Who’s Your Daddy? How to Make It in America

John D. Rockefeller said becoming rich was easy: (1) Get to work early, (2) stay late, and (3) strike oil.

Few topics invoke as much emotion as suggesting success is caused by anything other talent and hard work. "Luck" is a four-letter insult to those working 80 hour weeks. No one doubts that working hard is key to success, and the harder the work, the more success. 

But people play the game on completely different fields. There is no point ignoring something we know to be true. And the truth in America is that few things as predictive of how well you'll do in life as how much money your parents make.

Last month I wrote that, "The single best predictor of future income is your level of education, and the one of the best predictors of your level of education is your father's income. Put these together and you don't get meritocracy, you get dynasty."

Several readers were skeptical with that statement, and asked me to back it up with facts.

Gladly!

The General Social Survey has tracked thousands of Americans since 1972. It's the best database available to look at social trends across different generations.

I used its public database to look at the highest degree people had earned, and what their household income was when they were minors living at home -- hence their parents' income.

Here are those who never earned a high school diploma: 

Here are those who earned a bachelor's degree: 

And those with a graduate degree:

There are always outliers in the economy, people who dropped out of high school and became rich. But on average, how much money you make is heavily tied to your level of education. And in short, this data shows: 

  • Those whose parents earned less than $10,000 a year (about $50,000 today, adjusted for inflation) are about three times as likely to have dropped out of high school as those with parents earning more than $20,000 a year (about $100,000 today). 
  • Those whose parents earned more than $20,000 a year are three times as likely to have a bachelor's degree than those whose parents earned less than $10,000 a year. 
  • Those from the highest income groups are more than five times as likely to have a graduate degree as those from the lowest. 

You don't get to pick your parents, but your parents' income has a huge impact on your educational attainment, and hence your future income. I don't know why that is – it's likely a mix of cost and culture -- but it's true. And as long as it's true, a large portion of an average person's income is tied to something they have no control over.

This goes deeper than just the type of degree you get. A 2011 study of 20 elite universities showed that having a parent who went to a particular school made you 45.1% more likely to be admitted to that school. Another study by Thomas Espenshade of Princeton showed that having an alumni parent of a specific school provided an admittance boost equal to 160 SAT points. Harvard's newspaper, The Crimson, reports that the school's "acceptance rate for legacies has hovered around 30 percent—more than four times the regular admission rate."

As I wrote last month, shaking your head at these numbers isn't about jealousy. These numbers are a shame because of lost potential and misallocated talent.

How many poor inner-city kids could be brilliant computer programmers if given the chance? Probably a lot. Uneducated people can do amazing things when given the chance. Two years ago, a foundation left a crate of tablets for kids in an Ethiopian village. As The Register reports, "within five months, they had hacked Android."

And how many people are in positions of power – CEOs, managers, bankers, regulators, and politicians –not because they're gifted, but because their parents were able to provide a great education?

If you could design a system from scratch, you would want a pure meritocracy, where the smartest, hardest-working, most creative, and honest people have the best shot at making it to the top. You would probably hate the thought of the best educations being awarded overwhelmingly to the richest families. You would probably cringe at the idea of the best colleges giving preferential treatment to students with alumni parents. You would never consider this the most efficient way to allocate talent. But it's what we have.

A hundred years ago, America figured out that a high school education was important enough to guarantee it to everyone regardless of income. We figured this out before most of Europe, and it's been credited as one of the reasons America dominated the 20th century. Given how important knowledge is in today's economy, I have a feeling whoever figures out the public importance of college and trade-school education will dominate the 21st century. Right now, that's not us.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

 


Read/Post Comments (23) | Recommend This Article (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 29, 2014, at 2:41 PM, XXF wrote:

    <<I have a feeling whoever figures out the public importance of college and trade-school education will dominate the 21st century.>>

    Except for the fact that there are vast fields of study that currently produce "college graduates" with no appreciable skills as evidenced by the growing "graduate" underemployment statistics. What do you propose to do about that? Should we all just subsidize years of boozing for people to graduate without any idea of how to show up to a job much less do one?

    It is a tough position, because I agree that any individual may deserve and ultimately reward educational subsidy, but throwing money at a broken collegiate culture in the US isn't going to produce additional valuable skills at an acceptable level of cost per success story.

    Instead of your implied suggestion of universal subsidy why not encourage private markets to determine who might deserve the limited capital available for graduate level education? The answer to that question usually comes down to how "unfair" and "mean" it is. Whether or not those are fair assessments of market based prices markets are the ONLY mechanism in the history of the world which have consistently kept prices at the market clearing price, a feat never managed by any government.

  • Report this Comment On April 29, 2014, at 3:40 PM, douglee8 wrote:

    Please learn the difference between "you're" and "your."

