Parental Wealth Research Articles

Poor Little Rich Kids? The Role of Nature versus Nurture in Wealth and Other Economic Outcomes and Behaviours

Abstract Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for pre-birth factors and we find little evidence that nature/nurture interactions are important. When bequests are taken into account, the role of adoptive parental wealth becomes much stronger. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth. We further build on the existing literature by providing a more comprehensive view of the role of nature and nurture on intergenerational mobility, looking at a wide range of different outcomes using a common sample and method. We find that environmental influences are relatively more important for wealth-related variables such as savings and investment decisions than for human capital. We conclude by studying consumption as an overall measure of welfare and find that, like wealth, it is more determined by environment than by biology.

The Intergenerational Impact of China's New Rural Pension Scheme

The Intergenerational Impact of China's New Rural Pension Scheme

Mexican Americans and wealth: economic status, family and place

ABSTRACT We examine the effect of economic, family, and metropolitan area characteristics on Mexican Americans’ wealth outcomes. We use data from the Mexican American Study Project, a data set that allows us to examine longitudinal and intergenerational change. We find that Mexican Americans have one main source of wealth – home equity. Moreover, length of marriage among parent respondents was key for their wealth accumulation, while education and income were important for wealth accumulation among their adult children. Additionally, we find that parents’ wealth has a limited impact on their children’s wealth. Our results suggest that Mexican Americans’ wealth outcomes are mainly attributed to their own economic efforts, rather than the resources passed down from their parents. We argue that Mexican Americans’ modest financial resources and limited intergenerational support stymies their wealth progress. These findings substantiate the challenges of building wealth from a low starting point in socioeconomic resources and structurally-disadvantaged labour market position. Since parental wealth can lift a family beyond its own achievements, Mexican Americans may not be able to achieve financial security in the same manner as do whites. These findings have important implications for the financial conditions of Mexican immigrants and their descendants.

Student loans and the allocation of graduate jobs

AbstractHigher education is not just a costly signal of native talent but also a means of raising a person's ability to hold a graduate job (and at least a certain educational achievement is required to get one). Graduate jobs differentiated by quality are allocated to graduates differentiated by native talent and parental wealth through a tournament. Non‐graduates jobs pay a fixed wage to those who do not participate in the tournament. Assuming that credit is rationed, some poor school leavers will go straight into the non‐graduate labour market even if they are talented enough to get a higher education and participate in the tournament. Some others will buy the same amount of higher education and end up doing graduate jobs of the same quality as less talented but richer school leavers. We show that student loans improve job matching and bring educational investments closer to efficiency. If the size of the loan is not very large, some poor school leavers will still be liquidity‐constrained and thus buy the same amount of higher education as less talented but richer ones. In that case, the former will get a productivity bonus. But raising the size of the loan to such a level that nobody is liquidity‐constrained could be socially optimal only if social preferences were extremely egalitarian.

Fewer Siblings, More Wealth? Sibship Size and Wealth Attainment.

This study examines the association between sibship size and wealth in adulthood. The study draws on resource dilution theory and additionally discusses potentially wealth-enhancing consequences of having siblings. Data from the German Socio-Economic Panel Study (SOEP, N = 3502 individuals) are used to estimate multilevel regression models adjusted for concurrent parental wealth and other important confounders neglected in extant work. The main results of the current study show that additional siblings reduce wealth by about 38%. Parental wealth moderates the association so that sibship size is more negatively associated with filial wealth when parents are wealthier. Birth order position does not moderate the association between sibship size and wealth. The findings suggest that fertility in the family of origin has a systematic impact on wealth attainment and may contribute to population-level wealth inequalities independently from other socio-economic characteristics in families of origin such as parental wealth.

