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How About Affirmative Action Based On Income Instead Of Race? (Financial samurai)

Posted by Financial Samurai 127 Comments

Jamestown, Virginia was the first permanent English settlement established in 1607. Their main goal was to harvest tobacco for profit in the New World. Unfortunately, Jamestown is also where slavery in America began when African slaves were brought to the colony in 1619.

Slavery was finally abolished 258 years later on December 6, 1865 with the passage of the 13th amendment to the U.S. constitution by Congress. It’s scary and absolutely shocking it took so long. Because of our country’s past racial injustices, affirmative action was launched in 1961 by President John F. Kennedy to ensure that government contractors “take affirmative action to ensure that applicants are employed, and employees are treated during employment, without regard to their race, creed, color, or national origin.”

Due to the advancement in technology and medicine, our standard of living 150+ years later has never been higher. We’ve also seen huge progress in narrowing the gender wage gap and reducing discrimination against the LGBTQ community. However, it feels like our country is more divided along racial lines than ever before. Perhaps still having rules based on race is making all of us more racist? Instead, how about shifting towards helping people who are in difficult financial situations across all races.

An Asian Minority’s Point Of View

Asians are seldom ever included in the racial debate because our income and wealth statistics match or surpass White income and wealth in America. As a result, we are largely invisible. Yet, if we are talking about judging people by the color of their skin, then Asians absolutely continue to face discrimination getting into college, climbing the corporate ranks, and in day-to-day living. If you live in an Asian country as a non-Asian, you will feel the same type of discrimination as well. It’s just the way things are for all minorities.

Here’s a video put together by Michael Lu of the New York Times after a woman in New York City told him and his daughter to “go back to China,” even though he was born in America.

<iframe title=”New York Times Video – Embed Player” width=”480″ height=”321″ frameborder=”0″ scrolling=”no” allowfullscreen=”true” marginheight=”0″ marginwidth=”0″ id=”nyt_video_player” src=”“></iframe>

I don’t think a certain race is smarter or dumber than another race. Are we not all basically the same except for our physical features? I would be very annoyed if people thought one of the main reasons why I got into Berkeley for business school was because of my race instead of my achievements.

For those who believe race is a fine criteria to use for college admissions, are you telling me that because my skin is darker than the average person due to my Polynesian background, I get to score lower on my SATs than my lighter skinned brothers and sisters for the same chance of getting into college? Come on now. My only benefit is that I won’t get sunburned as easily during the zombie apocalypse!

As a future parent, is affirmative action based on race saying that even if I amass a $25 million fortune by the time my kids are in high school, they’ll get preferential treatment by checking the Pacific Islander box versus a White kid who has the same grades and scores, but who also has to work 20 hours a week at McDonald’s to afford school supplies? That’s not right.

Affirmative action based on income and wealth, instead of race, may be a better solution. We must help the poorest people, no matter their race, get ahead through education. If it so happens that the poorest people have an over-representation of Blacks and Hispanics, then we should help them along with every other person who is in a difficult financial situation. Being born poor makes it more difficult to succeed versus being born a particular race. In a country as rich as ours, it’s ABSURD there are billionaires hoarding more money than they could ever spend while there are hungry people on the streets.

Having grown up in several developing countries, I’ve seen the trap of poverty. Some of my friends in Malaysia were forced to skip school in order to sell clove cigarettes for food. Another friend lived in a 300 sq ft studio with her mother, father, and brother. They had bunk beds along the walls and ate in the center of the room. She didn’t go to college, but thankfully found some success as a beauty queen.

I’ve also experienced the incredible benefits of living in a stable household where we didn’t have to excessively worry about money because my parents worked in the foreign service. Their incomes were squarely in the middle class, but they made enough for me to feel that anything was possible if I could just get a good education.

Slavery Abolishment Over History

An animation showing when United States territories and states forbade or allowed slavery, 1789–1861.

