Three generations of data show how wealthy (white) families stay wealthy

Three generations of data show how wealthy (white) families stay wealthy
Credit: University of Michigan

Recent research has shown the enormous differences in how white and black Americans maintain income positions across two generations. Now, a new study traces family wealth across three generations, and reveals large gaps in the transmission of that wealth.

The study, led by Fabian Pfeffer at the University of Michigan, found that the most important way in which families maintain their is often indirect—for instance, by facilitating the educational success and homeownership of the next generation. This means that wealth transmission is often accomplished much earlier in life and in less direct ways than simply by inheritances during the next generation's late adulthood.

The research also shows that even when white and African-American families have similar wealth levels, there is a large wealth gap between the children of those same families.

Wealth is the sum of families' assets, including savings, stocks and homeownership. It is different from income, which refers to the stream of money a family makes. The U-M draws on data from the Panel Study of Income Dynamics, a nationally representative survey that has followed the same families now for 50 years. It is the first since the survey's inception to track the wealth of three generations of families.

Pfeffer, a sociologist in the Survey Research Center at the Institute for Social Research, and co-author Harvard sociologist Alexandra Killewald examined five traditional avenues of wealth transmission—education, marriage, homeownership, business ownership and receipt of financial gifts or bequests. Their study is published in the journal Social Forces.

"Much of the transmission of wealth to the next generation goes through these earlier life processes, such as supporting children's education, supporting their ability to purchase a home, or to get married," Pfeffer said. "All of these—education, homeownership, marriage—in turn help you accumulate wealth."

In the study, children's educational success accounted for about 25 percent of the similarity of wealth between parents and children. Homeownership accounted for 28 percent of that relationship and marriage accounted for 14 percent. A large inheritance or gift accounted for 12 percent of intergenerational wealth transmission—and usually, these bequests come much later in a person's lifetime, when wealth has already been accumulated.

"Of course, there are a lot of very wealthy children who receive huge inheritances," Pfeffer said. "But first, this is a small share of the population, and second, these inheritances tend to occur when many other benefits of coming from a wealthy have already manifested—when the children are about 50. So, bequests are the cherry on top."

To better understand the wealth position of African-American families, Pfeffer says it is also important to examine how—and whether—families are able to pass wealth to the next . According to Pfeffer, African-American wealth transmission continues to be greatly inhibited.

"We knew that racial wealth gaps were extreme, but now also show that there is a large racial gap in the transmission of wealth across generations," Pfeffer said. "Today's racial wealth gaps reflect two processes: One historical—this country's long legacy of actively excluding African-Americans from asset ownership beginning with slavery, and the second contemporary—there are still processes that continue to hinder asset accumulation among nonwhite families, even those that come from wealthier families."

This racial inequality in wealth also plays out in the rates of homeownership. About half the African-American grandparents in the study were homeowners in the 1960s, compared to 82 percent of white grandparents. But two generations later, rates of homeownership were higher for white grandchildren of those who did not own homes than for African-Americans whose grandparents owned homes.

The sample used in the study included wealth reports from 4,608 individuals ages 25-64 in 2013, and the wealth reports of their parents, ages 25-64 in 1984. To assess grandparental wealth, the authors relied on grandparents' self-reports in 1984 as well as their housing wealth in 1968.


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Wealth inequality doubles among US households

More information: Fabian T Pfeffer et al. Generations of Advantage. Multigenerational Correlations in Family Wealth, Social Forces (2017). DOI: 10.1093/sf/sox086 , http://fabianpfeffer.com/wp-content/uploads/PfefferKillewald2017.pdf
Citation: Three generations of data show how wealthy (white) families stay wealthy (2018, March 29) retrieved 20 July 2019 from https://phys.org/news/2018-03-wealthy-white-families.html
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Mar 29, 2018
A characteristic article on black and white comparison.
Mentioning inequities, invoking slavery, detailing only a very few cases of differences in circumstances, but providing absolutely no explanation for these differences outside of the ever present suggestion that it's the whites' fault or even the result of a supposed universal hatred of blacks on the part of whites.
Note, nowhere does it actually look at actual black initiative, if any, to overcome their situations and improve. Failing to do that is an admission on the article's part that it knows that looking at that part of the issue would produce information catastrophic to Democratic Party insistences that blacks are necessarily ethically, intellectually equal to whites.
Note, for example, that types of wealth are not examined fully. Education is not necessarily, really, such a force of wealth. Do blacks have as much stock as whites?

