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Nicole Mun Sim Lai Monash University Sunway Campus

Transition to Financial Independence of the Youth in Asian countries : is there a pay-off to extended education ?. Nicole Mun Sim Lai Monash University Sunway Campus.

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Nicole Mun Sim Lai Monash University Sunway Campus

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  1. Transition to Financial Independence of the Youth in Asian countries: is there a pay-off to extended education? Nicole MunSim Lai Monash University Sunway Campus

  2. As the number of college students in Asia has risen twelve-fold, from 3.9 million in 1970 to 46.7 million in 2007, it appears that college education, once viewed as a luxury, may now be a necessity if one wishes to have high earnings (UNESCO 2009).

  3. Human Capital Spending Around the World Public education plays a larger role in Europe , USA & some Latin America

  4. Human Capital Spending Around the World Private education is more important in Asia

  5. The high education investment may delay individuals from joining the workforce and ultimately increase the economic dependency (economic lifecycle deficits) of the young

  6. When do the young produce more than they consume? Does furthering one’s higher education pay?

  7. Method National Transfer Accounts www.ntaccounts.org Comprehensive estimates on consumption, production, transfers and asset reallocations by age structure Provides research opportunities to examine the economic allocations over the lifecycle and assess the associated policy implications

  8. Mean Private Consumption & Mean Labor Income

  9. Mean Private Consumption & Mean Labor Income Financial Independence YL>PC

  10. Mean Total Consumption & Mean Labor Income Adding Public Consumption Total Consumption

  11. Mean Private Consumption & Mean Labor Income Full Economic Self-Sufficiency YL>TC Total Consumption

  12. Factors Affecting the Timing • labor income • capital income • saving rates • college enrollment size • short-term economic fluctuations • public policy • support ratios

  13. Financial Independence Around the World In most countries, young adults are financially independent between 23 and 25 years old Young adults in Austria, China, and Sweden become financially independent at earlier ages (19–21 years old)

  14. Financial Independence Around the World The young in Nigeria, Mexico, and Indonesia become financially independent at a very late age (between 27 and 33 years old)

  15. Full Economic Self-Sufficiency In most countries, young adults reach full economic self-sufficiency between 25 and 27 years old.

  16. When do the young produce more than they consume? Does furthering one’s higher education pay?

  17. Returns to Higher Education Stylized Facts • global returns to education yield about 10% per schooling year • returns for females are higher than for males • general academic streams pay more than vocational streams • professional fields pay more than humanities • return is more prominent in low and middle-income countries than in high-income countries

  18. Mean Labor Income by Level of Education (index base=100 for upper secondary) Source: Patrinos HA & Psacharopoulos G, 2010

  19. Mean Labor Income by Level of Education (index base=100 for upper secondary) Human capital is still scarce in Latin America and Asia (except Korea and Japan) relative to OECD countries.

  20. Comparing Returns Over Time • Republic of China experiences diminishing returns to higher education • China is going through the stage of increasing returns to higher education

  21. Comparing Mean Labor Income by Gender & by Areas

  22. both men and women have higher earnings when they have higher educational levels • in rural areas, basic education (primary & junior high) is more important than the tertiary education level to the income levels • In urban regions, the returns are highest at the tertiary educational level

  23. The returns at the tertiary level are similar for males and females in China, as opposed to the general trend of higher returns for males in other countries

  24. Conclusions • We would expect to see an early financial independence age in low-income economies where entry into the labor force occurs at an early age • However, the financial independence age is quite similar across countries • It shows that although the young are working in low income economies, their labor income tends to be very small

  25. Low Income Economies • Furthermore, the young are a large portion of the population in low income economies. • This raises an important policy concern about whether or not the young workforce is underproductive, underpaid, or under qualified. • Human capital investment continues to be important to increase their productivity and the economic growth

  26. High Income Economies-Aging • Increase of the economic dependency of the young presents an important concern to countries that are and will be experiencing labor shortages and slowing labor force growthdue to the aging of their populations • It poses a challenge to policy makers who must design and implement a sustainable system to reallocate resources from surplus producers to dependent groups in the economy and to reduce the dependency rates.

  27. Middle Income Economies • The tremendous increase of skilled labor is also a challenge to create job opportunities and prevent brain drain for middle-income countries (e.g. Malaysia &Thailand)

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