Throughout the world, a lot of people strive to cut their daily expenses in order to save as much as they can and afford to own greater and, often, more expensive things in future. They mostly do this by operating savings accounts with licensed commercial banks, which encourage their customers by rewarding them with interest income from their deposits. Others choose to open stocks accounts with registered brokers in order to own shares of companies listed in the stock exchange. This trend, however, is not very common with college students, as one would expect them to be the forefront in risking their savings in well to do companies with the aim of getting returns for their investments. Our research will try and investigate students’ saving habits and investment preferences. We will also use our findings to establish the relationship between high education and choice of investment plans. We closely examine college students, university undergraduates, graduates and postgraduates and draw our conclusion from the collected data.
Good investment decisions require a certain degree of understanding of the policies, procedures and a detailed account of the returns expected from the invested income (Pride, 2008). It can be assumed that the more individuals acquire knowledge in schools and colleges, the better the chance of making sound investment decisions compared to those with the relatively humble education background. Investment in the stock market requires the thorough analysis of the market trend, company’s performance and its future prospects in order to be sure of good returns. This analysis requires some basic knowledge in the handling of the trade and to a good extent calls for some technical calculation, which might not be available to people with lower levels of education. However, experts believe that there is no clear formula in deciding on the choice of a successful investment plan.
Most information of a company’s ability to succeed cannot be quantified. Despite the fact that measurable aspects such as profits can be accessed, other important parameters such as competitive advantage cannot be known at the time of decision making, as well as some human elements like tastes and confidence in certain trades affect the choice of investment plans. Majority of potential employers believe that hiring individuals with higher levels of education like a postgraduate MBA can increase their turnover. Because the skills learnt in advanced learning if well implemented can change the performance of the company and, hence, increase revenue. Although other parameters like competition from other similar organizations cannot be directly influenced by the level of education, it is notable that relevant skills, just like capital, are core to a successful entrepreneur at any given time.
Curriculums that teach students on investment and entrepreneurial expertise have achieved a lot and continue to help to curb the problem of unemployment since some students learn to invest at relatively younger age. They are also equipped with the basic knowledge, as well as skills needed. The differences in the range of education, however, do not necessarily indicate the ability to save more or to invest more when it comes to the stock markets.
Problem Statement and Justification
The study examines the relationship between saving habits and the levels of education. We closely monitor the amount saved by students in colleges pursuing college diplomas, university undergraduate and postgraduate MBA students. The main objective of our study is establishing whether there exists a relationship between the levels of education and investments. The study also covers the impact of postgraduate MBA degree on company’s success. To achieve this, the following study objectives were outlined to help to determine whether the relationship existed or not.
Does the level of education determine the quality and magnitude of investments?
Do post graduate MBA students add value to company’s investments?
The level of education is a negligible determinant on the choice of saving and investments.
According to Catanese (2010), one of the main reasons why people invest in the stock markets is to earn more income. All types of investments are geared towards good returns and stock markets can be a good bet. When the value of stocks goes up, it means that both the profitability and the reputation of a company go up and the value of the shares appreciates. The profits for the listed companies are paid to the company shareholders in the form of dividends. The potential of the stock market is limitless, and wise investments are much more likely to produce amazing returns to the investors (Pratt, 2011). Stock markets also give the investors a quality savings plan for their money. Experts argue that it is more advisable to invest in the stock markets than let the money lie in bank accounts, which offer low interests compared to the returns of well-performing companies (Berkley, 2007). In the real sense, banks use the customer savings to invest in the stock market and reap huge returns.
According to Stimes (2008) stock markets investments also contribute to individual creativity and, therefore, open him or her to a world of diverse investment opportunities that contribute to financial success. Sound investment strategies also serve as collaterals which can be used to secure. It is important to note that when the value of the invested amount accumulates, it is advisable to dispose its value in the stock exchange rather than use it as a security to obtain loan facilities, this is by far less risky and cheaper (Shannon, 2010). This could also mean that those who invest at an early stage in life like from college or at the beginning of their careers have better chances of accumulating their wealth in the stock markets and, therefore, less likely to be prone to the risks of financing loan facilities from lending institutions.
According to Gwartney (2009), there is a global misconception that savings and investments are the reserve for the rich. Many people believe that someone ought to have a lot of money and wealth to be able to invest in the stock markets or in the real estates. This has been viewed as misguiding, especially to young investors who may be still in school. The truth is that saving as little as a dollar per week makes an individual develop a habit to put aside some money for future use until it reaches a point to invest in an income generating project (White, 2003).
Education by itself is an expensive investment and good returns are also expected after graduation. It is, therefore, important that educated people be on the forefront in the innovation of investment opportunities and wise choice for investment decisions. The Society also expects them to be the drivers and the managers of the economy (Diamond, 2005). If they were rich in ideas that are necessary for the growth of the economy within and beyond their country’s borders, they should be better risk-takers insensitive, yet profitable sectors of the economy, but this is not the case. Well educated and experienced individuals concentrate much on their career development and shun away from becoming innovative and adventurous. For that reason, their main focus is to rise on the social hierarchy in organizations without focusing on the possibility of using their knowledge, skills and experience to become millionaires (Damodaran, 2002). With limited knowledge, some individuals risk investing their money in stock markets and other investment opportunities, which in the end results to great returns on their initial investments. This does not mean that well-educated people do not invest wisely, but it suggests that the skills and knowledge gained may contribute to a certain degree of fear that may discourage them from taking part in risky businesses. Many companies around the world are owned by risk takers rather than very educated class (Neil, 2000). Their education is only utilized by the way of employment, but they can never be millionaires.
