That’s a good question and I’ve answered it more moderately in the past but recently a concept clicked in my brain and it sort of exploded like some kind of a skull grenade that left my brain matter all over my skull for me to try and piece back together over time. Ugghhh…

I’ll get to the point.

According to the Washington Post a 1 point increase in your GPA is the equivalent of 12-14% increase in your future yearly earnings.

For an average 55k salary, that’s $7,700 a year.

Added up over a 43 year career, $331,100 over your lifetime…

That’s a pretty big number. It’s like you’re getting an extra new home in your lifetime. Or it could be used to take an extra couple vacations every year. That’s pretty cool.

But… (And I’ll go over objections later, I want to make a different point first.)

The most recommended use of that money probably isn’t sitting in a bank account waiting for you to spend it on your new home or vacation.

Most financial planners would be screaming at you saying – “INVEST IT.”

Now… Let’s assume you do invest it.

The S&P has a 12% return a year over the last 30 years. That means, most folks expect the money you invest into it to give you 12% more than you had the previous year. (It’s not that simple but again, I’m skipping some potential objections.)

Lets say you invested that extra $7,700 into the S&P and got the expected return over your 43 year career. How much would that add up to?

$111,879,078

That’s a hundred million dollars.

That’s a big impact from a 1 point increase in your GPA and it’s not completely unreasonable. It just requires a few assumptions.

One of the big ones – you need to use your money in a smart way when you actually start getting it.

Most folks get their bigger salary and just spend it all on luxuries to make their life a tiny bit better. They don’t invest 12-14% of their salary. They’re too busy buying vacations and homes.

So… is a 1 point GPA increase really worth an extra hundred million?

Probably not – unless you’re committed to making smart decisions. And quite frankly, I think that hundred million is an underestimate of what many people are capable of. It’s just a matter of doing it.

(A lawyer doing this same thing could double that 55k salary assumption and put twice that 7,700 away.)

Objections To My Point

Are you feeling motivated to improve your GPA?

Then I suggest you ignore the following section. This section will only reduce that motivation unnecessarily. It can add some depth to your understanding but depth is only as good as the results it helps you produce.

If you don’t believe my numbers then this section will give you more ammo to fire at it.

The 12-14% yearly earnings increase is debatable. Is it the GPA increase that matters or is it the extra schooling that people with higher GPA’s tend to get.

That extra schooling costs extra money – how would that cut into the extra earnings? It could cost more than that.

The extra schooling costs time to. The longer the degree takes, the less time you have to work through your career meaning less earnings.

55k is a rounding down of the average US salary. Average isn’t a great representation because insanely high salaries drag this number up. The median household income in the US is around 59k. Considering that includes multiple people, 55k might be an unreasonable expectation.

A 43 year career? That’s assuming you keep a job for 43 years without ever taking a break. Eeek.

A 12% S&P return – that’s inflated despite being used all the time by financial “gurus.” More importantly, when you withdraw the money makes a big difference.

If the economy is good, you’ll withdraw more. If the economy is bad, uh oh. That’s why people diversify.

Very few people think in this kind of a way – they don’t see the alternative scenario where they would have made 12-14% less. They don’t allocate that money to investing. They just live their life like normal people. That means… this probably doesn’t happen.

So… why do I bring up this subject at all, if I have so many objections to the methodology?

1. Why not? It was fun to think about and I think it’s a fun concept to think about.
2. Life is about making good decisions. The reality is, no matter what numbers I used, it would have been debatable. I might as well use the same standard numbers people use while putting them in a smart decision context.

If you’re smart, you can create huge changes like the one I described. It’s certainly not this simple but people do it.

And I think more people thinking about how they can make their future better is a very very good thing.