The Wilson Quarterly

Why rich kids become rich adults and poor kids become poor adults

For American families, the unequal distribution of wealth translates to their children as they grow older. How does this imbalanced economy set up the wealthy for generational success while condemning others to multigenerational poverty?

Income inequality is rising in the United States, and the gap between the wealthiest 1 percent of Americans compared to the majority of income earners is now at unprecedented heights. While the growing disparity may be attributed to a multitude of factors (race and gender, to name a few) the environment that one is raised in bears the most impact, for better or worse.

A study from Harvard’s Equality of Opportunity Project, led by professors Raj Chetty and Nathaniel Hendren, found that among subjects who were studied through adolescence to adulthood in the nation’s 100 largest counties, the average annual income at 26 years old was $26,000. Inevitably, there were deviations from that mean; the average household in Dupage, Illinois, a wealthy Chicago suburb, makes about 15 percent more than the national average. At the other end of the spectrum, natives of Baltimore, Maryland, take home nearly 17 percent less than the average national income. The study’s takeaway, according to Chetty and Hendren, is the environment one is raised in determines his or her economic mobility.

A similar analysis by John Hopkins University focused solely on Baltimore. Tracking about 800 students from the first grade through their late-20s, the study found that only 4 percent of children from low-income families achieved a college education, compared to 45 percent of children from higher-income families. Cultural environment and surroundings undoubtedly impact the eventual success of a child, as they determine available opportunities and govern how a child will perceive their social standing. One of the study’s subjects, Monica Jaundoo, told her story to NPR in 2014, describing her upbringing: “I remember being so immune to death, so immune to shootings, killings,” she said. “I just remember wanting them to rush, like, get the body out the way so we can get back to playing hopscotch or dodgeball.”

An entirely different reality exists for the nation’s wealthiest minors, evidenced by social media accounts that flaunt their lifestyles. Naturally, a child born into a high-income earning family has easy access to luxurious resources. Yet this environment has set them up with an unfair advantage compared to low-income children, as wealthy kids without fiscal responsibility are likely to stay wealthy at about the same rate as poor kids who work hard are likely to stay poor. In other words, the rich are likely to stay rich and the poor are likely to stay poor.

The cycle is unlikely to end soon. Researchers based in Sweden (which possesses a lack of social mobility similar to the United States) found that the rate at which Swedish children of wealthy, biological parents were likely to become wealthy was a significant correlation of 0.33 (with 0 meaning no correlation and 1 being exact). A positive correlation also exists for adopted Swedish children of wealthy parents. Naturally, as wealth is passed from one generation to the other in the form of inheritance and gifts, the children of rich parents become rich, too. Rich parents breed rich kids. But there’s more to the passing of wealth than inheritance.

From the moment a child is born into a wealthy family, their parents’ spending habits determine if they, too, will be in a high income bracket as an adult. It stems from how wealthy parents spend money compared to their low-income counterparts: where low-income families focus on immediate needs, such as food and transportation, rich families invest more on future-oriented purchases that will ensure their wellbeing.

Growing up with affluence even impacts the college major a wealthy student is likely to choose. Kim Weeden, a Cornell sociologist, spoke with the Atlantic about National Center for Education Statistics data on the correlation between family wealth and choice in college major. She found that, for students with affluent backgrounds, the choice in college major tends to be in the humanities such as English, history, and the arts. Meanwhile their lower-income peers seek majors in math, physics, and computer science. As low-income students may choose their majors based on financial necessity and marketibility, more affluent students experience the luxury of their families’ safety nets, and can explore majors that are less marketable:

The gap continues upon graduation, when more affluent students are substantially more likely to enter the workforce with little to no student debt. For less-affluent graduates, chains of student loan debt weigh down any chance of wealth accumulation. As their paths diverge, and the college graduates age and have families of their own, the cycle perpetuates.

To fix a problem that starts so early in life, it is necessary to start in early childhood. Chetty and Hendren, after finding that the chance of upward mobility is increased if young children are exposed to resources usually reserved for the rich (such as better schooling and safer neighborhoods), recommend housing voucher programs to enable lower-income families to move to better neighborhoods with quality pre-school programs. Otherwise, leaving such traps of inequality unanswered means another generation of children blocked from success.

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Further reading:

Tami Luhby, “Where poor kids stay poor,” CNN Money, May 5, 2015.

Joe Pinsker, “How Rich People Raise Rich Kids,” The Atlantic, July 29, 2015.

Photo courtesy of Shutterstock

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