in a house or a student loan for a degree that will generate higher future income, but many liabilities only subtract from net worth,” says certified financial planner Eric Uchida Henderson at East Horizon Investments.