👪Does Parental Wealth Boost SAT Scores? ✏️

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Does Parental Wealth Boost SAT Scores?

1. SAT Score Discrepancy Across Income Groups:

- Students from families in the top 20% of earners were seven times more likely to score at least 1300 on the SAT compared to those from the bottom 20%.

- Children of the top 1% richest families were 13 times more likely than the poorest students to score 1300 or higher.

- The top 0.1% of earners, averaging an income of $11 million, had children who scored even higher on average.

2. Test Participation:

- Less than 5% of middle-class students scored 1300 or higher, with only one in five from the poorest families even taking the test.

3. College Admission and Attendance:

- Wealthier children were found to be overrepresented at elite colleges due to better preparation, alongside other factors like admissions preferences.

4. Early Education Disparities:

- High-income children, on average, exhibited cognitive scores 60% higher than low-income children even before kindergarten.

- High-income children were also more likely to have attended preschool, which correlates with higher chances of taking the SAT and pursuing college education later on.

5. Extracurricular Investment:

- Wealthier families could afford various extracurricular and educational enrichment activities that contribute to better test preparation and overall academic performance.

6. Neighborhood and School Segregation:

- Income-based segregation has led to concentrated poverty or affluence in neighborhoods and schools, further widening the achievement gap.

7. Parental Investment:

- Rich parents spend more one-on-one time with their children on educational activities and are also able to spend more money on resources that contribute to their children's educational success.

8. School Funding:

- Disparities in school funding based on neighborhood wealth have led to poorer schools facing challenges in attracting and retaining quality teachers, among other disadvantages.

The analysis underscores a compelling link between parental wealth and a student’s SAT performance. This correlation manifests through various avenues, including access to resources, early education opportunities, and a conducive educational environment. Addressing the inherent inequities that stem from income disparities is crucial to leveling the playing field and ensuring that all students have a fair shot at achieving their academic aspirations..

The Gems Hiding in Plain Sight in the Treasury Market

In reflection to the lucrative bond yields of 1994, the current Treasury Market, while not offering the same treasures, holds promise for long-term bond investors. Back then, a mere investment in a 30-year U.S. Treasury bond yielded over 7% annually, with investment-grade bonds offering even higher returns. Fast forwarding to 2023, the scene has shifted with interest rates on the rise, but the high-yield gems of the past are scarce.

The silver lining amidst rising rates, which spell higher borrowing costs, is the potential relief for long-term bond investors from disappointing returns. The market now showcases short-term Treasury rates over 5%, 10-year Treasury bonds around 4.9%, and investment-grade corporate bonds above 6%, marking a shift from the ultra-low rates of previous years.

This upward trend in bond yields, mirroring the 1994 scenario, is tied to the Federal Reserve's tightening interest rate cycle amid inflation concerns. It’s a mixed bag - a potential boon for bond investors due to higher yields, and a burden for borrowers.

Key Takeaways for Investors:

1. Investment Strategy: A long-term horizon favoring a buy-and-hold strategy, especially through cheap index funds, is advocated, though it may not suit everyone, particularly those with shorter financial goals or lower risk tolerance.

2. Risk Reduction: Money-market funds emerge as a safer alternative with attractive yields, averaging 5.17%. The importance of considering fees is emphasized, as they can significantly impact returns in fixed-income investments.

3. Treasury Securities: The strategy of buying and holding Treasuries until maturity is highlighted, with a notable mention of two-year Treasuries hitting a yield of 5.2%, the highest since 2006. However, trading Treasuries carries a risk due to fluctuating interest rates.

4. Alternative Options: Bank certificates of deposit and high-yield savings accounts are mentioned as good choices, offering guarantees as secure as the U.S. government's credit.

5. Online Platforms: Treasury Direct is spotlighted as a fee-free platform for purchasing various Treasury securities, providing an alternative to broker-mediated purchases which may incur fees.

6. Future Uncertainties: The narrative underscores the Federal Reserve’s aim for a "soft landing" to control inflation without triggering a recession, akin to 1995, yet the uncertainty around interest rate movements remains a concern.

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