Give further thought to further studies

It takes more than a decade for a master's student to catch up financially; best to start work with a bachelor's

As the confetti rained down and my course mates threw their mortar boards into the air, I remember feeling strangely downbeat at my university graduation a few years ago.

I had enjoyed my university years and was reluctant to take the next step of starting work, and so was briefly considering further studies.

But in the end, I followed in the footsteps of most local graduates - to land a first job and earn a wage - although several of my peers took the path less travelled and enrolled in postgraduate courses.

Their reasons for pursuing master's degrees included interest in the field of study, hopes of higher starting pay and the perceived need to stand out from the throngs of other graduates.

Although few people would admit to it, I suspect some of my friends were just unwilling to start working so extending their studies provided a perfect solution.

Keeping that first job at bay is even more common in the United States, where an increasing number of graduates are returning to college to wait out the dire employment situation.

But is a master's degree worth it from a financial point of view?

You need to consider some key factors: the cost of the programme, the forgone income from studying rather than working, and the additional income and opportunities that a master's degree will provide.

I contrasted a hypothetical person starting work immediately after getting a bachelor's, against one who went on to pursue a "generalist" master's degree in a field such as social sciences, engineering or science.

This is different in cost and scope from a master's degree in business administration, which is much more expensive and typically taken by mid-career individuals rather than fresh graduates.

I made some assumptions, including that the master's student takes a one-year, full-time course and that a bank loan is not needed to finance it.

I took the cost of the master's as $7,400, a figure within the Government-subsidised range charged for Singaporeans at local public universities.

My exercise will also assume the master's holder will be on a starting salary of $3,206, while the bachelor's holder will earn $2,879.

This is within the range of starting salaries for engineering bachelor's and master's degree holders, according to a recent study by human resources consultancy Towers Watson.

In general, human resources firms estimate that a fresh master's degree holder can expect a 5 per cent to 15 per cent higher salary compared with someone leaving university with a bachelor's degree.

Both graduates will be assessed on 15 months of salary for every year of work - a 13th month payout and a bonus of two months - and both will be assumed to get annual pay rises of 4.5 per cent. Again this fits with general research that finds pay rises tend to be related more to performance than paper qualifications.

Bottom line:

13 years to break even

The number- crunching showed that it takes 13 years of work - excluding the one year to get the master's degree - to reach the so-called "break-even point".

This is when the wealth - the accumulated income over the years minus the cost of a master's degree, if applicable - is greater for a master's holder than someone who started work with only a bachelor's.

The key drawback of studying more is not actually the $7,400 cost of the master's course, which can be recouped in less than three years of getting a higher salary.

But it takes about a decade to catch up on the "lost salary" of more than $40,000 - this is what you would have earned in the first year if you were in the workforce and not studying for the master's.

Other considerations

There are, of course, benefits to a master's degree.

Mr Pri Sandhu, manager for IT-commerce at recruitment consultancy Robert Walters Singapore, said a master's degree holder could stand a better chance of securing an interview than a candidate with a bachelor's degree.

And, of course, the master's degree holder will have more knowledge, which "is always preferable for one's development", said Ms Godelieve Kroonenberg, Asean business leader for talent information solutions at Mercer.

A 41-year-old friend of mine in the financial sector who has a master's in economics swears that he never regretted it.

"It was during the master's thesis that I learnt a lot in terms of developing clear frameworks for analysis," he said, adding that these skills helped him to stand out and advance quickly in the industry.

If this is so, the training that a master's provides could help someone perform better at his job and so get higher pay increases. This would help a master's degree holder overtake the bachelor's graduate faster than the 13 years in my example.

Having a master's could also turn out to be a winner in the very long run.

I assumed that all wage increases stopped after Year 14. After all, pay rises could slow down when employees approach the top of their wage scales.

By retirement time in Year 40 - when someone would be in his 60s - the master's holder would be ahead by more than $130,000.

The master's holder would have earned $2.938 million, compared with $2.807 million for the bachelor's holder.

These are all pertinent factors to consider.

No regrets

Still, I am glad I took my chosen path to start working immediately.

For one thing, job experience is starting to count more in the eyes of employers than merely having a master's degree.

"It used to be that any master's degree was so much sought after," said Mr Kevin Ong, director of executive compensation for South-east Asia at Towers Watson.

"But these days, people want those with more working experience. A bachelor's degree is sufficient in most cases."

The larger reason is that it takes way too many years to reach the "break-even point" - years which a master's holder would lag behind his peers financially.

The bachelor's holder would be better off for more than a decade - and the extra money could be invested to reap more returns, a scenario I omitted in my calculations.

It seems wiser to start one's investing journey quickly than to spend more money on tuition fees - and we surely do not need a master's degree to teach us that.

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