As a pro public school guy, my ears always perk up every time friends talk about choosing private high schools and colleges for their kids in San Francisco. Like many large cities in America, San Francisco faces the same dichotomy of a deteriorating public school system that is a result of years of underfunding and a rising private school system that is difficult to gain admission to due to an undersupply of positions.
The only solution is to raise taxes to raise salaries to attract even better public school teachers. We just aren’t paying our educators enough, and that’s a travesty. The biggest irony in large cities like Manhattan and San Francisco is that those who pay the most taxes are homeowners, yet many homeowners send their children to private schools. If we can better focus on raising taxes on people who use the services, we’d have a much stronger system. But logic never wins when it comes to politics, power, and greed.
I’ve always heard about wealthy parents buying their kid’s way into the best schools, but I never got exact dollar amounts until recently. Clearly every parent wants what’s best for their kids, hence tuition’s inelasticity no matter how much people complain. Education is the key to reducing the wealth gap.
The following conversations were had at a bar after an afternoon of tennis at a private club. Please keep them between you and me. I am dirt poor compared to these guys, but at least I can kick their asses on the court. They are the top 0.1% income earners, which is a world of difference from even the top 1%. Hopefully you’ll keep an open mind when reading this post and come up with some solutions!
THE HIDDEN PRICE OF AN OUTSTANDING EDUCATION
It first needs to be pointed out that it’s much easier to buy your way into a private institution vs. a public institution. It’s the same way publicly traded companies are much more scrutinized by regulators than privately held companies. If some parent wants to donate a new library wing, then by all means the private school will take their money and give little Johnny a nod. Public schools are much stricter in this regard.
Parent #1 – Wife Of Multi-Millionaire Hedge Fund Manager
The first example comes from a mother who point blankly asked an admissions officer from Northwestern University (private) how much it would take for her middle school son to get in. Talk about planning ahead! The response from the admissions officer was, “$250,000 a year for five years.” This is on top of the $60,000 a year in tuition, room, and board. In other words, the total cost to get into this Top 10 private university is roughly $1.5 million dollars.
The mother wasn’t really down with paying such extras, but her husband is. She would rather have her children go to a school that they feel like they’d enjoy the most. Her husband, on the other hand, went to a prestigious university and believes if they can get their kids into the best university possible, then it behooves them to spend whatever it takes to make it happen.
Parent #2 – Family Is Worth Over A Billion
The second example comes from a friend whose family is worth north of $1 billion dollars. When I asked him how much it would take for one of his kids to get into a Harvard, he mentioned “$600,000 – $1 million” to which I replied, “That’s it?” You’ve got to understand $1 million dollars is 1/1000th of his net worth, or only $1,000 for someone who is worth $1 million dollars. He probably earns at least $30 million in interest and dividends alone.
My friend came from a very humble background and constantly points out the inequities of education and opportunity in San Francisco. He’s very against buying his way into opportunity. However, the fact that his family has so much wealth makes it impossible from him not to gain better access than everyone else. He’s conflicted, and perhaps feels even a little bit guilty.
When I pressed him on whether he’d pony up the $1 million if an admin officer from Harvard told him that’s what it would take for next year’s admission he said he’d decline. When I asked why he said, “My kids will be fine by then (they are in elementary school). Maybe they don’t go to a Harvard, but will get into one of a whole bunch of other great schools. What do schools like Harvard really represent anymore? Maybe a good opportunity to be a career manager at some company somewhere. It was a means to an end. But we have means now. I just want them to be happy. They can be happy going to any school.”
Parent #3 – Makes Eight Figures A Year Managing A Massive Mutual Fund
The third example comes from a father who went to an Ivy league school. He makes eight figures a year and is a powerful man in the finance community. When I asked him how much he’d pay, he pragmatically said it’s too early to tell. But if his son starts doing well in high school he’ll start donating money to target schools after freshmen year. “You mean if he starts doing poorly in high school?” I asked.
“No, if he starts doing well. I’m not going to waste my money on donations if he’s a knucklehead,” my friend responded.
“Wait, our whole topic of conversation is to see how much it takes to buy our children’s way into a top university. So you’re saying these universities still care about standards?” I retorted somewhat facetiously.
“Of course they do, but I’ve got to at least see if my son is in the ballpark first!” he said. Unfortunately I didn’t get an exact dollar figure from him on how much he’d donate since he had to go home for dinner. But suffice it to say he’d be willing to donate hundreds of thousands of dollars to give his children a better educational future.
THE WORLD IS UNFAIR – WHAT WOULD YOU DO?
Up until now, I’ve naively felt that meritocracy wins out in the end in terms of academics. If your child is bright, she will go places. If your child is average, then perhaps one of the hundreds of terrific average schools will be their calling. Perhaps the difference between average and bright comes down to how much money you’re willing to donate? This post shows that the price of buying your kid’s way into the best universities cost between $500,000 – $1.5 million dollars.
It was easy to tell the difference between the average kids and the smart kids in school. As adults, it’s near impossible to tell because we all know the basics of how to live life. We aren’t talking about how to solve multi-variable equations and debating how we’d fight a previous civil war. All we’re doing is following society’s rules of outstanding citizenship. Things such as being respectful, courteous, attentive, honest, and driven carry more weight nowadays.
Now that hard numbers are assigned to access, it certainly seems like if you can afford to donate hundreds of thousands of dollars to a University which already has multi-billions in endowment money, your child will fare much better than some kid whose family makes $55,000 a year. These kids with their trust funds are set for life. And their kids will also be set for life too if they don’t blow it all on poor investments. As a University administrator, you look at a potential student’s lifetime value of giving!
The only way it seems a middle class family’s child can get ahead is to work harder than everybody else or be more talented than everyone else. We can’t help talent, but we can control our work ethic. As parents we can whip our kids into shape to never fail due to a lack of effort. Someone in the family has to make the sacrifice for a brighter future. It might as well be you reading this.
Wealth Planning Recommendation
College tuition is now prohibitively expensive if your child doesn’t get any grants or scholarships. Therefore, it’s important to save and plan for your child’s future. Check out Personal Capital’s new Planning feature, a free financial tool that allows you to run various financial scenarios to make sure your retirement and child’s college savings is on track. They use your real income and expenses to help ensure the scenarios are as realistic as possible.
Once you’re done inputting your planned saving and timeline, Personal Capital with run thousands of algorithms to suggest what’s the best financial path for you. You can then compare two financial scenarios (old one vs. new one) to get a clearer picture. Just link up your accounts.
There’s no rewind button in life. Therefore, it’s best to plan for your financial future as meticulously as possible and end up with a little too much, than too little! I’ve been using their free tools since 2012 to analyze my investments and I’ve seen my net worth skyrocket since.
Updated for 2018 and beyond.