An apprenticeship and career in the trades is just as financially lucrative across a lifetime as a university degree, according to a new report by economic think tank BERL.
In a project undertaken for the Industry Training Federation (ITF), BERL modelled the costs and benefits of an apprenticeship versus a degree across a working lifetime.
Using average wages at each age during the career path and factoring for average student loans, house prices and savings rates, it was found that the financial position at retirement for someone with a level 4, 5 or 6 industry training was nearly equal to that of a graduate (bachelor degree or above).
The average person taking the apprenticeship path had a higher net financial position for most of their career and was exposed to less financial risk.
“Because of the head start you get as an apprentice, because you’re not paying off an accumulated student loan, you manage to buy a house earlier, you manage to pay off the mortgage earlier and over the lifetime of the career path you are financially better off,” said BERL chief economist Ganesh Nana.
“Until right at the very end when the graduate catches up.”
The fact that those who went into trades started earning earlier and contributing to their KiwiSaver fund also had an impact on the final result.
Both career models out-performed that of someone who left school without further training.
The results surprised Nana, who said he had expected the graduate to catch up sooner.
Previous research had focused on the fact that graduates had higher average earnings but had not factored in the headstart, he said.
“There’s a whole lot of ifs and buts in there. But the assumptions work both ways,” he said. “This is the average of the averages.”
Universities of New Zealand has published research which indicates that a typical bachelor’s degree graduate will earn about $1.38m more over their working life than a non-graduate.
It also says that median weekly earnings of graduates with a bachelor’s degree or higher qualification are 161 per cent higher than those without any qualifications.
ITF chief executive Josh Williams said it was not the group’s intention to be adversarial about the two education paths.
He accepted the Universities New Zealand data did show higher average earnings but said it was important to offer a wider perspective.
“Sure, your income rises faster if you have a degree and no one should be shocked by that finding. It is all just based on those earnings and on the number of years post-graduation,” he said.
“So what if you start earning at 17, what if you don’t have a student loan.”
In terms of overall financial position, it’s not just about what you earn, it’s when you save, it’s when you don’t take on debt and when you have the ability to buy a home.”
The BERL model finds that at the start of their career (age 25) apprentices are earning significantly more than graduates. By the middle of their career (age 40) apprentices were more financially secure.
“A person’s net financial position in the middle of their career implies that an apprenticeship carries a lower risk than a university education.”
At the end of their careers the net financial position of a degree holder and a trained apprentice were almost exactly the same, Williams said.
The research shows that by age 64 somebody with a bachelor degree or above can expect to have net assets of $1,854,126 while those of someone who trained as an apprentice will be $1,849,169.
In the later years of their careers the “bachelor and above” workers earn close to $100,000 on average, while the “trained apprentice” earns about $75,000 so their financial positions start to equalise, the research says.
Meanwhile, unsurprisingly, a person whose highest qualification was a level 2 secondary school qualification had lower earnings and their wealth grew more slowly.
Williams said it was important to make young people aware that the financial choice about career paths was more equal as there was a significant shortage of qualified trades people in this country.
“There is only around 60,000 school leavers a year … and no Government policy can change that,” he said.
Meanwhile, shortages were most acute in industries associated with construction and building.
Original Article by NZ Herald.