Does It Pay to Spend on Learning?

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Education has always seemed like a risky investment. Enrolling in or funding learning and training–whether academic, technical or corporate–often requires a substantial amount of time and money up front without guarantee of a return on investment. And, because education is tied to a slew of intangibles, such as self-confidence, critical thinking and social capital, calculating that ROI can prove difficult. It isn’t easy to measure networking opportunities, for example. Of course, the most common way to calculate ROI is through net profit. If we compare the cost of education and training to the financial loss without it, does the investment in education deliver returns?

Taking on debt: the college example

In 2012, at the University of Colorado Boulder’s commencement, several newly graduated students asked this very question. These students decorated their hats with dollar amounts, as high as $47K or $31K, which represented the debt that they had accrued over four years and signaled a growing skepticism about the cost of a college degree. The upfront cost of their degree–one that they would have to pay back for years to come–didn’t seem to measure up to the pomp and circumstance.

Indeed, this issue has become so pressing of late that the White House recently announced an initiative to slash student-loan debt payments. Yet even with such programs, the cost of higher education can still feel too costly and uncertain of a return for many students.

Corporate training: the business example

The issue of the high cost of education is not restricted to young people in college, however; often, business too face tough choices when it comes to providing employee training and corporate learning. For example, in 2007, Circuit City questioned the cost of having experienced employees on hand. The company decided to fire more than three thousand seasoned salespeople, replacing them with newer employees who would work for less. Upon announcing the decision, Circuit City’s stock rose 35 cents, or 1.9 percent, and the company saved untold payroll costs. The choice seemed like a good one, at least momentarily.

The end (usually) justifies the means

While college and employee training can certainly carry a high price tag, the alternative–not investing in education at all–can often result in even more costly consequences. Without a college degree, for example, students will not only have fewer career options but will also earn less money over time, reports Federal Reserve Bank of New York economists Jaison Abel and Richard Deitz. According to their report, the average college graduate earns 75% more than those who only finished high school. Despite rising tuition costs and increasing debt, college continues to be a good investment for the average student.

In Circuit City’s case, what looked like an easy way to cut costs quickly went sour. Firing knowledgeable employees resulted in a massive drop in sales and, ultimately, bankruptcy. James Surowiecki summed up the company’s regretful decision in a 2012 New Yorker article, writing, “In retail stinting on employees doesn’t actually save you money. It just gets you less for less.” What’s more interesting is Surowiecki’s claim that the opposite is true, too: companies will see a greater return on sales the more they invest in employee training and well-being. He uses Costco, Trader Joe’s, QuikTrip and Mercadona as examples. On the whole, these companies “pay their employees more; they have more full-time workers and more salespeople on the floor; and they invest more in training them.”

Another prime example is Starbucks. Combining onsite training, personal feedback and mentorship, and online learning modules, Starbucks spends a lot of time and money on training its baristas. It even recently announced an innovative new program to provide a free college education to all of its workers. The result? The value of its stock has grown more than a hundredfold since 1992. In Starbucks’ case, investments in employee training are a win, win, win: a win for employees, a win for managers, and a win for stockholders.

Long-term strategy

When it comes to estimating a training program’s ROI, it clearly pays to think long-term. In most cases, the training will eventually pay for itself and then some. Engaging and interactive training offers the highest return, with employees more likely to remember the training material and sidestep costly mistakes. And with companies spending over $70B on employee training in the U.S., it’s important that their content sticks.

But, perhaps more importantly than costs, continued learning has been linked with greater happiness–whether for yourself or your employees. At Inkling, we believe that this conclusion makes sense. Learning ignites an excitement in people to think more and do more, often leading to increased engagement and productivity. After all, investing in education is investing in people, and we think that’s the best investment of all.

Do you agree? Where do you see the future of learning and training going? Let us know in the Comments below!