Stuck on the ladder: Wealth mobility is low and decreases with age

The combination of increasing wealth inequality and poor prospects for upward mobility create sharp class divides which are at odds with the American dream. The top one percent held 31 percent of household wealth in 2019 compared to 24 percent in 1989, according to the Federal Reserve Board.

This growing wealth gap might be of less concern if there is significant opportunity to move up the wealth ladder. But there is not. As we show in a new paper, Americans are quite unlikely to move far up (or down) the wealth ranks early in life, and their chances decrease with age. Wealth inequality is high. And wealth status is sticky.

American economic immobility  

Conventional wisdom celebrates the United States as a place where anyone — regardless of their resources — can climb the ranks if they work hard enough. In reality, there is less movement up and down the economic ladder here than in many other countries. Most studies of economic mobility focus on income. In our paper, we focus on wealth and compare people to others their age who were born around the same time. If you are among the wealthiest of your peers in your early thirties, our findings suggest that you are also likely to be among the wealthiest in your late fifties. Similarly, if you have less wealth than your peers in your early thirties, the same is likely to be true later in life.  

Figure 1 shows the likelihood of a person moving from a given quintile (i.e., a group that contains a fifth of the wealth distribution) in their early thirties to another by their late fifties. These are the years when most wealth accumulation occurs. Wealth position is most rigid among those with the least and most wealth; half (49 percent) of those in the bottom wealth quintile in their early thirties are still there in their late fifties. At the other end of the ladder, half (53 percent) of those who start in the top quintile stay there.  

Wealth mobility happens early  

When mobility does take place, it is more likely to be in the earlier decades of working life. Figure 2 shows mobility rates from the bottom wealth quintile across narrower age periods, of about ten years (e.g., mobility from late twenties to late thirties, late thirties to late forties, and so on). As Americans age, the odds of moving out of the bottom of the distribution decrease. About 61 percent of young adults in the bottom quintile in their late twenties have climbed to a higher quintile ten years later. But for those starting from the bottom rung in their late forties, just 40 percent have moved up.

The odds of moving from the bottom to the top of the distribution decline even more with age. Over a quarter (28 percent) of those in the bottom quintile in their late twenties have reached one of the top two quintiles ten years later. The same is true of just three percent of those in the bottom quintile in their late forties. Wealth status is sticky at all ages – but much more so as the years pass. 

Policymakers: Tackle wealth inequality early 

These findings suggest that wealth status is quite static and becomes more so during the key working age years. There are particular challenges facing Black Americans, which we turn to in a companion blog. Policies should aim to promote wealth accumulation among younger adults, for example through targeted home ownership subsidies, individual development accounts and matched savings plans, as proposed by our colleague Jenny Schuetz. At the same time, given the settling of wealth status in middle age, the need for robust retirement provision, especially for those who have not been able to save, is as pressing as ever.  

Read the full report. 

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