How much is education worth?

Here's a hypothetical example. A family has two children. The older child is starting kindergarten this year. The younger child is starting kindergarten in three years.

Suppose that a decent private school costs $20,000 per year, and that the appropriate real discount rate is 4%. (Considering that tuition can be expected to continue to rise faster than inflation, that discount rate may be too high.) Tuition is paid at the beginning of the year.

We calculate that the value of education for those two children is $388,000.

That's how much extra rational parents might pay for a house in a neighborhood with good public schools instead of living in a neighborhood with bad public schools (no doubt full of minorities) which would force the parents to pay for private schools.

I'm told that private schools cost more like $30,000 in New York City, so make that a $582,000 premium for the suburbs of New York City. (However a growing percentage of private school students have their grandparents paying the bills.)

UPDATE

I love this quote from the NY Times article:

"My father pays tuition for the girls, and I'm just grateful beyond belief," said Sunny Bates, who has one daughter at the Dalton School in Manhattan and another joining her there this year. "I think that's incredibly common. You have all these people who grew up in New York when it wasn't so ridiculously expensive, and are now in careers in the arts, or the nonprofits, that don't pay very much, and they couldn't possibly give their children the kind of life they had without some help."

Comments

[The Engineer]

The suburban New York education I recieved was no where near as good as what you'd get for $20k at a private school. It's not exactly an apples to apples comparison that you're making.

Also, what about Stuy? Magnet schools? Nobody has to go to Thomas Jefferson if they don't want to, right? Kids go there because their parents don't care about education.

[superdestroyer]

I do not think that you should compare housing in the suburbs to private school in the city. Compare Montgomery County Maryland. Your children can either attend Holton Arms at $25,000 per year plus a multitude of expenses or attend Walt Whitman High School in Bethesda. Walt Whitman has an average SAT score of around 1256. Holton Arms does not release numbers but if you believe Washingtonian Magazine, the scores are around 1300. So the question is, do you give you children a trust fund of $400K as a high school graduation present or send them to private school for less than 100 points on the SAT test?

[David Alexander]

I'm told that private schools cost more like $30,000 in New York City, so make that a $582,000 premium for the suburbs of New York City.

Just for some anecdotal evidence, my *Catholic* high school was selected as one of US News and World Report's best private high schools (or some award like like that), and the tuition was about $6K per year when my brother graduated in June 2006.

I think you do over estimate why whites and minorities with money flee. Yes, the schools and crime to a lesser extent have a role to play, but you seem to neglect the fact that suburban homes are considerably larger than their urban counterparts.

[bbartlog]

Uh, you've calculated the *cost* of education, not the value (which we presume on the whole must be even greater, inasfar as some people would pay even more).

I wonder how sharp the demographic divide between some of these areas will eventually become. If someone has no kids, will it make sense for them to pay a large premium to buy a house in a good school district? Surely such an area will be mostly families. Similarly I would think that some area that has atrocious schools will eventually be the province of old people and young singles with only a smattering of families.
Maybe I should dig through some statistics and see whether this divergence is already taking place.

[David Alexander]

Maybe I should dig through some statistics and see whether this divergence is already taking place.

I can hypothesize and say that it might be true. When gentrification occurs, it tends to attract young people who want crime to be low, but have no concerns about the schools. As the richer child-free people move in, this displaces some, but not all of the poorer families with children. The child-free don't care about the schools, so they have no incentive to improve them. When the child-free do have children, they see that the local schools in their community aren't good, and their home isn't large enough for raising a child to middle class standards, so they move to the suburbs where the schools are already good and the homes are considerably larger.

The problem is that nobody wants to take time to wait for the schools to improve or take the risk that the school will improve by putting their children into it. Thus, most parents when confronted with this choice between a school that could improve with some parental and community effort, or a school that's already in good condition, most parents would opt for the latter unless that can't get that school.

[Now I are an Ingineer]

Those average SAT score listed in another comment have me confused.

My daughters have both gone to public schools in CA and the oldest got 1530. We expect the youngest to get north of that (for Math and Verbal).

[superdestroyer]

Now I are an Ingineer,

The best public school in the US has a mean SAT score (math and verbal combined of around 1425. When several hundred stduents take the test, the mean is very hard to move. I looked up Whitney in Cerritos California (Another S&T magnet) is its mean SAT score is 1382.

If you kind find a high school of at least 500 students that has a mean SAT of 1530 I would love to hear about it.

[Peter]

That's how much extra rational parents might pay for a house in a neighborhood with good public schools instead of living in a neighborhood with bad public schools (no doubt full of minorities) which would force the parents to pay for private schools.

Not many parents are going to face a choice between a white (sorry, good) public school and a nonwhite (oops, bad) public school. More likely it'll be a choice between a very good school and a average school, or an average school and a relatively poor one.

[The Superfluous Man]

That (update) quote reminds me of how leftists and idiots tend to grovel about how things have worsened, without ever trying to locate the cause, eg, traffic in Los Angeles, due to an increase in population, all on net probably from immigrants, legal or not (one such study, http://www.rand.org/pubs/monograph_reports/MR854.1/MR854.1.chap3.pdf#search=%22Southern%20california%20population%20increase%20immigrant%22
I love how the PC way to depict bar charts with respect to certain races, is for the whites to have a dark bar and the blacks to have a lighter one - screw intuition!). From the idiots we don't expect much; the leftists shut up because they've caused it, or else fabricate an excuse.
Actually, that is wrong; nearly no one wonders about the status quo, about say, whether job interviews really are the best method for hiring. Even I needed some Sailer to spark it.