  • Report this Comment On April 29, 2014, at 5:14 PM, devoish wrote:

    "Instead of your implied suggestion of universal subsidy why not encourage private markets to determine who might deserve the limited capital available for graduate level education?" - XXF

    Because private markets have determined that kids with rich daddies should go to school and have advantages like "princeton review" to boost their SAT's and help get them in, rather than actually determining who might be more qualified based upon talent, drive and ability.

    Best wishes,

    Steven Cecchini

  • Report this Comment On April 29, 2014, at 8:02 PM, FrankoJames wrote:

    Morgan,

    I do not work for the fool, but as a long-term recommendation to help stabilize for which pays your bills, you might want to take a play out of the old Stan Lee playbook at just write an article and then let an editor or two add in your artwork and create your titles. I cannot even imagine how much money you are loosing for the shareholders of The Motley Fool by angering the cloud. Best wishes to you in the future, long live MKL and BRK-B!

    Fool on,

    Franko1000

  • Report this Comment On April 29, 2014, at 8:05 PM, FrankoJames wrote:

    Sorry, I should have edited that last post of mine. I changed over from a Kindle that used to change my words as I typed to a device that blocks my screen as I type. I do not know about you, but I think that freedom of speech is longing to a phone and a cloud for no reason. Fool on...

  • Report this Comment On April 29, 2014, at 8:06 PM, FrankoJames wrote:

    That word should have been losing, not longing. Sorry if you ban my words from the foolish cloud for saying nothing wrong to myself.

  • Report this Comment On April 29, 2014, at 8:29 PM, FrankoJames wrote:

    Morgan you just gave me an idea,you could edit my accounts and pay your bills at the same time just by thinking that your reading the mind of world. Never-mind, I enjoy reading your articles, and luck saving the world and fool on, you can always count people and production output to be nearly curate in your guesswork, however, it is very difficult to predict crime, wars and corruption no matter the size and scope of the problem and/or battle at hand.

  • Report this Comment On April 29, 2014, at 8:31 PM, FrankoJames wrote:

    Funny, that was the device that changes my words as I type, I would guess that most of your uses are at desks and not using cell phones and tablet devices, see I learn all of the time.

  • Report this Comment On April 29, 2014, at 9:25 PM, FrankoJames wrote:

    Once again, sorry, the word was accurate, not curate, which is word that I just learned the definition of a few moments ago.

  • Report this Comment On April 29, 2014, at 9:31 PM, FrankoJames wrote:

    And I do believe that a society that is based on reading, writing and math skills needs to continuously utilize those skills in more places than through the utilization of a checkered Twitter account and/or Foolish moniker. P.S. I would have published Harry Potter before the book ever made it on a banned book list.

  • Report this Comment On April 29, 2014, at 10:28 PM, R2D2 wrote:

    Morgan,

    I absolutely love your articles and always look forward to Tuesdays and Fridays. Thank you!

  • Report this Comment On April 30, 2014, at 9:17 AM, XXF wrote:

    <<private markets have determined that kids with rich daddies should go to school>>

    Steven, you come to this conclusion based on observations of a market that has had government interference since 1800 in various forms of subsidy and regulation. There is nothing about that which is indicative of a private market.

  • Report this Comment On April 30, 2014, at 1:25 PM, jpanspac wrote:

    I have a very hard time believing the numbers in that database. My parents didn't talk about money, so I have no idea what our household income was. None of my friends knew how much their parents made, either. I'll bet it's built on a whole bunch of WAGs.

  • Report this Comment On April 30, 2014, at 2:07 PM, jpanspac wrote:

    I have a very hard time believing those income numbers from the database. My parents didn't talk about money, so I have no idea how much they made. None of my friends knew how much their parents made, either. I suspect the database is built on top of a mountain of WAGs.

  • Report this Comment On April 30, 2014, at 3:31 PM, DaximusTheGreat wrote:

    This is too true. I work with inner city kids who struggle to make it through high school. Parents drop off their kids and leave the educating to the "professionals". Parents that do not have a focus on education do not instill education in their kids. This is all volunteer work through the Boys and Girls club (great program by the way).

    My wife and I have our MBA's and run a very successful manufacturing company. When I tell these kids, mostly young men, that education is the only way out of poverty then they recite Jay-Z, Sean Combes, and other celebrities success. I am very worried about the economic divide but it is perpetuated by culture and socio-economic status.

  • Report this Comment On April 30, 2014, at 4:15 PM, Martinus79 wrote:

    This article is based on the assumption that going to college can magically fix poverty.

    Poverty in our society is fostered by low intelligence, undesirable psychological traits that seek instant gratification over delayed gratification and via parental disregard to stable family structures. College isn't going to fix the dregs of society.