The Wealth of Parents: Trends over Time in Assortative Mating Based on Parental Wealth

This paper describes trends in parental wealth homogamy among union cohorts formed between 1987 and 2013 in Denmark. Using high-quality register data on the wealth of parents during the year of partnering, we show that the correlation between partners’ levels of parental wealth is considerably lower compared to estimates from earlier research on other countries. Nonetheless, parental wealth homogamy is high at the very top of the parental wealth distribution, and individuals from wealthy families are relatively unlikely to partner with individuals from families with low wealth. Parental wealth correlations among partners are higher when looking only at parental assets rather than net wealth, implying that the former might be a better measure for studying many social stratification processes. Most specifications indicate that homogamy increased in the 2000s relative to the 1990s, but trends can vary depending on methodological choices. The increasing levels of parental wealth homogamy raise concerns that, over time, partnering behavior has become more consequential for wealth inequality between couples.

Do Rank-Rank Income Mobility Measures Fully Capture Broader Parental Influence on Child Income?

Social scientists have long been interested in the relationship between parental factors and later child income. Finding the best characterization of this relationship for the question at hand is however fraught with choices. In this paper we use machine learning methods to assess the ‘completeness’ of one popular modelling approach. Here, completeness refers to how well the model summarizes the total predictive relationship between multiple parental factors and a single child outcome. Machine learning methods enable us to depart from functional form assumptions, allowing flexible interactions between a large set of possible parental factors. Using our most flexible complete model as a benchmark, we assess the popular ‘rank-rank’ model relating parent and child incomes. Applying our approach to high-quality Norwegian administrative data, we demonstrate that the rank-rank model explains 68% of the total explainable variation in child income rank, based on a broad set of potential parental factors entering a neural network. Parental wealth and parental education explain the majority of the remaining explainable variation. For an extremely tractable model, we consider this to be a relatively high level of completeness. In light of our country-wide estimates, we explore how this measure of completeness varies across regions of Norway, finding broadly similar patterns to those found at the national level. Our results imply that comparisons of regions based on rank-rank mobility measures may indeed reflect differences in broader notions of equality of opportunity.

Skin Color and Social Mobility: Evidence From Mexico.

In many Latin American countries, census data on race and skin color are scarce or nonexistent. In this study, we contribute to understanding how skin color affects intergenerational social mobility in Mexico. Using a novel data set, we provide evidence of profound social stratification by skin color, even after controlling for specific individual characteristics that previous work has not been able to include, such as individual cognitive and noncognitive abilities, parental education and wealth, and measures of stress and parenting style in the home of origin. Results indicate that people in the lightest skin color category have an average of 1.4 additional years of schooling and 53 % more in hourly earnings than their darkest-skinned counterparts. Social mobility is also related to skin color. Individuals in the darkest category are 20 percentile ranks lower in the current wealth distribution than those in the lightest category, conditional on parental wealth. In addition, results of a quantile regression indicate that the darkest group shows higher downward mobility.

Parents’ Education Is More Important Than Their Wealth in Shaping Their Children’s Intelligence: Results of 19 Samples in Seven Countries at Different Developmental Levels

In 19 (sub)samples from seven countries (United States, Austria, Germany, Costa Rica, Ecuador, Vietnam, Brazil), we analyzed the impact of parental education compared with wealth on the cognitive ability of children (aged 4–22 years, total N = 15,297). The background of their families ranged from poor indigenous remote villagers to academic families in developed countries, including parents of the gifted. Children’s cognitive ability was measured with mental speed tests, Culture Fair Intelligence Test (CFT), the Raven’s, Wiener Entwicklungstest (WET), Cognitive Abilities Test (CogAT), Piagetian tasks, Armed Forces Qualification Test (AFQT), Progress in International Reading Literacy Study (PIRLS), Trends in International Mathematics and Science Study (TIMSS), and Programme for International Student Assessment (PISA). Parental wealth was estimated by asking for income, indirectly by self-assessment of relative wealth, and by evaluating assets. The mean direct effect of parental education was greater than wealth. In path analyses, parental education ( βEd) also showed a stronger impact on children’s intelligence than familial economic status ( βIn, total effect averages: βEd= .30–.45, βIn= .09–.12; N = 15,125, k = 18). The effects on mental speed were smaller than for crystallized intelligence, but still larger for parental education than familial economic status ( βEd→MS= .25, βIn→MS= .00, βEd→CI= .36, βIn→CI= .09; N = 394, k = 3). Additional factors affecting children’s cognitive ability are number of books, marital status, educational behavior of parents, and behavior of children. If added, a general background (ethnicity, migration) factor shows strong effects ( βBg= .30–.36). These findings are discussed in terms of environmental versus hidden genetic effects.

