American culture writing need in 24 hours
How Education, Race and Birth Year Shape Financial Outcomes
The Demographics of Wealth
2018 Series
Essay No. 1: The Financial Returns from College across
Generations: Large but Unequal | February 2018
2 Federal Reserve Bank of St. Louis
About the Center for Household Financial Stability
The Center for Household Financial Stability at the Federal Reserve Bank of St. Louis focuses on family balance sheets, especially those of struggling American families. The Center researches the determinants
of healthy family balance sheets, their links to the broader economy and new ideas to improve them.
The Center’s original research, publications and public events aim to impact future research, community
practice and public policy. For more information, see www.stlouisfed.org/hfs.
Staff
Ray Boshara is an assistant vice president at the St. Louis Fed and director of the Center.
He is also a senior fellow in the Financial Security Program at the Aspen Institute.
William R. Emmons is an assistant vice president and economist at the St. Louis Fed and the lead
economist with the Center.
Lowell R. Ricketts is the lead analyst for the Center.
Ana Hernández Kent is a policy analyst for the Center.
Visiting Scholars
Fenaba R. Addo is an assistant professor of consumer science at the University of Wisconsin-Madison.
Barry Z. Cynamon is a research associate at the Weidenbaum Center at Washington University in St. Louis.
Emily Gallagher is an assistant professor of finance and real estate at the University of Colorado at Boulder.
Bradley L. Hardy is an associate professor of public administration and policy at American University in
Washington, D.C., and a nonresident senior fellow in economic studies at the Brookings Institution.
William R. Emmons is the lead economist with the Center for House- hold Financial Stability at the Federal Reserve Bank of St. Louis, where
he also serves as assistant vice president. His areas of focus at the Center
include household balance sheets and their relationship to the broader
economy. He also speaks and writes frequently on banking, financial
markets, financial regulation, housing, the economy, and other topics.
His work has been highlighted in major publications including The New
York Times, The Wall Street Journal and American Banker, and he has
appeared on PBS NewsHour, Bloomberg News, and other national
programs. Emmons received a Ph.D. in finance from the Kellogg School
of Management at Northwestern University. He received his bachelor’s
and master’s degrees from the University of Illinois at Urbana-Champaign.
Lowell R. Ricketts is the lead analyst for the Center for Household Finan- cial Stability at the Federal Reserve Bank of St. Louis, where he conducts
primary and secondary research and policy analysis on household bal-
ance sheet issues. His primary research focus has centered on household
liabilities and wealth outcomes. Prior to joining the team, he worked in
the Research division of the Federal Reserve Bank of St. Louis as a senior
research associate. Ricketts received a bachelor’s degree in economics
with a math emphasis from the University of Wisconsin-Madison. He
continues to be involved with the university’s Department of Economics
as a member of the Wisconsin Economics Young Alumni Council.
Authors
Ana Hernández Kent is a policy analyst for the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis. She conducts
primary and secondary research and data analysis on household balance
sheet issues. Her primary research interests at the Fed include economic
disparities and opportunity, wealth outcomes, class and racial biases, and
the role of psychological factors in making financial decisions.
Kent is pursuing her Ph.D. in experimental psychology with concentra-
tions in social psychology and quantitative methods in behavioral sci-
ences from Saint Louis University. Kent received her Master of Science in
experimental psychology from Saint Louis University and her bachelor’s
degree in psychology from the University of Notre Dame.
The Demographics of Wealth 3
4 Federal Reserve Bank of St. Louis
Income and wealth rebounded for many families between 2013 and 2016, the dates of the two most recent waves of the Federal
Reserve’s Survey of Consumer Finances
(SCF).1 Groups that had struggled the most
during and after the Great Recession, includ-
ing less-educated, Hispanic and black, and
young families, participated in the recovery.
Nonetheless, long-standing income and
wealth gaps across education levels, races
and ethnicities, and age groups remain large.
This is the first in a series of new essays
that the Center for Household Financial
Stability will publish on how a family’s
demographic characteristics—including
educational attainment, race and ethnicity,
and birth year—are related to the family’s
financial outcomes. Like the previous essay
series published in 2015, the 2018 series will
focus on these three key demographic
dimensions in turn. An important new
feature of the 2018 series is the inclusion of
two generations of educational data for each
family. In addition to the educational attain-
ment of the SCF respondent, the 2016 SCF for
the first time contains detailed information
on the respondents’ parents’ education. This
new information reveals even more clearly
that inherited demographic characteristics—
your race or ethnicity, your age and birth
year, and even your parents’ level of educa-
tion—profoundly shape the economic and
financial opportunities you have and the
outcomes you achieve.