We chose to use questionnaires in our study. We visited three colleges, two state universities, one private university and did a fieldwork in companies which employ university graduate and postgraduate MBA students. We had a rough estimate of their earnings based on their levels of education. The questionnaires were simple; the respondents provided their names, levels of education, whether they had invested in the stock market, their percentage of monthly savings relative to their net income, and, lastly, the time they started saving and investing in the stock market. We chose to use the same number of respondents (thirty in each chosen category) so as draw thorough conclusions of our study. We then calculated the percentage of those who operated saving accounts with financial institutions, as well the percentage of those who had invested in the stock markets. The percentage savings was calculated by the actual standing orders to saving accounts or the close estimate of the total money in the savings account divided by the duration of the saving plan. Based on our results, we came up with conclusions of our study.
The results of our study supported our hypothesis that the level of education is a negligible determinant on the choice of saving and investments. From the results of the study, it is notable that at almost every level of education, the students had already understood the need to save and invest part of their savings in the stock exchange markets, parameters such as the actual amount of money saved or invested were irrelevant, since their income was diverse. Investments in terms of volumes were witnessed by those with post-graduate MBA degrees, but it is arguable that they receive higher income than other groups under study and, therefore, can afford to buy more shares in the stock market (Pratt, 2011). Postgraduate students also posted the highest number of the individuals who operated saving accounts; the explanation to this is partly their relatively higher income and also other social considerations. Saving habits among other things are influenced by age, as most people with MBA are mature people and majority of them have own families.
Investing in terms of children’s education and healthcare is paramount to most of them, and for that reason, all of them operated at least one saving account. Personal savings in all groups of study registered a high margin, explaining that most students realize the benefits of saving at an early age. The trend increases when they graduate and get employed. Jobs enable them to increase their magnitude of savings, as well as the percentage of their savings relative to their earnings (Shannon, 2010). When it comes to investment in the stock markets, it is clear that all of groups under study do not put it as a preference to risk their money in the stock exchange markets. There is no notable sequence or trend in the behavior of the groups under study and this means that investments in the stock market are purely a personal choice.
A probable explanation to this behavior is the fear of fall in the value of the shares in the stock market. At these levels of education, almost every one can understand the business which takes place in the stock market and the risks involved. The emotions that lead to loses in the case the value of their investments depreciates might contribute to the groups shying away from investing their hard earned money into the stock exchange. At a closer look on the postgraduate people, they registered a higher percentage compared to other groups. A possible explanation is that with their level of education and better financial position, the risk factor is less likely to affect their choice of investments plan. Again, the age factor comes in because they are more likely to be keen on retirement plans than the younger college students and undergraduates. When it came to the percentages of the investment money and savings in relation to their net income, again, there was no standard trend noticed, as one would expect the higher paid postgraduate person to score very high when compared with a college undergraduate, but this was not the case. The frequency and magnitude of saving when related to total earning do not differ by a big margin. The reason behind this could be that the higher the income, the higher is the expenditure, the students will strive to miss some entertainment joints and go for cheaper ones to save some money when the higher earning postgraduate MBA person flies to a posh beach holiday. But as expected, the value of his savings and investments are surely higher in comparison to the rest of the groups under study.
After graduating and securing a job, it is good to note the increase in the percentage of both the savings and the trend to invest more in the stock exchange market. This gives us a hint that the increase of the net income consequently leads to the increase in the ratio of earnings to savings. However, the increase would be expected to be higher, but a possible explanation to this trend is the excitement generated from the transition of a classroom environment to that of a paid job. This might contribute to a general overspending, but with time, the percentage is likely to increase owing to a likelihood of a higher sense of responsibility that matures with time
Our study was successful we accomplished the scope of our hypothesis which suggested that there was no correlation between the levels of education and saving habits. We were able to choose carefully individuals with diverse educational backgrounds and from the results we got, we were able to come up with some conclusions. One is that it is the level of income that determines the amount of investment one can make at any given time. Most students are aware of the existence of potential of investing in the stock markets, but still their numbers do not correspond to the expected. It would be right to assume that the individuals who posses MBA would score very high when it comes to investing in the stock markets, but the study established this is only a notion.
Similarly, we would not expect younger students to be on the forefront when it comes to savings and investments. The study was able to establish that a great number of students take their time to think of potential opportunities in the buying and selling of shares in the stock markets. This is also a good indication that the education structures teach their students the basics of saving for the future and, perhaps, probable investment opportunities, in this case, categorically examined stock markets. This study has also noted that age is the determinant when it comes to saving habits. The majority of the studied group who had MBA was above thirty years and showed very serious savings and investment minds owing to the fact that they had families, and the need to balance between their expenditures and the future welfare of their families was inevitable.
The study established that there was no correlation between higher education and investments and sound saving plans. The study notes that whereas a good educational background is a guarantee of a good job with a better income the ratio of the income to the amount dedicated to savings and investments wants (White, 2003). We would recommend the curriculum to be revised to include wide explanations, suggestions and training of young people to save at an early age, develop that habit and also on the various avenues of investing money and expect great returns on their hard-earned money. Even though stock market was our main area of study, other investment opportunities like investment in treasury bills and estates should be addressed by the young investors.
The notion that only rich people can be in a position to amass wealth through buying of properties can be eliminated, for instance, most listed companies split their shares to very affordable prices that majority of the people can afford. It is also advisable for groups to merge and, with enough savings they can command quite a big purchase of property. The study also recommends the diversification of investments with the aim of reducing the risks that come when companies undergo receivership. Diversification reduces fear of investments and, since there is no investments that do not come with risks, the only way to overcome this fear is by trying, but careful analysis and choice of investment plan should be conducted before the final decision. People with good educational background should lead by example, and, therefore, there is a need for them to focus also on educating the less privileged academically. Such information would be of enormous help to them.