If the high school dropouts who currently head households in the United States had earned their diplomas, the U.S. economy would have benefited from an additional $74 billion in wealth accumulated by families, according to conservative calculations by the Alliance for Excellent Education that are reported in its new brief, Hidden Benefits: The Impact of High School Graduation on Household Wealth, funded by MetLife Foundation.
In a previous analysis, the Alliance has highlighted the earnings gap between high school graduates and dropouts. This brief, however, focuses on household wealth, which is defined as the accumulation of investments that appreciate over time. Some examples include cash investments (savings, 401(k) accounts), material possessions that hold monetary value (cars, small businesses), and investments in nontangible property such as degrees.
As the brief notes, wealth is critical to the economic well-being of individuals and families—even more so than higher earnings. Not only can wealth cushion the impact from sudden unemployment, disabling medical situations, or any kinds of financial emergencies, but it also confers other advantages that make further wealth generation more likely, such as the ability to buy a house in a desirable neighborhood or to start a business. Perhaps most importantly, wealth offers the capacity to improve financial prospects for one’s children and grandchildren.
In order to determine the impact on the nation’s collective wealth if every head of household graduated from high school, the Alliance used research by Elena Gouskova and Frank Stafford of the University of Michigan Institute for Social Research, which found that, on average, a household headed by a high school graduate accumulates ten times more wealth than a household headed by a high school dropout. In other words, for every $500 of wealth that households headed by a high school dropout have, their peers with diplomas have accumulated approximately $5,000. This research, combined with data from the U.S. Census Bureau, allowed the Alliance to calculate the additional household financial wealth that would be gained by each state if every household were headed by someone with at least a high school diploma. The gains in wealth vary across states, from $83.6 million in Wyoming to over $9.2 billion in California.
“Wealth inequality between the ‘haves’ and ‘have nots’ and between African Americans and Hispanics and their white counterparts is increasing,” said Bob Wise, president of the Alliance for Excellent Education and former governor of West Virginia. “Policymakers are concerned with reducing poverty and want to help poor Americans and members of racial minorities build the assets they need for true financial security. Congress and the administration need to recognize that targeted and effective investments in secondary school reform that will graduate more students each year are a key strategy for addressing these concerns.”
The complete brief, which includes breakdowns for every state, is available here.