[Spungen]

So, who's going to keep up the great-grandchildren's standard of living?

I think the benefits go beyond how much higher a school might make one's SAT. It seems like the graduates of some high schools are favored over others in college admissions, even given identical grades/SAT. For instance, there was that WSJ article a couple weeks ago that talked about how sometimes to conceal a favor-based admission, a college will admit all applicants from the admittee's high school.

[The Superfluous Man]

Spungen, that example of yours is not one of consistent preference for that school - it just means that the given university admits consistently within that highschool, to maintain the veneer of meritocratic admissions. Here in college, people think that schools like Stuy and Bronx Science are favored because they get so many kids in, but in reality they have already been greatly preselected, so it's hard to tell. I suspect they suffer a bit, due to geographic affirmative action and less grade inflation there (ie. a student's grades would be lower at Stuy than his local highschool, and those grades are not adjusted accordingly for that in admissions).

[superdestroyer]

HS,

I have not lived anywhere near NYC but I have lived in several cities with very expensive private schools. I have always found that the most expensive private schools are found in the same neighborhoods as the most expensive housing. Look at the price of houses within walking distance of St Albans in DC.

I think a better comparison for middle class parents the trade offs of living in near suburbs versus far suburbs versus exurbs.

Look at the DC metropolitan area again and compare choices. A middle class family can try to live in Bethesda with a mean home value of $400K, mean family income of $130K, and attend Walt Whitman High School with a mean SAT score of 1256. The family benefits from relatively short commutes and a relatively good public school. The same family can live in Urbana Maryland with a mean family income of $88K, mean housing price of $233K and a mean SAT scores of 1070. The family now suffers from adding about 60 minutes to the commute of the working adults. If the family wants to really save, they can live in central Fredrick Maryland with a mean family income of $51K, mean family house price of $145K and a mean SAT score at Fredrick High of 1020. However, the family added an additional 30 minutes of commuting time.

I do not think that people are moving into cheaper housing to afford private schools. I think they perform the calculus of: Where can they afford to live versus how good the public schools are in the area versus what kid of catholic/chirstian schools are there in the area.

[The Engineer]

That update quote is awesome. What did Moynihan say about his kids? They were in the arts, and they were "blessedly unemployable" or something.

The worst thing about Brooklyn and Manhattan for a working stiff is that you're competing for resources against people with trust funds. You're busting your ass, and they're swiping the credit card.

Trust funds and grandparents paying tuition are not common west of the Hudson.

[Peter]

Look at the DC metropolitan area again and compare choices. A middle class family can try to live in Bethesda with a mean home value of $400K, mean family income of $130K, and attend Walt Whitman High School with a mean SAT score of 1256. The family benefits from relatively short commutes and a relatively good public school. The same family can live in Urbana Maryland with a mean family income of $88K, mean housing price of $233K and a mean SAT scores of 1070. The family now suffers from adding about 60 minutes to the commute of the working adults. If the family wants to really save, they can live in central Fredrick Maryland with a mean family income of $51K, mean family house price of $145K and a mean SAT score at Fredrick High of 1020. However, the family added an additional 30 minutes of commuting time.

It would be silly for a family to decide between Urbana and Frederick solely on the basis of schools, the difference betweeen mean SAT's of 1070 and 1020 being trivial.

[Half Sigma]

"It would be silly for a family to decide between Urbana and Frederick solely on the basis of schools, the difference betweeen mean SAT's of 1070 and 1020 being trivial."

Actually, I think that a 50 point SAT difference (1/4 of a standard deviation) would result in a perceptible difference in the "quality" of the high school.

[Agnostic]

Like The Engineer said, subsidized brats are a huge problem, in addition to the massive illegal immigration in places like New York or DC. HS mentioned the nature of this among youngsters in the older post on the Washingtonienne -- anyone under 35 who lives in NW DC is either getting heavily subisidized by their close kin and/or doing some shady stuff on the side. It's almost as expensive as Manhattan, yet there are no get-rich-quick jobs like making a killing on Wall St or Madison Avenue.

You might help Lockheed milk The Fed for contracts, but a lot of the young people work for some federal agency, not milking it, or for a non-profit. The other possibility is that they aren't being subsidized but are choosing to snowball in debt. Just b/c they want to ruin their lives doesn't mean they should help ruin everyone else's by shooting rents sky-high.

I shouldn't have to say it, but most of these brats are female, of course. Guys are willing to live outside chic nabes or even at home, and not feel drawn to the glamorous lifestyle of credit cards without consequences. This is probably worse in New York than DC, but we've got plenty of daddy's girls too.

The main difference is that New York girls at least have good taste (not to say impeccable), so at least the people who cater to them class the joint up; whereas here (w/ a few exceptions) the city didn't receive a high-end makeover so much as get bleached of its character.

[Jack]

I think an average SAT of 1070 is still not very good if you are a very intelligent family. 1070 is actually below the white SAT average in Maryland. I wonder what the highest SAT public school is in America. Is it Styuvesant?

[The Engineer]

When you start talking about schools in far suburban locations, you need to consider that a lot of the new subdivisions come with new schools. These new schools draw mostly from the new subdivisions. So your data may be outdated, or it may apply to the district as a whole but not be applicable to the new school, which is drawing a different population than the older schools in the district, at least as far as the elementary schools go.