Generations of Advantage. Multigenerational Correlations in Family Wealth

Abstract

Inequality in family wealth is high, yet we know little about how much and how wealth inequality is maintained across generations. We argue that a long-term perspective reflective of wealth’s cumulative nature is crucial to understand the extent and channels of wealth reproduction across generations. Using data from the Panel Study of Income Dynamics that span nearly half a century, we show that a one decile increase in parents’ wealth position is associated with an increase of about 4 percentiles in their offspring’s wealth position in adulthood. We show that grandparental wealth is a unique predictor of grandchildren’s wealth, above and beyond the role of parental wealth, suggesting that a focus on only parent-child dyads understates the importance of family wealth lineages. Second, considering five channels of wealth transmission — gifts and bequests, education, marriage, homeownership, and business ownership — we find that most of the advantages arising from family wealth begin much earlier in the life-course than the common focus on bequests implies, even when we consider the wealth of grandparents. We also document the stark disadvantage of African-American households in terms of not only their wealth attainment but also their intergenerational wealth mobility compared to whites.

Grand Advantage

“…This highlights the challenge in measuring wealth that may not yet have been passed down from the prior to the current parent generation. An exclusive focus on parental wealth thus underestimates the family’s wealth potential (Pfeffer and Killewald 2016a). …”

“…While some studies argue that the persistence of wealth is limited to two generations (e.g., Adermon, Lindahl, and Waldenström 2015 for Sweden), others have found effects of grandparents’ wealth that extend to their grandchildren’s wealth position (Pfeffer and Killewald 2016a). For intergenerational mobility more broadly, a current strand of the literature suggests that inequality should be studied as transmitted across multiple rather than just two generations (Hällsten 2014; Jaeger 2012; Lindahl, Palme, Massih, and Sjögren 2015; Mare 2011).…”

Children and the Elderly: Wealth Inequality Among America’s Dependents

“…With Pfeffer and Schoeni (2016), we worry that the concentration of wealth among so few parents will lead to unequal access for children to the very social institutions that could mitigate wealth inequality (see also Yellen 2016). Moreover, given the rigidity of the wealth distribution—44 % of children who grow up with parents in the top wealth quintile are in the same wealth quintile as adults (Pfeffer and Killewald 2015)—our results suggest that wealth inequality will be high for the foreseeable future.…”

“…For some analyses, following Pfeffer and Killewald (2015), we measured a household’s wealth as their percentile rank in a weighted net worth distribution. Using the percentile rank of wealth—rather than a log of wealth—means that all households, even those with negative wealth, can be included in one model: 20 % of the overall sample had negative net worth.…”

Inequality and Mobility Using Income, Consumption, and Wealth for the Same Individuals

“…Recently, Pfeffer and Killewald (2015) examined intergenerational wealth mobility and also find that the top is more immobile, with 44 percent of children being in the top wealth quintile at the same age as when their parents were in the top quintile, and 34 percent with both in the bottom wealth quintile at the same age. Given that this is a longer period than 14 years, it could be that extending our results to 25 years (or a generation) may yield similar levels of individual mobility as compared to intergenerational mobility (and this extension is part of future research).…”