Mar 29, 2018
It should be noted that "wealth" among Western whites and "wealth" among other groups is not the same. The Western tradition, for many, emphasizes individual capital for personal use. Not so among other groups. They often see themselves as acting as a group against white actions. They tend to provide a kind of community support, a community solidarity. Blacks may not have as much money individually, but they largely think of themselves of at least being able to count on input from neighbors, friends, family. They can have little money individually but manage what they want from community support as least as well as whites. Unfortunately, this can also enhance feelings of otherness from whites, making blacks depict themselves as rejected when it's they who reject whites.

Mar 29, 2018
"One historical—this country's long legacy of actively excluding African-Americans from asset ownership beginning with slavery..."

I suspect that the author of the article didn't really mean this. And I am fairly sure that laws in the eighteenth and nineteenth centuries did not prohibit African-Americans from owning slaves. (Until after the 13th Amendment.) But it does beg the question: What are the differences in wealth inheritance patterns that presumptively prevent African-Americans from accumulating wealth?


Mar 29, 2018
The question is. With black Americans being the racial minority, what is the reason, why would successful families stay black, and not integrate into the majority white community? I suspect that the blacks that had the potential to manage to pass on their wealth, were too likely to mix with whites and disappear from statistics.

Mar 29, 2018
"One historical—this country's long legacy of actively excluding African-Americans from asset ownership beginning with slavery, and the second contemporary—there are still processes that continue to hinder asset accumulation among nonwhite families, even those that come from wealthier families.""

It was a good paper up until that point. If you had money you could always own property in the US regardless of color. Perhaps loans were less available to Blacks but that has been fixed.

The fact is that one ( not the only ) of the reasons that anyone is poor is their lack of knowledge about how to create wealth and use money properly. If you hang out with rich people the odds of you becoming better off financially increase dramatically. They will show you how to invest in yourself rather than spend on yourself.

Mar 29, 2018
Asians are coming to the US with nothing and flourishing. Culture plays a very important part in wealth creation. One of the things lacking in the Black community is the culture/knowledge of how to become self employed in a legal business. Some people would laugh at new immigrant families joining together and owing a 7-11 and working 18 hours a day , but soon they owned a 2nd and a 3rd. THAT is how you create wealth when you have little.

Mar 29, 2018
There still exist institutional barriers to wealth accumulation by black people, for example studies show that identical mortgage applications presented by white and black prospective buyers are graded differently and the black applicant is offered a lower maximum loan. Realtors of mixed race couples will show houses in different neighborhoods depending on if the white or black partner contacted them. Homeowners wishing to sell will be told different prices to ask for their homes depending on their race (that makes no sense to me at all, but it's real). Society is getting better, but there's still a long way to go.

Mar 29, 2018
Cusco there are plenty of loans available to all colors . Yea, if your credit rating is poor you pay more. The days of redlining by RE agents are long gone. There are lots of paid testers out there checking for bias in the RE profession. Your comments might have been true many years back but they do not apply today to any meaningful extent.

Mar 29, 2018
"According to Pfeffer, African-American wealth transmission continues to be greatly inhibited."

"Pfeffer... examined five traditional avenues of wealth transmission—education, marriage, homeownership, business ownership and receipt of financial gifts or bequests

This doesn't explain why blacks are inhibited in transferring wealth to their children. Nor does it examine behaviors on the part of the children as they age, except their obtaining an education and getting married (buying a house is a symptom of wealth, not a behavior obtaining wealth). All it does is show a difference between blacks and other races in inheriting wealth building behaviors. It errs in looking at only wealth transmission, not behaviors of the children in creating wealth. And sadly, it shows blacks don't transfer their wealth to their children as well as other races.