Rich Kids Have A HUGE Advantage

It’s easy to understand why being poor puts you at a disadvantage. Further, it’s much harder to sacrifice 4-5 years to go to college if you need money right now. We all know that earnings by educational attainment tend to increase the more education we have. Therefore, education is one of the keys to a higher income.

Earnings By Education and Unemployment

Learn more, earn more. Just don’t go into too much debt doing so!

Did you ever have the temptation to steal when you were a kid because you wanted something you couldn’t afford? My friends and I did. We used to put candy bars in our giant Slurpee cups before overflowing the drink above the the lid. Then we moved on to shoplifting t-shirts at the department store until we were caught.

Stealing is obviously wrong, but is it not far fetched to understand that when you don’t have money, the temptation to do bad things increases? First it starts with candy bars and t-shirts, then it moves on to motorbikes and cars, then uh oh, your life is ruined. I’m thankful we got caught early and were taught multiple lessons.

Here are some benefits of being a rich kid that might not be so obvious.

* Endless amounts of private tutoring. Once school is done, rich families can get private tutors for their kids in subjects they need help with so they can get better grades. They are also able to take SAT prep courses that cost up to $7,000 each. Then there are college admissions consultants wealthy parents can hire to increase their child’s chance for admission.

* You can study a degree in low demand. Do you know who studies art, art history, and English? Rich people. If you were poor, you wouldn’t be able to afford to get a degree in a field that wouldn’t make money. Instead, you’d be more incentivized to study computer science, engineering, economics, accounting, and business so you could increase the probability of getting a well-paying job.

* The ability to buy your way in. Private schools do not shy away from the fact that if you donate money, your child will have a greater advantage of getting in. I asked four wealthy parents once about paying for entrance, and they all said they’d be willing to donate $250,000 – $1M to get their kids into the best universities. Talk about the ultimate unfair advantage over less wealthy families.

* Connections after college. There were about 60 Equity analysts from around the world in my class at Goldman Sachs in 1999. We all spent about two months getting to know each other and getting indoctrinated with company culture. It was amazing to see so many sons and daughters of Partners who came from non-target schools. Further, there were sons and daughters of senior government officials from China, Canada and the Middle East. And then there were sons and daughters of private clients who had at minimum $25M with Goldman Sachs Asset Management.

* An embedded circle of other rich friends. When I went to Uber HQ to meet with their marketing and operations department, everybody had the same background. They all went to private schools. All were white except for one Asian guy. They probably all live in similar areas of SF and hang around with other techie people. People just tend to hang out with people who look like them and share similar backgrounds. As a result, opportunities get passed within a tight circle of people who already have a lot of advantages. It’s not a big deal unless you’re an outsider who’s trying to get in, then you are at a disadvantage because you can’t find people similar to you.

* You can take major risks to get even richer. Mark Zuckerberg and Bill Gates were already rich before dropping out of college and becoming billionaires. It’s much easier to take risks if your safety net is a mansion in the hills with a trust fund on the side. If you are already rich and aren’t taking risks, then there’s probably some type of confidence deficiency that needs addressing. Now think about how good Mark and Bill’s children will have it growing up? Multi-generational wealth dynasties will create enormous imbalances between the rich and poor.

Affirmative Action Scenarios

“Attending the elite institutions and being mentored by prominent people is linked to social capital and systemic racism ensures that people of color have less of it.” – Marybeth Gasman, a professor of higher education in the Graduate School of Education at the University of Pennsylvania.

Here’s a chart of what’s currently going with affirmative action based on race in college admissions.

If you are a median income to lower income White or Asian kid, you are at a disadvantage simply due to the color of your skin. Some might say White kids aren’t at a disadvantage because they are the baseline majority. Unfortunately, given there is a matriculation limit, there’s a disadvantage by definition if other races have an advantage.

Since the majority of people in America are White, and the majority make the median household income of ~$55,000 a year, it’s easy to see why there’s so much angst in our country. If I was a median income earning White person, I would feel like I was being left behind due to globalization and a government who ignores me, but panders to the very rich and the very poor.