The role of parental financial assistance in the transition to homeownership by young adults

This study examines the role of direct parental assistance in their adult children's home buying, net of other resources. Past research has cited the importance of down payment constraints, but often has not included data on parental wealth and direct transfers. Using both the Health and Retirement Survey (HRS) and Panel Study of Income Dynamics (PSID), we first confirm other research that children whose parents have more resources are more likely to buy homes themselves. In addition, we find that financial transfers increase the probability of home buying among adult children, net of parental wealth and other characteristics of parents and children. Results from the HRS suggest that receiving a transfer greater than $5000 for any purpose increases the probability of transitioning to homeownership by 15.1%. Results from the PSID suggest that this effect was magnified after the recession.

Egalitarian Australia? Associations between family wealth and outcomes in young adulthood

Despite a widely held belief that Australia is an egalitarian society where social origin is less important than in many other advanced economies, previous research shows that there is an enduring association between socioeconomic status, as measured by parental education, and child’s educational attainment. Less attention has been paid to the effects of another indicator of socioeconomic status, namely family wealth, on educational attainment. In this article, I examine associations between parental wealth and educational attainment, occupational prestige and wealth in young adulthood using data from the Housing, Income and Labour Dynamics in Australia (HILDA) project collected in 2002 and 2014. The results show that high levels of family wealth are associated with higher levels of educational attainment, occupational prestige and individual wealth in young adulthood.

Born with a Silver Spoon? Danish Evidence on Wealth Inequality in Childhood

We study wealth inequality in childhood using Danish wealth records from three decades. While teenagers have some earnings, we estimate that transfers account for at least 50 percent of wealth at age 18, and much more so for the rich children. Inheritance from grandparents does not appear quantitatively important, but we do find evidence that children receive inter vivos transfers. While wealth holdings are small in childhood, they have strong predictive power for future wealth in adulthood. Asset holdings at age 18 are more informative than parental wealth in predicting wealth of children many years later when they are in their 40s. Hence, childhood wealth reveals significant heterogeneity in the intergenerational transmission of wealth, which is not simply captured by parental wealth alone. We investigate why this is the case and rule out that childhood wealth in itself can accumulate enough to explain later wealth inequality. Our evidence indicates that childhood wealth is a proxy for a broad set of circumstances related to intergenerational transmission and future wealth accumulation, including savings/investment behavior and additional transfers.

Who Marries Whom in a Surging Housing Market

This paper investigates the impact of a surging housing market on marital sorting. To cover the increasingly large down payments required in China today, both spouses’ parents have to hand over their resources to support the couple in purchasing a new home. The incentive to extend credit to make a down payment motivates individuals to “marry up,” and, therefore, predicts an equilibrium of positive assortative matching by parental wealth. Our difference-in-differences analysis shows that the partial correlation of paternal schooling years between the spouses increases by 0.118 if the down payment doubles and by 0.258 as the price growth rate doubles. Despite increasing social stratification, we find that a prenuptial agreement involving a shared housing asset can alleviate marital sorting: the assortativeness weakened after China’s divorce laws were reformed to award the share of the asset proportionate to the share of the initial down payment (rather than awarding equal shares) upon divorce.

Spatializing the intergenerational transmission of inequalities: Parental wealth, residential segregation, and urban inequality

Young adults in many contexts struggle on the housing market. Parental support has become increasingly important in allowing young adults to enter homeownership or to acquire secure housing in general. Consequently, the intergenerational transmission of inequalities has become more pronounced with regard to housing. Using longitudinal individual-level register data from Statistics Netherlands, this paper investigates how and to what extent parental wealth background is associated with socio-spatial inequalities and residential segregation in Amsterdam and Rotterdam. Results show that spatial segregation based on parental wealth is strong. Parental wealth background has notable spatial consequences, as it both deepens existing socio-spatial divides and establishes new ones. The influence of parental wealth background on socio-spatial divides is stronger in Amsterdam than in Rotterdam, suggesting that especially in the high demand Amsterdam housing context, young adults may need to draw on parental resources to outcompete other households and/or to acquire housing in expensive areas.

