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Whether Education an Investment or Consumption

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Globalisation has led to a considerable growth of the economic importance of knowledge. Knowledge is a resource which has become a decisive factor in economy and developmental policy. The generation and propagation of knowledge holds a key position for economic and cultural development in industrialized as well as in developing countries. There is growing demand for academically trained experts in such knowledge driven economics and societies. As a result therefore, education has emerged as an industry and investment in education is considered as the much lucrative business. Realizing this importance, government of India has made educational planning a constituent of the total planning process. It has even made handsome allocations for this purpose. the first five year plan (1951-56) made an allocation of Rs. 169 cores of the total plan outlay towards education. The allocation was an allocation of Rs. 169 cores of the total plan outlay towards education. The allocation was stepped up substantially during the third five year plan to Rs. 589 crores and in the sixth five year plan it had increased to 2,524 crores. In the eleventh FYP (2007-12), central government envisages an outlay of about Rs. 2.70 lakh crore at current price (Rs. 2.37 lakh crore) for education. This reflects the high priority being given to the education sector by the central government and represents a creditable progress towards raising the public spending of the centre and the states combined to 6% of GDP. But the question arises.

Goods and services are divided into two categories: those from which consumers derive immediate benefit called consumption, those which are used in production to produce after a long term called investment.

Education is both consumption as well as an investment. As a consumption, it accounts for national development. Sometimes it is regarded as consumption in so far as it is desired for its own sake or in the sense that it is considered to be rewarding and intellectually stimulating in itself. The consumption aspect has also been treated by analyzing the amount spent per head of population, or per student. As an investment its returns are compounded in the form of developed personalities, thought, behavior and resourceful citizens in the society. Education is 100% investment with huge returns and massive growth in human resources. Education yields knowledge, job, money and happiness and the most wanted peace. It is permanent property which can’t be stolen and is always productive. Education can be passed over the next generation, making them knowledgeable, disciplined and a perfect human being and thus it is an investment and not an expense.

In the words of Ellea Kyleal, ‘No investment is more productive than in education and training.’ Three factors are responsible for considering educations as an investment as mentioned below:

At one time education was considered an instrument only for promoting individual’s self-improvement and his social relations. The thinking of ‘education for education sake’ is fast changing. In the present age of maximizing the application of science and technology it has been increasingly realized that one needs to be educated not only to become a better man and a better social being, but he should also be a better creative and productive being In the words of Arn Rand, ‘The only purpose of education is to teach a student how to live his life by developing his mind and equipping him to deal with reality. The training he needs is theoretical, i.e. conceptual. He has to be taught to think, to understand, to integrate, to prove. He has to be taught the essentials of the knowledge discovered in the past and he has to be equipped to acquire further knowledge by his own effort. This is education’s economic role.

An important motivation for individuals to invest in education is that the acquired knowledge and skills tend to raise their productivity and hence earning potential. Education appears to provide not only and initial earning advantage but also a wage premium that increases with time spent in the labour market. Education is not only productive of economic welfare but also has psychic and moral value and is necessary for cultural satisfaction. S. Kuznets says, ‘capital formation; should be broadened to include investment in health, education and training of the population itself, that the population itself, that is investment in human being.’ Dr. Ellea Kyleal avers, ‘From the stand-point of economic development three factors are of basic importance: natural resources, physical capital and human resources.

A Positive correlation between educational system and per capita income is therefore, irrefutable. A large number of studies have conclusively proved that by fat the major factor in economic growth is not natural resources, physical capital and human resources but the residual factors life organization, inventiveness and education. Better organizational skill and sharp inventiveness are the direct results of education.

In a way education is considered as an industry, which absorbs material and human resources. The education industry consists of schools, colleges, universities and various private institutions. The ‘inputs’ are teachers; buildings etc. and ‘outputs’ are students. It not only serves to diffuse the existing stock of knowledge but also acts to increase that stock of human capabilities. There are several modes of acquiring human capabilities, such as education and training.

This includes primary and secondary education. Primary or elementary is the first years of formal education generally beginning when children are four to seven years of age. Primary education aims to provide literacy and numeracy skills, and foundations in other subjects. Secondary education follows after this.

This includes students following tertiary education abroad or people purchasing online distance learning from abroad, and can be distinguished from tertiary education provided domestically.

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Studies have proved that average income figures of persons who have more education are higher than the persons who have less education. Education enables people purchase it (or participate in it) to derive a future stream of benefits, whether in sense of income benefits from jobs that they may acquire by virtue of their education or whether in sense that society, by providing education, enables educated members of the labour force to add to society’s output of goods and services in the future.

A nation’s level of output is greatly influenced by its policies concerning the education of its people. Educational policy explains most of a country’s GNP per capita and high proportion of country’s economic growth rate.

Education promotes technical change in various ways ranging from the undertaking of research to adding up the existing knowledge, values, skills and attitudes of the work force.

Education leads to faster economic growth and also plays a role in reducing proverty. The relationship between economic growth and education was also addressed by Adam Smith and Alfred Marshall, two important figures for the economics profession. They pointed out that how investments in ‘education’ influences the ‘wealth of nations’.

Literacy is not education, for literacy to become education there must be adequate and proper utilization of literacy so that it can contribute to economic development. Investment in education has led to develop will of the people to gear literacy for the promotion of economic development.

In the process of economic development, the labour force is equipped with the necessary technical skills for modern industrial production with help of education. Thus education increases in the chances of gainful employment by providing requisite skills for sophisticated occupations.

After decades of high growth, the population growth rate in our country has stated declining. During the decade of 70’s the growth rate of population had reached a peak of 2 percent perannum which has declined to 1.50 percent during the period of 2006-2011 due to spread of education.

In educated societies, the families are planned, people manage their resources through savings, contributes the social and national welfare through bringing change in their attitude and by shedding orthodoxy, superstitions and narrow outlook.

Education creates awakened mind, through right knowledge, appropriate skills and desirable attitudes. It is through education that the constructive urges of man are aroused. Thus, education creates awareness for rights and duties to make an individual an enlightened citizen.

Education brings about a change in the individual, promoting greater productivity, modern attitudes, values and beliefs, about work and quality of life, thus, improving their standard of living.

Education is not only considered as an instrument for promoting individual’s self-improvement and his social relations but, education is also considered as human capital and industry as both investment as well as consumption. As consumption, it accounts for national development and as an investment education returns are compounded in from of developed personalities, thought and behavior of citizens in the society.

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Whether Education an Investment or Consumption. (2022, September 15). Edubirdie. Retrieved February 6, 2023, from
“Whether Education an Investment or Consumption.” Edubirdie, 15 Sept. 2022,
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