In this unit we examined the internal rate of return. We evaluated the example of an entrepreneur investing $5,000 in a machine, and earning an annual revenue of $1,000 over 6 years. But what if you invested that same $5,000 in the bank which was offering 6% interest?
One of my classmates noted that students (e.g., high school age) need to learn this lesson. I think we ALL need to learn this lesson. For example, don’t we all love a good sale? I can buy this beautiful pair of diamond earrings for $1,999.99, which is 30% off the retail price. But I have to put them on my credit card, and take 2 years to pay them off (at which point they will cost me $3,999.99!). Yep, great deal! I’m sure retailers use all sorts of persuasive strategies to lure customers to make inadvisable financial decisions.
With regard to education, students need to comprehend the return on tuition investment (minus the opportunity costs) and the time to horizon to neutralize this investment. I’ve been watching the ads on TV for distance education recently (Phoenix, etc.) – the adult students in those ads portray a hugely busy person who sees the value to working so hard to earn an advanced degree. This emotional appeal (just like jewelry on sale) can make someone through an internal rate of return assessment out the window!
One of my classmates noted that students (e.g., high school age) need to learn this lesson. I think we ALL need to learn this lesson. For example, don’t we all love a good sale? I can buy this beautiful pair of diamond earrings for $1,999.99, which is 30% off the retail price. But I have to put them on my credit card, and take 2 years to pay them off (at which point they will cost me $3,999.99!). Yep, great deal! I’m sure retailers use all sorts of persuasive strategies to lure customers to make inadvisable financial decisions.
With regard to education, students need to comprehend the return on tuition investment (minus the opportunity costs) and the time to horizon to neutralize this investment. I’ve been watching the ads on TV for distance education recently (Phoenix, etc.) – the adult students in those ads portray a hugely busy person who sees the value to working so hard to earn an advanced degree. This emotional appeal (just like jewelry on sale) can make someone through an internal rate of return assessment out the window!
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