The Role of Parental Wealth and Income in Financing Children's College Attendance and its Consequences

This paper examines the influence of parental wealth and income on children's college attendance and parental financing decisions, graduation, and quality of college attended, and whether parental financing affects the subsequent indebtedness of parents and children. We find that higher levels of parents' wealth and income increase the likelihood that children attend college with financial support relative to not attending college, and that parental wealth increases the likelihood that children graduate from college. We show descriptive evidence that parental support for college increases the subsequent level of housing debt that parents hold but does not reduce student debt for children.

Generations of Advantage. Multigenerational Correlations in Family Wealth.

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 four 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.

The Role of Parents on the Home Ownership Experience of Their Children: Evidence from the Health and Retirement Study

We construct matched panel data sets of adult children with their parents to study the role of lagged parental attributes on subsequent home ownership decisions between 2000 and 2012. Earlier research has demonstrated inter-generational wealth transfers from parents to children are an important source of upfront equity used to purchase a first home, although parental attributes are often omitted as determinants of tenure due to data limitations. A significant role is found for lagged parental wealth on the ability of adult children to become and remain home owners over this period. Endowed differences in parental wealth are estimated to account for the largest explainable share of the white/non-white gap in becoming a homeowner, and maintaining home ownership once attained.

Rights versus responsibilities: adult children, parental wealth and contested wills

The Inheritance (Provision for Family and Dependants) Act 1975 allows courts in England and Wales to alter the distributive scheme of a will (or intestacy allocation), where certain statutory crite...

The effect of parental wealth on children\u2019s outcomes in early adulthood

This paper uses data from the British Household Panel Survey to examine the relationship between parental wealth and three child outcomes in early adulthood. Parental wealth is found to have a very strong positive correlation with children’s degree-level qualification attainment at age 25. This correlation is stronger at below-the-median wealth levels and remains strong after controlling for a wide range of confounding family characteristics. There is also evidence of a positive correlation between parental wealth and children’s employment probability and earnings. However, for both labour market outcomes the parental wealth gradient is rather weak and for the employment outcome the effect is largely mediated by children’s education.

Inequalities in health care utilization for common childhood illnesses in Ethiopia: evidence from the 2011 Ethiopian Demographic and Health Survey

BackgroundGlobally, 5.9 million children under the age of five died in 2015. More than half and almost one-third of those deaths occurred in sub-Saharan Africa and South Asia, respectively. Diarrhea and Pneumonia, which were the major causes of the problem, accounted for more than two million deaths of the world’s youngest children every year. Like other developing countries, child health services utilization is low in Ethiopia. The aim of this study was to identify the determinant factors for the inequalities in medical treatment seeking behavior for common childhood illnesses in Ethiopia.MethodsData were obtained from the Ethiopian Demographic and Health Survey (EDHS) 2011. All children who had diarrhea, cough, and fever in the 2 weeks preceding the survey were included. A total of 1620 children with diarrhea, 2082 with fever, and 2134 with cough were included in the analyses. Multivariate logistic regression with a 95% confidence interval, adjusted odds-ratio, and a P < 0.05 were used to determine the independent effect of each variable.ResultsHousehold wealth-status, maternal and paternal education, and religion were found to be associated with the inequality in the use of child health services. Respondents from households with the richest, richer, and middle wealth status had higher odds of seeking medical treatment for childhood diarrhea, cough, and fever than that of the poorest ones. Maternal and paternal educational status was also associated with medical treatment seeking behavior for childhood diarrhea and fever, respectively.ConclusionHousehold wealth and educational status of parents were possible determinant factors for the inequalities observed in health care seeking behavior. Policy interventions aimed at improving the appropriate medical treatment seeking behavior for common childhood illnesses are desirable. Practical economic policies aimed at moving those in the lower wealth quintile are essential to bridge the gap between the rich and the poor. Studies comprising qualitative and quantitative methods are recommended to further explore other determinants of health care utilization.