As before, our primary data source is
the triennial SCF, which provides the most
comprehensive picture available of American
families’ balance sheets and financial behav-
ior over time. In some of our analyses, we
use information from 47,776 families, each
of which was surveyed in one of 10 survey
waves between 1989 and 2016. When we
focus on the education of SCF respondents’
parents, we draw upon data collected from
6,248 families in 2016. In every case, the SCF
has been designed to be nationally represen-
tative, so we can safely generalize about the
population as a whole.
As we documented three years ago,
demographic characteristics remain
remarkably powerful in predicting a family’s
income and wealth. By expanding the scope
of inherited demographic characteristics to
include parents’ education, we believe the
2018 Demographics of Wealth series sheds
additional light on the deeply rooted sources
of economic and financial disparities. Fruitful
approaches to policy should be based on the
facts established here.
The Demographics of Wealth How Education, Race and Birth Year
Shape Financial Outcomes
An Introduction to the Series
By William R. Emmons, Ana H. Kent and Lowell R. Ricketts
The Demographics of Wealth 5
This essay explores the connections between a person’s level of completed education and measures of his or her family’s financial well-being,
including income and wealth. For simplicity, we
examine two discrete groups—families headed by
someone who has completed a four-year college
degree or higher (“college grads”) and those without a
college graduate head (“nongrads”). This essay shows
that inherited demographic characteristics signifi-
cantly influence the expected income and wealth
outcomes associated with one’s own education.
These characteristics include birth year (and hence
age at the time of the survey), race or ethnicity and
parents’ education level.
Inherited demographic characteristics are key
aspects of one’s identity over which one exerts no
control. The view we take is that any adult outcomes
that are systematically related to these inherited char-
acteristics likewise are inherited or granted, rather
than earned in any meaningful sense.
We document three important ways in which
inherited demographic characteristics influence
family income and wealth:
• The head-start effect. Families headed by some- one with certain “favorable” inherited demographic
characteristics typically earn much higher incomes
and accumulate much more wealth than families
without these characteristics. Whatever a family
head’s education level, being non-Hispanic white,
being over 40 and/or having college-educated
parents typically boosts income and wealth
compared to families without these demographic
characteristics (singly or in combination). The
median college graduate family with all of the
most advantageous inherited demographics—
white, aged 40-61, college grad parents—had three
times as much income and six times as much
wealth as the median family overall. We estimated
that over half of their advantage over the popula-
tion medians ultimately can be attributed to those
inherited characteristics, not their own effort or
education.
• The upward-mobility (or exceeding-expecta- tions) effect. For families headed by someone with less advantageous inherited demographic
characteristics, completion of a four-year degree
typically boosts income and wealth far above the
levels they would have achieved without a degree.
These families move up the income and wealth
rankings (relative to levels predicted by their inher-
ited demographic characteristics) more than do
college grad families with more favorable inherited
characteristics. For middle-aged families, complet-
ing college boosts the median family with non-
grad parents by 23 rungs in the income percentile
ranking and 20 rungs in the wealth ranking, while
college boosts families with college grad parents by
only 11 rungs for both income and wealth.
• The downward-mobility (or falling-short) effect. Finally, we show that family heads with college-educated parents who are downwardly
mobile in educational terms suffer notable neg-
ative consequences; these are people who do
not finish college even though their parents did.
Relative to the income and wealth that would be
predicted based on their inherited demographic
characteristics alone, those who fall short of their
parents’ college education are likely to slip deci-
sively downward in the overall rankings—by 16
percentiles in income and 18 percentiles in wealth
rankings for middle-aged families. Nongrad fam-
ily heads whose parents likewise did not obtain
college degrees drop by less than 10 percentiles in
both income and wealth rankings relative to levels
predicted by inherited characteristics alone.
Executive Summary of Essay No. 1
6 Federal Reserve Bank of St. Louis
The Financial Returns from College across Generations: Large but Unequal
By William R. Emmons, Ana H. Kent and Lowell R. Ricketts
Families headed by someone with a four-year college degree enjoy many advantages.2 College graduates tend to be healthier and to live longer,3
to smoke less,4 to have fewer and more favorable
contacts with the criminal justice system,5 to marry
more and to divorce less,6 to work in higher status
occupations,7 to demonstrate greater financial
knowledge,8 to have healthier finances,9 and to
avoid financial distress10 more easily than nongrad-
uates. Countries with more educated populations
grow faster11 (after controlling for other important
influences) and enjoy higher standards of living.12
What is less well-known is how strongly the
race or ethnicity and education of one’s parents
influence the earning and wealth-building power of
college for their adult children. For example, among
family heads who were middle-aged (40-61 years
old) in 2016, identified themselves as non-Hispanic
white (hereafter referred to as simply “white”) and
had a four-year college degree or more, median
family income was 37 percent higher if at least one
of the family head’s parents also had a four-year
degree; median wealth was 54 percent higher.13
The boost from college-educated parents was even
larger among nonwhite college grad families in per-
centage terms, although income and wealth levels
were uniformly lower.14 Thus, the financial benefits
of college are large and compound across genera-
tions, boosting the income-earning and wealth-
accumulating power of college from one generation
to the next. However, they are unequal across race
and ethnicity and, as we show in this essay, increase
at a diminishing rate in successive generations of
college graduates.
