When I was a child, I could think of nothing more awesome than becoming a mountain climber. My aspirations were largely due to a large cliff we would often drive past, sheer and rocky in the summer and covered with huge icicles in the winter. I told my parents of my aspirations frequently. To their credit, they nodded approvingly and smiled encouragingly, even inquiring as to which mountains I planned to climb.
As with many childhood fantasies, this one eventually collided with reality as I grew older. You see, I had never actually climbed a mountain, and discovered that I didn’t really enjoy sheer heights nor getting my hands dirty. I still love hiking in the mountains, but I gave up my Himalayan ice climbing dreams many years ago.
Money isn’t everything, but it’s a thing
I struggle with how to dispense career advice to my children, if I should even try it at all. It is a rare child and young adult who possess a clear, linear vision of their career at the outset. Most of us take a more circuitous route—fraught with detours, false starts, and dead ends—before a career is ultimately settled upon.
And if my children are anything like me (i.e. stubborn and contrarian), my attempt to guide them toward a career choice is more likely to backfire than not.
Something that channels creativity should mitigate against the risk of job loss to technologic automation, but many creative pursuits can be economic feast or famine. I’d prefer they obtain a college degree, but accept that college may not be the right choice for them. It’s much too early to know which jobs may fit their personalities, or even what their adult personalities will be. Any guess as to what career path my children will take would be just that: a guess.
The sky is falling?
If you believe economic Chicken Littles, children born these days have a daunting employment future ahead of them. Advancing technology and artificial intelligence are poised to usurp many (most?) blue-collar and white-collar jobs over the next few decades. We may all be on the dole collecting universal basic income in 50 years, if some prognosticators are correct.
There is no doubt some truth in these predictions. But as Niels Bohr (or Yogi Berra?) supposedly said, “Prediction is very difficult, especially about the future.” For the purposes of this post, I will assume a future in which jobs are still very much a thing performed by flesh-and-blood human beings.
To what should they aspire?
Rather than address this question directly, I’d prefer to start a conversation with them—at the appropriate ages—about the financial impact of different types of careers. Work that provides meaning and impact can be crucial to happiness for some but, for others, compensation and time off is equally critical. I’d like them to learn to consider the entire “package” that comes with a job.
Pick your poison
Future job possibilities for my children (assuming no AI apocalypse) are essentially endless. In my career conversations with them, I want to illustrate several critical, interrelated financial concepts: compensation, taxes, savings, and debt. To make the examples more concrete, I chose 3 careers which vary considerably in average salary, necessary education and job training, and debt burden:
The Doctor, the Engineer, and the Plumber.
I am intimately familiar with the life and career of a doctor, but woefully less so with that of an engineer or plumber; please forgive any related mischaracterizations or inaccuracies. And to reiterate, I focus completely on the financial implications of career choice, ignoring the other tangible and intangible aspects of the job.
I had to make tons of assumptions in the following exercise, but I tried to maintain internal consistency. The four main categories of assumptions were related to salary, education and debt, cost of living, and savings.
My salary assumptions are primarily based on data from the Bureau of Labor and Statistics (BLS). Anecdotally, I think the BLS underestimates physician salaries, so I included data from recent physician salary surveys to arrive at the number I used.
- Plumber: Mean annual wage (BLS): $56,000
- Mechanical engineer: Mean annual wage (BLS): $89,000
- Physician and Surgeon
Education and debt
Student debt is a big deal, with no solution in sight. The averages below are for students graduating in 2016, and the cost will presumably be higher when my children graduate sometime in the 2030s.
- The rules for becoming a licensed plumber vary by state, but training can involve a course lasting as little as 2-3 months. I assumed a start of employment at age 19, one year after completing high school.
- Training to become a plumber has associated costs, but compared to college or graduate school the fees are nominal. I rounded it down to $0.
- Yes, I realize there are many different types of engineers with varying training and expertise. To be honest, I just picked mechanical engineer out of a hat. I used age 22—after 4 years of undergraduate training—as the start of employment.
- The average student loan burden for undergrads finishing in 2016 was $37,172.
- Assuming a doctor takes no breaks from kindergarten through medical school, he or she will be finished at age 26. After that, residency training takes another 3-7+ years depending on specialty. I assumed completion of residency training and first full-salary employment as a physician at age 30.
- Average medical school debt varies by source, but seems near $180,000. Added to undergraduate debt, we obtain the lovely sum of $217,172 in total student loan debt after medical school.
Cost of living
- Accounting for cost of living involved the most hand waving of all.
- First, I assumed the monthly take home pay of an average plumber as a baseline level of spending for all 3 professions.
- The plumber spent it all, resulting in no additional monthly cash flow.
- For the engineer and doctor, I assumed an additional amount of spending due to “lifestyle inflation,” equal to 20% of their monthly take home pay.
- I assumed 6% growth of retirement savings, an optimistic estimate to some. Accuracy here is not too critical, as I am more interested in comparing careers rather than the exact numbers.
- Although doctors begins their first “real” job at age 30, they had been drawing a salary during residency and, hopefully, saving for retirement. I assumed they threw some money toward their 401(k)s during those years, resulting in a $50,000 nest egg by age 30.
What does the interplay of debt, compounded monthly savings, and age at which savings begins show us?
Below are retirement savings illustrated in graph form, followed by the raw numbers.
A few observations:
- All three professions can accumulate impressive nest eggs by age 65. A change in savings growth (I assumed 6%) could significantly change those end numbers.
- Saving early harnesses the power of compounding, but is overcome by a high-enough salary and savings rate. At least in this scenario, saving more was more important than saving early.
- Doctor begin savings later, but robust monthly contributions allow them to quickly surpass the nest eggs of the more modest savings rates of our plumber and engineer. The crossover point was around ages 33-34.
- With enough discipline and a reasonable monthly budget, the average doctor should be able to reach an 8-figure retirement savings nest egg near age 60.
- Some student debt can certainly be “worth it” for the potential higher salary and retirement savings. Of course, one could also earn a high salary without student loan debt—becoming a small business owner without attending college, for example, or getting a full ride scholarship would accomplish this. But on average, those with more advanced degrees make (and hopefully save) more money.
My daddy thinks I’m fine
I don’t worry too much about the future careers of my children. The best I can do is impart knowledge that I hope will help, and then let them have at it. The events which will lead them to their chosen careers are unknowable, unpredictable, ultimately up to them.
When I discuss career and finance with my kids, my aim will not be to highlight how much money one can make in different professions. Too many variables are involved, not the least of which is an uncertain future for them, the economy, and the world. But I do hope that exercises such as this will serve as an impetus for them to mull over perhaps the most important, complex financial decision of their lives: a career.
What do you think of this analysis? How do you discuss the finances of career choice with your children? Please comment below!