How Wealth Inequality Shapes Our Future.

Abstract

Liz, Mary, and Howard are three teenagers in the 1980s. Although unrelated, their families have much in common: stable two- parent households, at least one parent completed high school (though none of them went to college), and all three are white. They differ in one important aspect: their parents command quite different levels of wealth (here measured as net worth, that is, the total sum of financial and real assets minus debt). Liz's parents own less than $700 (inflation adjusted to 2013 dollars), meaning that Liz grows up at the bottom of the wealth distribution. Still, she is far from living in poverty thanks to her parents' annual income of about $50,000. Mary's parents have a somewhat higher income, about $70,000, but also markedly more wealth than Liz's parents: their net worth of roughly $60,000 puts them at about the national median of the time. Also unlike Liz's parents, they are homeowners. Howard is lucky enough to grow up in affluence. Not in terms of income, given that his parents have a household income of only about $40,000, but they have considerable wealth. With a net worth of nearly a quarter million dollars, Howard's parents are in the top 20 percent of wealth holders. They, too, own their home.