1.
Investment in education
The
cost-benefits in strengthening abilities of persons to be satisfied by
increasing productivity and acquiring knowledge and using it in actualising the
maximum potentials for development is investment in education (Deveraj &
Hebbar, 1999).
Investment
in education is the cost-benefit analysis of expenditure on education to
increase human capital. Improved skills
and knowledge bring high rates of return to investment in human capital. Cost
and benefit analysis in education is carried out through three
assumptions. First, the value of money
is expressed through comparative rates of returns to education. Second, the choice
of individual and social investment in education is determined by the relative
rates of return to alternative forms of education. Third assumption is, in a
result of both the assumptions, future mode of financing is determined by
relative values of rates of returns to levels of education (Francis,
1993).
Education is
considered an important form of investment in human development. Education
improves the quality of life of humans through developing mental abilities,
improving skills and efficiencies in producing useful things. For example an
individual acquires knowledge about electrical energy and develops skills about
making use of that energy and creates an electric generator, which generates
electricity for producing other useful thing. This way peoples’ wants are
satisfied and economic rates of return to education are also increased. According to economists there is much
difference between contribution of education to satisfaction of wants of
educated people and the contribution which skilled and productive workers will
make by producing qualitative and greater quantitative goods (Machlup, 1991).
(Qureshi,
1991) says that investment in education is cost-benefits analysis that people
make in developing their skills and efficiencies and in self-improvement
through schooling and training. Investment in education raises the productivity
of human resources. For example costs in education may be expenditures that
society affords for individuals for their schooling, parents spend on tuition
fee, buying stationery, uniform and pocket money and in other terms time spent
and hard work by individuals are also included in costs on education. Benefits
are of two types; private benefits and social benefits. Private befits are long
lasting earnings, more chances of employability, and longevity. Social rates of
return are increased numbers of productive workers helping improving economy of
society, contribution in planning for future development of society, reduced
rate of population growth, improved standard of hygiene and a source of
educating new generations.
According to
Haq and Haq (1998), social rates of return are highest in investment in primary
education. When national income increases, overall returns at all level of
education decline but rates of return to primary education still gets highest position.
For example in primary education, costs involving money and time are less but
their contribution in increasing income of the society is more, working in
labour markets with literacy, numeracy,
problem solving, knowledge, skills, values and attitudes.
According to
Johnes (1993), some of the features of investment in education are; a) rates of
returns are greatest when the investment in education is made early in life.
For example children are sent to school so that they will start earn earlier and
for a long period of time. b) The lower the cost of marginal unit involve in
human capital the greater will be the investment. c) Returns are greater when
more investment is made in education. This means that those who are fast
learners and expecting high earnings in future will invest more in education.
For example a doctor earns more than a nursing assistant. Thus the doctor tends
to invest more for specialisation in his field keeping higher earning in
future. d) Investment in education will occur so long as the marginal benefits
exceed or equal to the marginal costs.
Education as
investment
Investment means
spending now on something that can be expected to generate an income in future.
Education as investment implies exchange of current income opportunities with
better income chances in future. Human
capital is produced when more resources are used in schooling. If an individual
demands more education in order to increase his/her market value it is better
to do so in early stages of life. He /she benefit from increased earnings
building up from additional human capital for as long as possible (Checchi,
2006).
On the basis of
above small discussion, education as investment can be explained as it is the
investment of previously acquired knowledge, skills and competencies. It is
also investment of cost opportunities which could be gain using existing
knowledge, skills and competencies within the period in which additional
production skills are acquired. In result of such investment, productive skills
are improved and chances of higher earning are increased. For example an
individual after doing his/her B. Ed can be a teacher and earns sufficient
amount of money. Then he/she looks forward after a certain period that earning
after M. Ed may be increased, so he/she spends two more years for increasing
his/her productivity through acquiring in depth knowledge, skills and
competencies. During two years of earning which is known as opportunity costs
is invested for further chance of higher earning.
Earning opportunities
or productivity can also be increased by increasing the knowledge, skills and
competencies within the job through trainings or other techniques of developing
skills. For example conducting a research relevant to the field or getting
training of a new program of computer may also improve the capacities of an
individual. For that purpose an individual invests time, knowledge, skills and
money for improving research skills or learning new program of computer which
brings about a significant change in his earnings. As in the following lines it
is supported by literature.
