Most young people today don’t earn enough money. Many don’t even have jobs and growing numbers are moving back home with their parents. At first glance it seems as if our hard work from elementary school through college is being unfairly compensated. When you look closer though, you might realize that we are being taught an important lesson. No matter how hard we study in school, or how much we know, our salaries are only based on the needs and values of the market.
When I was in college, I was a great student. It didn’t take me long to realize that I could go far in the profession of Accounting, and I assumed that meant I would be rich. The salaries in my profession were growing by double-digits for most people. I also heard that many would earn double their starting salary within five years and concluded that I could do it too. Does this sound familiar?
I wasn’t exaggerating my academic performance relative to my peers. I graduated cum laude from the University of Missouri-Kansas City with my bachelors’ degree, and gained admission to the University of Texas-Austin which is usually ranked #2 in my profession when not #1. I was among the cream of the crop (at least on paper) and therefore expected to have a Mercedes E-Class after three years or so. Even salary statistics published every year backed me up; by the time I graduated from UT-Austin, I had convinced myself that I was “worth” the dollar amounts I had read.
Of course, this wasn’t true – but I had no reason at the time to question my mindset. Those people making big money were no better than me, right? Right, but they were luckier.
Lesson: The Market Place Determines Your Salary
In the fall of 2008, the economy fell apart. I wasn’t surprised, because I was advised the year before that something like it would happen. Because of this advice, I had borrowed as much money as I would need for a year and saved it. What I didn’t think about is that this same economy is the context that determines my salary. When the “cash crunch” came, it brought a “salary crunch” and “hiring crunch” with it.
My first raise at Deloitte & Touche Llp in 2009 was not a double-digit number as had been the norm up until two years before. The economy had contracted, and firms were not making as much money as they were used to. The market value of my work, talent, and education was therefore much lower. By the time I left Deloitte in 2011, the firm had done enough restructuring to provide raises above 5%, but not much more. Overall though, salaries and job opportunities for Accountants in the market place had not yet returned to pre-recession numbers. Salaries are still far behind the cost of living for most people.
This sounds like common sense, but the Occupy Wall Street folks clearly don’t know it. It is the reality of a “market” economy, and I have some advice for you on how to deal with it.
What You Can Do To Protect Yourself
First, select a major or career that you are interested in – not the one whose salary you like most. Don’t pick something you just happen to be good at; make sure you actually like it. What ultimately saved me is that I initially decided to pursue Accounting without knowing the earning potential that came with it. I am passionate about the role of the profession in the world of business, and easily re-focused on that.
The second thing you should do is be skeptical about the past and the present. Take statistics with a grain of salt, especially those about salaries, salary growth, and job growth. Never forget that “past performance does not predict future results”. If you want to know whether a career is a long-term fit for you, it’s most useful to look at non-financial data. For example, did you know that almost half of Doctors regret going to medical school? (Tell me in the comments.)
The third and most important thing is business knowledge. Try to learn as much as possible about the things that drive revenues for employers in your profession – this is mandatory if you knew about salaries and job growth before choosing a profession. For example, about the time when Rapper 50 Cent (Curtis Jackson) got signed to Interscope Records, he learned that album sales were slowly being wiped out by online downloads. With this knowledge, he took action. He committed to developing other revenue sources so as not to rely on album sales for income (source: The 50th Law by Robert Greene). Rumor has it that he gave up all rights to income from album sales to his employer, in exchange for a $1M advance and the rights to 100% of the income from his live performances.
You Don’t Need To Change Careers or Majors!
The reason for doing these things is not to change your career. Rather, it is to arm yourself with realistic financial expectations. I call it a “Market Orientation” (first mentioned here) because it forces you to step outside yourself and see yourself the way that employers and customers will see you. Remember that it is they who directly or indirectly determine how much you can earn.
You don’t have to spend your career feeling miserable about how much you make or wondering why others earn (or earned) more. These lessons will help you stay sane. I learned them, and hope you do too.
Have you learned anything else from you student loans and/or the recession? Please comment on the statistic I gave about doctors – shocking isn’t it?