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Instead of paying my tuition and expenses for grad school in psychology, my parents have decided to give me $250,000 that I can use however I want. Now I'm wondering whether I'm better off getting a Ph.D. in psychology or using my $250,000 to open a business. What's your take?
-- Anne Kennedy, Los Angeles, Calif.
My take is that your parents have set up a very clever real-life psychology experiment that is forcing you to consider in a much more realistic way what you want to do with your life.
Think of it this way. When the plan was that they would shell out their money for your education, you seemed to have no doubt about what you wanted. You wanted that Ph.D..
But in giving you $250,000, they've turned the tables on you. Now you've got to spend your money for that sheepskin. Funny, isn't it, how you might not be quite as willing to put out your own money for the very same thing that you would gladly take when someone else is paying for it?
Gee, I don't know your parents, but do you think they might be sitting back and casually observing you go through this thought process as if they were watching a lab rat going through a maze?
Look at all the consequences
Seriously, whatever their intention I think they've done you a great service here -- and I don't mean just forking over $250,000.
What they've really done is re-frame the choice you have in a way that forces you to consider what you really truly want. Or, put another way, whether, given a broader choice, whether you might choose something else with the same resources.
I think that's a good way to look not only at the decision you're trying to make here, but many other types of decisions.
Take health care, for instance. Under our present system, I think many people are in a similar situation to the one you were in before your parents turned the tables. Someone else is picking up the tab -- the insurance company, the government, an employer -- so they're not so concerned about how much they pay for specific health services. It's not their nickel.
Introduce a reform like health savings accounts where people are spending their own money, and suddenly people are more attuned to cost vs. benefit.
Shelling out your own money tends to make you focus more on the value you're getting and whether the money, time or resources you're devoting toward a goal are really worth it -- or whether you might do better devoting those resources elsewhere.
It's a similar thought process to what a good investor goes through, namely, looking at various alternatives and sorting them out in terms of what offers the most value.
There's more than just finances behind this
I can't determine that for you, or anyone else for that matter. You could try making this decision on a purely financial basis. You could estimate how much you might earn over your lifetime by starting a business and compare that to the income stream you could generate by becoming a psychologist.
But I don't think that would make sense because there's more to this than finances. We're not just talking a net present value calculation here.
So I think you have to make this decision on the basis of what's important to you.
Is your primary goal to pursue an abiding interest in psychology? If that's what you really want, then it seems to me you don't need to start a business to achieve that goal.
Similarly, if what you're really interested in doing is starting a business, then I don't see why you need the Ph.D. in psychology. The two aren't mutually exclusive. No one says you can't earn a Ph.D. in psychology and then start a business. Or start the business and get the Ph.D. later.
It really comes down to what you want to achieve. Once you home in on that, you can think about the best way of doing it.
So if I were you, I'd put that money someplace where the principal isn't at risk -- say, in a money-market fund -- until I sorted out what I really want to do. Then you can enroll for grad school or start your business, or maybe do something entirely different.
At some point along the way, I think you also ought to thank your parents for giving you the opportunity to make a real decision -- and for obviously having enough faith in you to believe that whatever you decide will ultimately be right for you.
Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World."