Job-related training and continuing
education plays a significant role in increasing the stock of knowledge and
skills in today’s rapid changing world. As technology becomes more advanced
each year and new tools are introduced in communication, calculation and
production, acquiring new skills becomes a necessity for increasing the chances
of earnings (Xhaferri and Iqbal, 2008).
Education as consumption
Education provides utility to individuals. Utility is defined as
the application of knowledge, skills and abilities acquired during educational
process by an individual. If individuals use them to fully enjoy life,
appreciate literature and culture, for a short time for getting pleasure,
education is considered as consumption (Johnes, 1993). Consumption is in sense
that investment is made in education for increasing the productivity of
individuals but the education that does not satisfy needs of individuals is
known as consumption. For example an individual who gets a masters degree in
geology (this is a live example I refer to) but can not be able to earn using
that degree and finally any way he gets a job in a bank where he needs to learn
knowledge and skills required in banking which he improves working in the bank.
In this case education in geology is consumption because it gives him only
pleasure of being masters degree holder.
Education
as consumption refers to use of its utility to satisfy wants. Education is also
a private consumption, because people spend on it for acquiring qualifications
and training to fulfill their wants. It is also public consumption, because the
government spends huge amount on the education system. At the moment regular
education is clearly consumption, since individuals spend their earnings and
government spends taxes collected from individuals for future benefits over a
long period of time (Sawada, 2003).
Filmer & Pritchett (1998) is of the view that parents always
demand for quality and quantity in education for productive individuals in
returns to their expenditure on education. Quality in education needs higher
expenditures from learners and from the state which is known as subsidy to
education. For poorer parents it is difficult to spend more on education
because they can not afford the expenses of higher education and also if they
are engaged in earnings they can earn to some extent. While on the other hand
if quality is not focused and quantity is preferred to benefit more students by
increasing enrolments, then children from rich families shift schools. For
children from rich families, basic education supports their higher education,
so they spend on basic education to acquire knowledge and skills. In both the cases children may be drop out.
For example in a private school which is of average level by performance.
Children from poor and rich households join the school for basic education.
After a certain period children from rich parents shift the school for better
quality and the children of poor households leave the school looking at earning
from working out side the school. So in first case shifting the school and in
second case drop outs lead education as consumption.
On the basis of above discussion, a contrast can be shown
between education as investment and education as consumption given in the
following.
In perspective of education as investment, time and money is
spent to increase income through productivity while education as consumption
expenditure is made on education for satisfying the wants of individual and
society.
Knowledge, skills and abilities are used to acquire more
knowledge, skills and abilities in education as investment while knowledge,
skills and abilities are used to enjoy learning in education as consumption.
Education as investment will have its impacts such as generating
income resources on individual and society after a longer period and for a
longer period while impact of education as consumption such as pleasure of
learning is immediate and for a short period of time.
Efficiency rational of education is concerned with the education
as investment while equity rational of education is concerned with education as
consumption. Education is considered to improve efficiencies of the individual
Efficiency rational while education is thought to provide equal distribution of
knowledge, skills and abilities to the individual in equity rational of
education.
References
Checchi, D. (2006). The economics
of education: human capital, family background and inequality. New York: Cambridge university press.
Deveraj, K. V.
& Herbbar, B. G. (1999). Education: Challenges of the twenty-first century. In. K. Ghandi (Ed.), Education
and development, pp. 138-142. New Delhi: Vikas.
Machlup, F. (1991). Issues in the
theory of human capital: education as investment. In. E. A. Qureshi (Ed), development
planning in Pakistan (pp. 431-443). Lahore: Ferozsons.
Sawada,
Y. (2003). Income risks,
gender and human capital investment in a developing country.
University of Tokyo. Retrieved
January31, 2009, from www.e.utokyo. ac.Jp/cirje/ research/dp/2003/2003cf198.pdf.
Xhaferri,
R. & Iqbal, K. (2008, February 24). Tailor made education. Dawn.
Retrieved January 09, from http://www.dawn.com/weekly/education/arch/arch_2009.htm
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