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This guest post from Tim Clark is a response to an “Ask the Readers” segment from two weeks ago. Tim is one of the authors of The Prosperous Peasant.

Two Get Rich Slowly readers recently asked whether education is always a good investment. Lisa and Jethro are pondering their futures and wondering whether they should borrow money in order to go back to school.

Both Lisa and Jethro seem to be looking at the decision primarily from a cost/benefit viewpoint: An advanced degree will cost x dollars and require borrowing, but their salaries will rise to x dollars when their new credentials allow them to secure better jobs. Is it worth taking on debt?

GRS readers might benefit from taking a different approach to the issue, one based on Clark’s Option Theory.

In finance jargon, an option is the right to buy or sell a security at a specified price within a set time. But Clark’s Option Theory takes a more general “lifeview” of options — a perspective that any of us, even the financially disinclined, can find useful. Clark’s Option Theory says that “option” is simply another word for “opportunity,” and that all decisions can be seen as creating new opportunities. The key point is that the value of a new opportunity is not precisely quantifiable, but is likely to be great — and more importantly, unavailable without “exercising the option.”

Here are a couple of examples:

  • Let’s say you want to write a book. For most people, that’s a terrible idea from a moneymaking standpoint — it’s like moving to Australia so you can date Elle McPherson, or starting a rock band because you want to become famous — sweet thoughts, but dreadfully naive. But writing a book creates opportunities that might not arise any other way — opportunities to teach, become a consultant, or develop authoritative knowledge in some field. (Or, in some cases, to create a lasting work of beauty and truth.)

  • The same goes for starting a business. When you start a new business, suddenly you’re an entrepreneur, not just a worker. Calling on customers or prospects, you’re likely to meet with other owners and managers, and discover whole new realms of opportunity. Even if your venture doesn’t ultimately succeed, the experience of going out on your own will have created opportunities (options) unattainable in any other way.

This is also true with education. Eighteen years ago I entered a part-time MBA program. It took me seven years to finish — the longest period allowed without getting booted out! Many times I came close to quitting, wondering whether the time, money, and effort were worth it.

Today, I’m grateful to have stuck it out, not just for the knowledge and career advances it enabled, but because it allowed me to become a teacher — an unexpected but welcome career change. Now I’m pursuing a doctoral degree — something inconceivable to me even five years ago — but something that wouldn’t have been a viable option without the MBA. Pursuing an advanced degree was creating brand new options for me, though I didn’t know it at the time.

So is education always a good investment? No. But if you have serious thoughts about going back to school, that’s a powerful sign that it’s a very good idea for you. Heed your intuition. It’s trying to create new options for you.

You can read more from Tim at The Prosperous Peasant blog.