Such a title as the one above occasionally surfaces on a Yahoo!Finance or Forbes article. These articles usually throw in some statistics about the ‘growing number of college drop-out billionaires’ and name prominent college drop-outs like Bill Gates and Michael Dell (with an appropriate mention of their large net worth, of course.)

These articles often seem to suggest that a person can do just as well financially without obtaining a college degree as with. Such implications disturb me because I think they are dead wrong. I believe strongly in the value of education (formal and informal) as well as the importance of having a college degree when it comes to finding higher-paying employment than one would with only a high school degree.

The reasoning in these articles is pretty simple: “Many billionaires do not have college degrees, therefore, if you want to be a billionaire, college does not matter much.”

The reason this statement is likely false is this: College degree holders make up a much larger percentage of billionaires than they do of the general population. Therefore, those with college degrees are more likely to become billionaires than those without college degrees.

Let’s crunch a few numbers to see how I drew that conclusion. From a 2003 Forbes.com article (http://www.forbes.com/2003/07/28/cx_dd_0728mondaymatch.html):

2/3 of ‘Forbes 400 members’ have college degrees while 1/3 does not. The average net worth for these Forbes 400 members was about $2.2 billion.

However, the number of people over 25 in America WITH bachelor’s degrees was about 25% in 2003. (We’ll assume that the Forbes 400 list is mostly comprised of Americans, or that the 2:1 stats for bachelor’s:no bachelor’s is the same for American billionaires as it is for the Forbes 400.)

**Therefore, bachelor’s degree holders make up only 25% of the population, but 66% of the billionaire population, whereas those without bachelor’s degrees make up 75% of the population, but only 33% of billionaires!**

**This means that it is 6 times more likely that a person with a bachelor’s degree will be a billionaire than a person without a bachelor’s degree.****** ^^
*

That’s a pretty significant difference. The above clearly illustrates that those with bachelor’s degrees are much more likely to be billionaires than those without.

Now, before you also draw the conclusion that obtaining a bachelor’s degree will make you more likely to become a billionaire, we would have to face one other fact: Smart, business-minded people, who I believe are more likely to become billionaires, probably are more likely to complete a bachelor’s degree than dumb, non-business minded people. So, if smart people are, say, 6 times more likely to finish college than dumb people, it should be no surprise that those with bachelor’s degrees are 6 times more likely to become become billionaires.

This may be true, but I suspect that even if people of equal intelligence made up the populations of those with and without college degrees, we would still see college degree holders making up more than their fair share of billionaires.

**Bottom line though: Those with bachelor’s degrees are 6 times more likely to be billionaires than those without college degrees^^ (using the Forbes article data above.) Go education!**

[By the way, even if you’re not interested in being a billionaire, college helps with everyday jobs as well. In the same Forbes article, those with bachelor’s degrees averaged a salary of $52,200 versys $30,400 for those without (during 1997-1999.) That’s a 72% bonus per year for having a college degree!]

*** Here’s how to calculate that from the percentages above. Pretend we have a population of 1000 people and of those 1000, 12 are billionaires (the numbers don’t matter as long as the billionaires are less than the general population.) From the stats above, 25% of people hold bachelor’s degrees (250 people) and of the 12 billionaires, 8 of them hold bachelor’s degrees. Therefore, bachelor’s degree-holders have a 8 out of 250 chance of being billionaires. 8/250 = 0.032 = 3.2%.

Let’s look at those without bachelor’s degrees: 75% of the population have no bachelor’s degree (750 people) and make up 4 of the 12 (33%) billionaires. Therefore, those without bachelor’s degrees have a 0.005333 = 0.533% chance of being billionaires.

If we take the bachelor’s degree holder probability of being a billionaire and divide it by the probability of a non-bachelor’s degree holder being a billionaire we get this 0.032 / 0.00533 = 6, meaning the bachelor’s degree holders have a 6 times better chance of being billionaires than the non-bachelor’s degree holders.

^^ Thanks to Dean Halford for correcting a faulty conclusion that I drew in an earlier version of this article. The bold, italicized statement assumes that the person with the bachelor’s degree is selected randomly from a pool of people that each have a bachelor’s degree. It also assumes that the person without a bachelor’s degree is selected randomly from a group of people that do NOT hold bachelor’s degrees.

While I agree with your math, I do not agree with the assertion made from it:

“This means that itâ€™s 6 times more likely that a billionaire holds a college degree than not!***”

If the numbers are already a 2/3 1/3 split, then it is really only twice as likely that a billionaire (from the current set of billionaires) holds a college degree.

I would agree that it’s 6 times more likely that a billionaire will be made from someone with a college degree than without, however.

Just wanted to pop the comments cherry on your new blog, and subsequently bathe in the dripping red inteli-goo of your prose. Mmmmmmm……..a loquacious lexicon of literary lucidity.

Remember that alphabet book with all the alterations and the boy hiding on every page? That book was the nuts.

Thanks Dean! I have been corrected. What I should have said is that it is 6 times more likely that a randomly-selected person with a college degree is a billionaire than a randomly-selected person without a college degree. I will correct the article as such.

Dogg I been

lost count

pop that Kris, punch that ho…

Pingback: Forbes magazine is full of it: Go to college to become a billionaire « Words of Ward: Ward's Guide to Personal Finance and Investing