Wealth Mobility and Opportunity in America, by Dalton Conley, New York University, and Rebecca Glauber, University of New Hampshire

To better understand what Americans require to succeed andthrive, it is time to move beyond income as the sole measure of economicstability and quality of life.  Thefederal government still relies on household income to measure poverty and,while there is robust debate over just what level of income constitutespoverty, our dependence on income as the only meaningful yardstick for people۪swellbeing obscures the entire truth about the opportunities available toAmericans and their children.

Our research shows that an informed public discussion onopportunity must also focus on wealth, which gauges what a person ownssuch as a house or a savingsaccountas opposed to mere income, which describes what he or she earns. Wealth can provide us with some information about Americans۪ financialand economic health that income cannot. For example, wealth insulates families against financialinstability.  Both large scale events(economy-wide downturns) and individual ones (job losses) immediately impact afamily۪s income.  However, the loss of ajob may not ruin a family۪s financial wellbeing and future opportunities if thehousehold can draw on reserve money to pay their monthly housing expenses,health care and grocery bills. Likewise, adequate wealth can help familiesweather the effects of crisesinsurance status aside.  In addition, wealth allows families to opennew opportunities to their children because families tend to leverage theirassets in order to finance post-secondary education.In these ways, assets bolster economic security for familiesand promote economic and financial mobility for the next generation.Wealth can therefore act as a measuring stick for how wellpeople are able to live the so-called “American Dream.”  The United States has long cherishedthe self-image of a nation in which all people have the same chance not only toget ahead in their own lifetimes, but also to move their children toward stillbetter lives.  Traditionally, we haveattempted to assess our progress in achieving this “American Dream” bycomparing the incomes of children to those of their parents.Unfortunately, augmenting an exclusive focus on income withone that includes wealth reveals a much gloomier picture.  Using data from the Panel Study of IncomeDynamics from 1984 to 2003, we came to some alarming conclusions about theability of American families not only accumulate wealth but also to pass italong to the next generation.A person۪s family background accounts for 75 percent ofwhere that person winds up in terms of wealth as an adult.  The good news is that this means that a highlevel of wealth in one generation is likely to translate into a high level ofwealth for the next generation. In fact, more than 55 percent of those who comefrom the very wealthiest families remain wealthy as adults.  The bad news is that, conversely, those whodo not come from a wealthy family are unlikely to get there.  Only 10 percent of children in the lowestwealth quartile managed to climb to the high wealth group by the time they grewto be adults.  Taking race into account serves to heighten anxieties aboutwealth and opportunity.  Familybackground currently exerts a mere 37 percent influence on individual wealthfor African Americans.  Yet this does notmean that they are more economically (and upwardly) mobile. To the contrary,African Americans tend to experience strong downwardmobility when it comes to wealth.  Only37 percent of African Americans whose parents inhabit the top wealth group tendto attain that same wealth position in adulthood.Our data also dispels the “American Dream” of “making it” ina single generation as more myth than reality. During the period we studied, only 5 percent of young adults in thebottom wealth quartile crawled their way to the top by the time they wereapproaching retirement, while a staggering 58 percent already ensconced at thetop managed to remain.  AfricanAmericans, however, do not even experience the luxury of maintaining higherwealth statusonly 22 percent in the top quartile were able to stay there overa 20 year period.Although the current picture of wealth accumulation andtransmission appears bleak, there are ways for policymakers to improveopportunities for Americans and provide those with low wealth levels the chanceto get ahead.  First, use of such tools as the estate tax and gift tax canlimit the exaggerated effects that wealth accumulation in one generation has onsucceeding generationsfor those who are at the very, very top withoutaffecting the vast majority of Americans. These policies need not be embraced merely to punish those who amasswealth or those who inherit it, but can be targeted specifically at thoseinstances in which the buildup of assets by some thwarts chances for others toproductively acquire and safeguard wealth of their own.Second, our leaders must pay more attention to wealthcreation, rather than just income creation. Raising the minimum wage and the Earned Income Tax Credit are all goodways to increase a person۪s spending power, and they should be encouraged.  At the same time, we need policies thatpromote saving and the accrual of wealth. Ideas like universal individual retirement accounts and credit cardreform both promote new savings and protect existing savings.Finally, we must try and break the monopoly wealth holds onaccess to opportunity.  Wealth is obviouslya good thing.  At the same time, whenlack of wealth robs someone of the opportunity to pursue other routes tosuccess, such as an adequate education, then it frustrates our attempts tocreate a society where a person۪s achievements matter more than where he or shestarted.  For this reason, we needsensible policies that protect opportunity-generating domains such as educationfrom the excessive influence of household and personal wealth.  As a simple example, we can start bydivorcing property values from school funding.No matter how we proceed, an important first step is puttinginformation regarding wealth to good use. Measuring income is an essential component of understanding andaddressing Americans۪ wellbeing.  Butincome cannot tell the whole story.  Byturning to wealth, we can understand not only the failure of our society tolive up to its own aspirations, but the even more shameful racial gaps thatfurther stymie the attempt of some Americans to improve their lives and thoseof their children.In the midst of an economic recession, driven in part by anasset crisis, there is perhaps no better time for America policymakers to begin toreexamine wealth as an index of our nation۪s prosperity.