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Wealth Mobility and Volatility in Black and White

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This report finds a high degree of wealth volatility in U.S. households, with Americans in the top and bottom income quartiles tending to stay there over the long term, and disparities in maintaining wealth between African Americans and whites.

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Download the full report (pdf)

Conventional wisdom considers the United States to be a land of equal opportunity where the possibility for upward economic mobility is limitless. With hard work, everyone has a chance to move from rags to riches in a generation. To date, this “American Dream” premise has almost exclusively been tested in terms of income mobility—that is, tested by looking at the extent to which the income of parents compares to the income of their children. Most recently, the Brookings Institution, in their comprehensive report, “Getting Ahead or Losing Ground: Economic Mobility in America,” affirmed previous research that African Americans lose relative income status while whites do not.

Yet the American Dream measured against another metric, inequality in wealth, or what you own rather than what you earn, may reveal a much starker picture of economic
mobility. Our analysis in this paper indicates that inequality in wealth is much greater than income inequality in the United States. This report argues that to fully understand a family’s economic well being and the life chances of its children, we not only must consider income and education but also accumulated wealth.

Compared to income, wealth may be more fundamental to upward economic mobility
and achieving the American Dream. Along those lines, wealth provides families and their offspring with superior protection against economic vulnerability because it can buffer families against transitory fluctuations and shocks to the labor market. The loss of a job or a health care crisis may not translate into a family’s financial ruin if the family
has some savings or a mortgage that it can refinance.

Moreover, in an era where college and professional degrees have become more important
to achieving middle-class status, wealth may be more important than ever. Parents use their wealth to finance their children’s education, which ultimately contributes to securing their offspring’s economic well-being. Despite wealth being central to upward economic mobility and financial security, we know very little about the wealth transmission process. This report discusses wealth mobility in the United States and then provides answers to three questions:

  • How hard is it for individuals who begin from a position of low wealth in childhood ƒƒto obtain a position of high wealth in adulthood?
  • How able are individuals to hold onto wealth during their prime working years of adulthood?
  • How do wealth mobility (and security) dynamics differ by race?

The key findings of this report—based on analysis of a nationally representative
sample of American families (the Panel Study of Income Dynamics, or PSID) spanning the years from 1984 to 2003—reveals that though there is a high degree of wealth volatility among U.S. households, Americans in the top and bottom quartiles tend to stay there over the long term—both in terms of their own relative wealth position and in terms of their offspring’s position. (See Appendix A on page 34 for a more complete explanation of the methodology.)

Among the key intergenerational findings, which measure wealth mobility between parents and their adult children, or the extent to which the wealth of a child is determined by the wealth of his or her parents, are:

  • What family an individual comes from ƒƒexplains about three-quarters of where they end up in the wealth distribution as adults. For African Americans, however, the impact of family background is substantially lower, at 37 percent.
  • Individuals are more likely to mainƒƒtain wealth than to attain wealth, or more precisely, low-wealth children are unlikely to become high-wealth adults, while high-wealth children are very likely to be high-wealth adults. Looking at previous years’ data, less than 10 percent of children who grew up in families in the bottom wealth quartile, which had a maximal cut off of about $8,000 in 1984, reached high wealth levels by adulthood between 1999 and 2003 (when the top group’s minimal value was $82,501and the median was over $189,000). And over 55 percent of children who grew up in families in the top wealth quartile—over $155,000 of net worth back in 1984—held on to their high wealth levels by adulthood.
  • The strongest predictor of an adult’s ƒƒrelative wealth status is his or her income, which in turn is highly predicated on his or her parents’ income and wealth.
  • Wealthy white children are much more ƒƒlikely to become wealthy adults than wealthy African-American children: Over 55 percent of all white children raised by parents in the top wealth quartile hold onto the top wealth position as adults. This is contrasted to only the 37 percent of African-American children raised by parents in the top wealth quartile who hold onto the top wealth position as adults.

Among the key intragenerational findings—the wealth mobility of an individual
over an extended period of time from 1984 to 2003—of our analysis of the PSID are the following:

  • Individuals are more likely to mainƒƒtain wealth than to attain wealth: Over a 15-year to 20-year period, less than 5 percent of those who were in the bottom wealth quartile (less than $5,767 in 1984) moved up to the top, while 58 percent of those who were in the top wealth quartile (at least $114,563 in 1984) stayed there.
  • African Americans have more difƒƒficulty retaining their relative wealth status: Over a 15-year to 20-year period, 60 percent of whites who were in the top wealth quartile remained there, compared with only 22 percent of African Americans.
  • Most individuals experience some ƒƒwealth volatility: Over one-third of preretirement adults experience at least one $1,000 drop in their inflation-adjusted wealth during adulthood.

These results demonstrate that when viewed through the lens of wealth—as opposed to just income—there is a high degree of wealth instability combined with a lack of mobility, particularly in terms of breaking out of the bottom quartile. These results, combined with the fact that cross-sectional wealth inequality is enormous, should sound alarms for policy makers concerned with preserving the American Dream.

Furthermore, when we overlay the dynamic analysis of wealth trajectories onto similar trends for income to obtain a complete picture of the economic landscape of financial security and opportunity for U.S. families, we see a country where many families may be struggling just to maintain a fairly consistent standard of living, leaving precious few resources to provide a stepping stone for their children or a nest egg for their own retirement. When we separate the analysis out by race the distinctions are even starker: Blacks not only enjoy one-tenth the wealth of white families at the median; they also are more likely to be asset poor across their entire adulthoods and even intergenerationally.

One cannot discuss issues of race and opportunity in the United States without tackling these wealth disparities head on.

Download the full report (pdf)

To speak with our experts on this topic, please contact:

Print: Katie Peters (economy, education, poverty, Half in Ten Education Fund, women's issues)
202.741.6285 or kpeters@americanprogress.org

Print: Tom Caiazza (foreign policy, health care, LGBT issues, gun-violence prevention, the National Security Agency)
202.481.7141 or tcaiazza@americanprogress.org

Print: Chelsea Kiene (energy and environment, Legal Progress, higher education)
202.478.5328 or ckiene@americanprogress.org

Spanish-language and ethnic media: Tanya Arditi
202.741.6258 or tarditi@americanprogress.org

TV: Rachel Rosen
202.483.2675 or rrosen@americanprogress.org

Radio: Chelsea Kiene
202.478.5328 or ckiene@americanprogress.org