Sizing Up the College Market

According to the College Board, the cost of tuition at a 4-year public university doubled between 1980 and 2006. The pace of increase is accelerating with a 35% increase in the past 5 years alone. (Source: Economic State of Young America). According to the National Retail Federation, college students are expected to spend about $10.5 Billion gearing up for and attending college this year. But tuition is only a fraction of the story. According to a very cool graphic assembled this spring by Westwood College, just 19% of college student spending goes to tuition. Another 26% goes to to room and board. Where does the rest of the money go? Most goes to consumer goods and services – travel, apparel, textbooks, entertainment and ‘discretionary’. The National Association of College Stores says students spend about $750 in their college store, only $488 of which goes to textbooks and course materials.

However you size it, college, and preparing for college is big business. Department stores like JC Penney and Bed Bath and Beyond each have specific college directed efforts and there are dozens of web businesses like collegepad.com that would love to outfit your dorm. The College Board even offers a handy checklist to make sure you don’t forget the band-aids and Neosporin, much less a bottle opener or DVD player.

It's possible 2009 will see the peak for college spending. Not only has the recession put pressure on decisions about where students apply and attend, it may also alter how they go to school. According to Engage Gen Y, educators, parents and students are taking a hard look at these alternatives to expensive textbooks.

Chegg: Allows students to rent their book for class at a discount of more that 50% and have it delivered to their door. Chegg plants a tree for every book rented.

CourseSmart: Offers digital versions of traditional textbooks from some of the major publishers in the industry.

Textbook Media : Textbooks and study guides provided online through a web-based book reader, offered free to students through sponsorships from national brands.

Flat World Knowledge : An open-source textbook provider that provides online textbooks in a reader to students free of charge. Students pay for premium services.

Beyond text books, as online education becomes more mainstream, the ‘college experience’ itself, as least as I knew it with four years at college living on campus, may become the premium or luxury option, not the default. This summer, my son is taking an online high school ‘health’ course for credit from BYU.edu. If he likes it, it may shape how he thinks about college. And according to Time (July 29, 2009, "Can Community Colleges Save the U.S. Economy?"), community colleges are enjoying record enrollment surges from laid off workers and students looking to save on room and board.

Millennials: The Wealthiest Americans?

I am losing patience with the pronouncements that this is the first generation that expects to be downwardly mobile. The reality is that 18-24 year olds are among the wealthiest people in America. Just don't tell them that, they won't believe it.

According to the Bureau of Labor Statistics, 87.4.3% of 18-24 year old males had wages and salary in 2005. In 2006, households headed by persons 18-24 had earnings before taxes of nearly $29,057, up from just $20,120 in 2003 and up 7.5% 2005-2006 alone. For comparison, U.S. income grew just 1.1% in the same period. What makes these figures even more astonishing is that 18-24 year olds by and large do not have families to support. 43% of 18-24 year olds are college students (National Center for Education Statistics). Less than 10% of 18-24 year old males are married. 50% of 18-24 year men live with their parents, 33% of women live with the parents.

If you think starting salaries are down, you'd be wrong. According to Businessweek (5.19.08), the expected starting salaries of new MBA's exceeds $85K, up steadily every year but one since 2002. Starting salaries offered to undergrad business administration majors increased 7.5% 2006 to 2007. So why the angst? Why do most 18-24 year olds consider themselves poor now and their prospects even poorer?

My personal theory is that Millennials have a different idea of what constitutes a 'necessity' and what constitutes a 'luxury'. My college students consider themselves 'poor', yet nearly all sport ipods with thousands of songs, the latest laptops, expensive footwear, cell phones with $100+ plans. The data bears this out. According to the BLS, 18-24 year olds spend a disproportionate amount of money on virtually every category of spending other than food and housing (see table). Within these categories,they have luxury tastes. For example, Millennials are almost twice as likely as older consumers to purchase imported beers and almost three times as likely to pick up a craft beer.

Marketers are on to this insight, even if the Millennials themselves are not. 18-24 year olds represent a vast market for 'luxury' goods --- we just don't call them luxuries.