    I suspect a stronger correlation exists with the heritability of intelligence and the heritability of desirable psychological traits from one's parents. This in turn is complemented by the type of culture one's parents create at home.

    That said- you're right- upward social mobility is very difficult to achieve in our society/economy. However, having the dregs of society ("inner-city kids" in your words) going to college is not going to magically create upward economic/social mobility.

    Believing that "poor inner city kids" will magically grow up to be computer programmers is pure fantasy on your part with no quantitative evidence.

    The reality is that when you place poor" inner-city kids" into college- the majority will gravitate to useless "easy" majors with little benefit to society or personal income potential.

    In fact, with the way college education is financed in this country- the "going to college=success" propaganda hurts the future economic prospects of the lower classes. It seems that you are advocating for college debt-slaves. How is that going to fix anything?...

    Legacy admissions, while not perfect, are still a more efficient way of procuring an intelligent and talented workforce than opening up a college education to people who don't have the fortitude and initiative to benefit from such an education.

  • Report this Comment On April 30, 2014, at 4:17 PM, wolfman225 wrote:

    This is just going to give slackers another convenient excuse for not doing the hard work necessary to succeed: "My parents didn't earn enough money, so I haven't been as lucky as you!" The only reason for anyone not reaching their potential is their not putting in the effort.

    While measuring potential against the yardstick of what their parents earned (specifically the father), maybe you can explain the success of Mr. Frederick Douglas, Lunsford Lane, Ida Wells? Former slaves who became success business people (without affirmative action and government benefits). Not to mention the many multi-millionaire athletes, music, television and movie stars who came up out of obscurity. Then there's the example of Ms Oprah Winfrey, the daughter of a sharecropper in the deep south who rose to become the richest, most powerful woman in American media. I haven't even mentioned the many sons and daughters of privilege who's descent into chaos and bankruptcy fills the pages of the weekly tabloids.

    A supposed disadvantaged beginning is no excuse for lack of success. Not everyone has the innate gifts or intelligence of a Warren Buffet or a Steve Jobs or the drive of a Harland Sanders, who began what would become KFC after the age of 65. But we can all become the best of which we are capable.

    As long as we retain a minimum of freedom, this country will provide the greatest opportunity for all. If we go down the road of mandating that everyone get a college education at everyone else's expense and mandating that everyone achieve equal results, the "equality" we achieve will be that of the lowest common denominator.

  • Report this Comment On April 30, 2014, at 10:14 PM, devoish wrote:

    <<private markets have determined that kids with rich daddies should go to school>>

    "Steven, you come to this conclusion based on observations of a market that has had government interference since 1800 in various forms of subsidy and regulation. There is nothing about that which is indicative of a private market." -XXN

    I came to this conclusion based upon the simple observation that government interference promoted equality of opportunity far better than the private interference which seeks the money of the rich daddies. If that were not the case, the facts of this article would not be what they are.

    Best wishes,

    Steven

  • Report this Comment On April 30, 2014, at 11:08 PM, jimovie wrote:

    Here is a good suggestion for everyone, read the following Malcolm Gladwell's books ( listen to them free on youtube): Outliers, David and Goliath, Blink, What the Dog Saw, The Tipping Point. This will give you the insight as to why some people succeed and why some don't. He discusses talent vs great desire to do something and other very interesting aspects of successful people's lives. I just listen to them many times and highly recommend reading them if you are a parent.

  • Report this Comment On May 01, 2014, at 10:51 AM, hbofbyu wrote:

    Morgan, How about a counter piece:

    "Where's Your Daddy? How to fail in America."

    http://www.usnews.com/news/newsgram/articles/2013/05/06/cens...

  • Report this Comment On May 01, 2014, at 1:02 PM, SkepikI wrote:

    morgan: More than usual, I am tempted to question the validity of the study and its underlying basis. NOT because I know anything disparaging about it, simply because the base conclusions are so profound if its a good representation of reality.

    So I must ask: Did you do anything at all, any research to question and confirm the validity of the data, methodology and results?

    Even if this is accurate, there is hope- changing our educational model from "butts in seats" to online and interested learning for those who can learn that way holds some promise of overcoming limitation imposed by the old model...though no help for the lazy....

  • Report this Comment On May 01, 2014, at 3:46 PM, ibuildthings wrote:

    You can lead a horse to water, but you can't make him drink. Grandma said that one, and as I look at how kids treat their free education these days, it is clear Grandma was right. Our "single-payer" educational system is taken for granted by kids and parents, and this infinite pile of "sacred cause" money is being harvested more by union and political agendas than by educational agendas. We spend more now as a percent of GDP and in real dollars on public education, and have less to show for it. Motivations are the problem here, not the money being spent.

  • Report this Comment On May 01, 2014, at 4:39 PM, stockdissector wrote:

    Once again. Great stuff. Period.

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