Mar 29, 2018
I cannot believe how so many of these comments take a back handed swipe at Afro Americans. So sad racism is still so entrenched.

Mar 30, 2018
The article is an excellent description of class privilege. It's easy to be rich when you come from a wealthy family. White or black, if you're born poor, you're most likely going to stay poor.

"That's why they call it the American Dream. You have to be asleep to believe it." - George Carlin

Mar 30, 2018
"The article is an excellent description of class privilege."

It is not privilege it is knowledge. If your father had his own business, even if it is something non technical like house painting the knowledge of how to run your own business get handed down. That knowledge makes you much more likely to succeed in what ever you do. The rich hand down the knowledge of what to do with money. Our schools are supposed to help children become successful. All they teach is hatred of the rich.

Mar 30, 2018
Just think about it for a few moments. If from childhood you are told that the Rich are evil people who rape the poor would you want to become rich? What child has being evil as a goal in life?

Mar 30, 2018
Just think about it for a few moments. If from childhood you are told that the Rich are evil people who rape the poor would you want to become rich? What child has being evil as a goal in life?
Sure because you're also flooded with examples of rich rappers and celebrities and sports figures and drug dealers who are obviously more decent and moral than the pigs who actually worked for their money.

There is good rich as well as bad rich you know. Look at Jennifer Lawrence.
http://m.lonny.com/Jennifer+Lawrence+Buys+Jessica+Simpson's+Beverly+Hills+Home?utm_source=outb&utm_medium=cpc&utm_campaign=Outb-LN-Specials-US-Mobile-Home-Jennifer-Lawrence-2&utm_content=The+Hill
https://www.googl...ng-to-h/

Mar 30, 2018
Sorry about that- can't edit

Mar 30, 2018
Racism has nothing to do with voluntarily passing on already accumulated wealth, which is the focus of the study
Maybe the full paper provides the answer(s), but at no point does the author explain or even attempt to explain the reasons for the huge differences in wealth transfer between white families and black families
So what is it that he isn't saying?

Mar 30, 2018


It is not privilege it is knowledge.


What you are describing is called cultural capital. And it is absolutely a form of privilege.

Mar 30, 2018
"What you are describing is called cultural capital"

Zaxxon if you are saying that poverty is due in part to culture I agree 100%. That is where education and a willingness to learn and change becomes important.

Mar 30, 2018

That is where education and a willingness to learn and change becomes important.


Cultural capital represents a mechanism of social reproduction and informs the process by which the rich stay rich and the poor stay poor. As such, it can be seen as a set of privileges that provide unearned advantage to those with wealth.

But there are many other forms of privilege involved in social reproduction, including class, place of birth, parental networks, parent's social status, gender, race, religion, sexual orientation, height, charisma, personality, attractiveness, and intelligence to name a few. All of these are unearned and serve to limit or support economic success. Even "willingness to learn" can be seen as a function of personality and worldview that have been shaped by forces outside the control of the individual.

Giving someone knowledge about how to start a business means little to someone in poverty who can't qualify for a loan or borrow from their parents.

Mar 31, 2018
"But there are many other forms of privilege involved in social reproduction, including class, place of birth, parental networks, parent's social status, gender, race, religion, sexual orientation, height, charisma, personality, attractiveness, and intelligence to name a few."

Zaxxon if think that the poor, particularly the black poor, do not posess the above "advantages" then you are the racist. Plenty of non-whites become rich or at least upper middle class in the US every day.

Mar 31, 2018
Successful people have learned to work around their shortcomings. If Mc Donalds does not pay well then learn a trade or babysit for some working mothers. Income inequality is fair and unavoidable when based on motivation and talent. Where I live there are plenty of new South American immigrants that are self employed and making an adequate if not great living. If a particular group of people cannot do the same they have to look within and not blame others.

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