But I’m not a median income earning White person. I’m an Asian person whose kid has to score 14% higher than a White kid, 31% higher than a Hispanic kid, and 65% higher than a Black kid on his SAT just to have the same chance. Poor kid! He better inherit a “smart gene” from his mother or else! Too bad neither of us scored very well on our SATs.

No wonder why some kids feel so much pressure to do well in school. They’re buried underground and need to scrape and crawl just to breathe. I feel terrible for all the families who’ve lost their kids to suicide, drugs, and alcohol abuse due to immense educational pressure. Don’t you?

Related: The Silicon Valley Suicides (The Atlantic)

Instead of providing preferential treatment by race, let’s consider helping those who come from lower income families instead. Here’s an example of SAT scores based on income.

The median household income is roughly $55,616 according to the latest US Census Bureau on income and poverty. I’ve defined the base case income level of $50,000 – $70,000 to account for cost of living, accompanied with the median SAT score of 1,000 out of 1,600.

The higher your family’s household income, the higher you must score on your SAT to gain the same chance of admittance. Once a household surpasses the $500,000 a year income mark, putting them well within the top 1% income earners, then the child must score a minimum of 1,300 or higher to have the same chance as a child from a $28,000 a year household income who scores a 800.

The big loophole from this method of affirmative action is that parents can learn to hide their household income for the year their child is being evaluated for college admission. As a business owner, I can simply load up my capital expenditure to reduce taxable income for the year or differ my accounts receivable for one year to try and help my kid out.

To help fight income manipulators, here’s the affirmative action policy based on wealth to help supplement the affirmative action policy based off income.

According to a September 2014 report by the Census Bureau, the median household income is roughly $51,939. I’ve therefore established a baseline household wealth level of $50,000 – $100,000 to account for living in more expensive parts of the country where real estate is higher.

I stop at $10,000,000 because that is roughly the level at which you can leave your wealth to your kids estate tax free. $10,000,000 also puts you in the top 1% of net worth amounts in the country.

What these charts mean is that a kid whose family makes just $30,000 a year and has a net worth of $30,000 has a 15% lower hurdle (850 SAT score) to overcome. Meanwhile, a kid whose family makes $280,000 a year and has a net worth of $1.5 million has to score 20% higher than the median for the same chance. The richer family clearly has more means to help their child get higher test scores.

These charts are just guidelines to help admissions officers make more equitable decisions so that their entire class doesn’t consist of homogenous kids of privilege. Of course, no college will only look at SAT scores, so every kid still has a chance to improve his or her chances through other means e.g. essays, extracurricular activity, grades.

Our country already discriminates against wealthier people by adopting a progressive tax system. Why not stay consistent by using income and wealth to help the less privileged?

Look Beyond Race Please

The more we focus on determining benefits by race, the more racist we become. Think about all the resentment that is engendered by those races who don’t get preferential treatment. What if they one day get into a position of power? Think about the self-doubt and guilt that may arise from someone who gets into a great school or lands a wonderful job due to merit, but isn’t quite 100% sure she did due to affirmative action.

It’s much harder to get ahead as a poorer person than it is to get ahead as a minority. Race doesn’t affect how hard we work or how long we can study. Having to work a minimum wage job after school to help your single mother pay rent leaves you exhausted, no matter what race you are. There’s no time or money left over to attend a $5,000 Princeton Review SAT course. Are you kidding me?

The great thing about Financial Samurai is that it’s a personal finance site open to everyone looking to improve their financial situation. There are no quotas on whom can read my site. The more you are struggling financially, the more I’d love for you to read, share, and interact. I don’t care what your race is because all different perspectives are welcome. By helping those who are struggling financially, we can help every racial group get ahead. Wouldn’t there be more love as a result?

Are you for affirmative action based on race or affirmative action based on income and wealth?

 I’m for affirmative action based on race over affirmative action based on income or wealth.

 I’m for affirmative action based on income and wealth over affirmative action based on race.

 I’m opposed to affirmative action of any kind and would rather have everybody compete equally even though everybody starts unequally.

 Other. Please share what.