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Investment in University education
Cost of University education
Benefits of University education
The internal rate of return
Do many people invest in education in Russia?

Sources of information

Many people, especially school-leavers think a lot about whether to obtain a University education or go to work as soon as possible. One of the main determinants in this problem is the cost of studying in the High school. These costs are costs of preparation before the entrance exam, costs of studying itself and opportunity costs of the time, that a person sacrifice to study, but could have spent on the work. People investing in education now desire that this investment will be paid off in the future in terms higher earnings, better employment opportunities and so on. In this essay, I will try to determine the cost of studying in the University, I will also use my experience, I will try to determine the benefits that I and others will obtain from studying in the High school, we will familiarize with some common approaches and opinion about measuring of the returns from investment in education, and I will try to show the tendencies in Russia.

Investment in University education
Costs of education
For an individual or his family undertaking a university degree, there are a number of costs to face:
• cost of education fees (e.g. for my family as I am a student of IBS an annual fee is RUR 90,000);
• cost of housing due to education (if a person, as I am, is not a citizen of the city where the University is located, he has to pay for housing. On average if a person is renting a flat during the period of education in Moscow, it costs him or his family RUR 25,000 monthly; so, annually it equals RUR 300,000;
• cost of transport, books, etc. ( For me everyday cost of transport is: 2 times by metro RUR 38 and 2 times by bus RUR 50; so annually RUR 21,120. Costs of books vary, but on average it is about RUR 2,000-3,000 annually);
• and opportunity cost of my studying it is a time that I might have spent on the work (without high education it could be about RUR 25000 a month, so annually RUR 300,000).
So annually for my family cost of my studying at IBS is RUR 716,320 a year. It is a huge figure. But I hope it will be paid off in future.

Benefits of education
Education can benefit individuals in three different ways. Firstly, people are more likely to participate in the labor market; secondly, education means that individuals are likely to experience less unemployment and, finally, higher skills means that workers earn, on average, higher wages than those with lower skills. We review now each of these benefits in turn.
• Education and labor market participation
Participation in the labor market is closely related to education. The higher an individual’s education level, the more likely it is that he or she will participate in the labor market.
• Education and employment
The likelihood of being unemployed over the course of a working life is also related to education. Research by the OECD (1997) found that in some cases the percentage of the least-educated men who are outside work at the prime of life is disturbingly high: at least 30 per cent of those aged 30-44 without upper secondary education are outside employment in the United States and the United Kingdom.
• Education and wages
Education does not only increase the probability of being employed. Once in employment, better-educated individuals earn considerably more than their less-educated peers. From an economic point of view this is an unsurprising result and has been substantiated by numerous studies.

Moreover, in Russia and in the majority of countries University education gives a person a number of intangible social and mental benefits:
1) As a rule having a University education in Russia gives a person an opportunity to be appreciated in the society, to be somehow a part of the upper intelligent part of the society.
2) Another advantage is the mental advantage that each individual obtains from educating in the Universities – the ability to achieve goals, to overcome difficulties and obtaining an ability to create own opinion and be sure of it and responsible for it. These abilities cannot be measured in money terms, but these abilities will help the person to be successful in the whole life and in every activity, not only in the market.
Unfortunately I have to say that these special benefits apply only to the alumnus who graduated from the Universities honestly using only their own potential, brain and will.

The internal rate of return
So far, we have seen how education can be beneficial for individuals. However, this widespread recognition of the benefits of education and other forms of learning does not mean that investment in human capital should be undertaken indiscriminately. In an economy with finite resources, it is important to know which forms of investment produce the best value for money. The complete picture of the costs and benefits of education can be obtained by calculating the internal rate of return of education.
How to estimate net benefits arising from education
The internal rate of return is an accounting method that permits a comparison of returns across different assets. The marginal effects of education on earnings can be used to estimate the benefits of undertaking education. The stream of investment needed to achieve that education constitutes the costs. To calculate the economic return, the discounted cost of investments is examined alongside the discounted value of future benefits. The rate of return is the interest rate that makes the net present value of all cash flow (of benefits and costs) equal to zero. For an individual, the internal rate of return of education is the annual rate of return that his investment in education will yield. In calculating the various rates of return, one needs to differentiate the benefits and costs.
Some estimates of social rates of return show that, on average, one additional year of education yields a global average rate of return of around 10% which compares very favorably with alternative investments. For Europe, finds an average private rate of return of 9.75%.
The rate of return can be expressed formally as:

where Ct are the costs during year t of undertaking an education requiring n years of education; Bt are the benefit flows obtained during the m-n years in the work force (m being the retirement age).

Do many people invest in education in Russia?
Nowadays there are a lot of High education institutes (>1000) in Russia. According to researches about 80% percent of Russians think that education is an investment that is worth to spend. The reason of High education be profitable in Russia is the developing russian economy: a lot of new companies are appearing, a lot of new foreign companies come to the russian market, a lot of new vacancies are appearing in Russia and on the other hand there is a very small amount of highly qualified professionals in each branch. And people in Russia prefer to invest in Education. It is well known in Russian society that without High education it is very difficult to find well-paid job, be confident in the employment opportunities, and have position in the society. That is why in there a lot of cases when a person is going to the University not for the knowledge but for the diploma. This tendency created a negative situation with a big number of bed universities or opportunities of getting diplomas of good Universities using corruption. This tendency is the reason of the lack of supply of highly professional people in Russia. So in my opinion, it is very efficient in Russia to invest in education for person who can find a competitive and prospective specialization and who is able to work a lot in order to become competitive and expansive on the Russian labour market.

A large number of researches accumulated over decades, has firmly established that education delivers a variety of benefits for a person.
Individuals profit from investment in education through higher wages. No less important are the lower probability of unemployment and higher rates of labor force participation for more highly educated individuals. Higher education provides a person a better position in the society. Especially in Russia high education is very important thing, because the market in Russia is developing very fast and companies are looking for the good young professionals.
We have found out that investing in the High education is an expensive thing with a lot of costs required. But according to statistics and experience of Russian economy and economies of different countries this investment is highly profitable. A commonly used measure to determine whether investment in education, or in any other project, is worthwhile is the internal rate of return. This measure compares the current and future value of costs and benefits arising from education. Some estimates of social rates of return show that, on average, one additional year of education yields a global average rate of return of around 10% which compares very favorably with alternative investments.

2. Web site at www.policyalternatives.ca
3. Web site Wikipedia.org

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