Why does the education of an adult child’s
parents matter so much? Some of the inherited
advantage plausibly flows through greater mone-
tary transfers and more intensive childhood invest-
ments, particularly in education, provided by
college-educated parents.15
Other likely sources of inherited advantage
are what we term the balance sheet and financial
behavior channels.16 In short, families headed by
someone with a college-educated parent typically
have stronger balance sheets—more liquid, better
diversified, less leveraged—than otherwise similar
families without a college grad parent. Families with
a college grad parent also typically exhibit better
financial knowledge and habits, including better
understanding of basic financial concepts like com-
pound interest; more willingness to take financial
risk to earn a higher return; more intensive searches
for good investment and borrowing options; and a
higher likelihood of regular saving. In fact, simply
having a college-educated parent increases the like-
lihood that the adult child’s family saves regularly by
8 percentage points, from 44 to 52 percent.17
The first section of this essay documents strong
associations over time between a family head’s own
education level and the family’s income and wealth;
this updates our 2015 essay and confirms the con-
ventional wisdom.18
The second section uses four demographic
characteristics to partition SCF families in 2016 into
24 distinct groups. The characteristics include three
age ranges; two race and ethnicity groups; two
levels of parental education; and two levels of “own”
(SCF respondent’s) education. We term the first three
characteristics “inherited” and the fourth “acquired”
to emphasize the distinction between factors over
which one has no control and those over which one
exerts at least some control.
The third section compares the demographically
defined groups on family income and wealth mea-
Essay No. 1
The Demographics of Wealth 7
sures in order to separate the contributions of par-
ents’ education (and other inherited characteristics)
from those of the respondent’s own education (and
other acquired characteristics) to income and wealth
outcomes. We document three striking results:
• Inherited demographic characteristics greatly
influence typical income and wealth outcomes
for any given level of own education;19
• The degree of upward income and wealth
mobility associated with a college degree is larger
for someone whose parents did not complete
college; and
• The degree of downward income and wealth
mobility associated with not completing a college
degree is greater if one’s parents themselves had a
college degree.
We term these the “head-start” effect; the
“upward-mobility” or “exceeding-expectations”
effect; and the “downward-mobility” or “falling-short”
effect, respectively.
Section Four illuminates balance sheet and
behavioral channels through which parental educa-
tion appears to influence adult children’s outcomes
above and beyond the children’s own education level.
The final section concludes. Four sidebars provide
additional definitional and methodological details.
I. Links between Own Education and
Own Income and Wealth
Before attributing income and wealth outcomes
either to inherited or to acquired characteristics, this
section documents the strong association between
a family head’s own level of education and standard
economic and financial measures. In other words,
we confirm the conventional wisdom that more
education is associated with more income and
wealth. This approach ignores all differences in
inherited demographic characteristics, which we
later show are, in fact, very important.
We present results for only two groups—families
headed by someone with at least a four-year college
degree (“college grads” in what follows) and fami-
lies headed by someone whose highest education
is less than a four-year college degree (“nongrads”).
Our data source throughout is the Federal Reserve’s
Survey of Consumer Finances (SCF).20
Share of families with college degrees. We focused on the four-year college degree as the key
line of demarcation along the spectrum of educa-
tional attainment. We used it because, for several
decades, a sizable minority of the population has
achieved a four-year college degree and it has been
Figure 1: U.S. Families Headed by College Graduates and Postgraduates
40
35
30
25
20
15
10
5
0
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Four-year degree families Postgrad families
P er
ce nt
o f
al l U
.S . f
am ili
es
NOTES: Postgrad families are those headed by someone with both a four-year college degree and a postgraduate degree. The total number of U.S. families rose from 93 million in 1989 to 126 million in 2016.
The sources for all the tables and figures are the Federal Reserve’s Survey of Consumer Finances and authors’ calculations.
8 Federal Reserve Bank of St. Louis
associated with significant economic and finan-
cial rewards. In 2016, for example, the median (i.e.,
middle-ranking) family headed by someone without
a four-year college degree earned only 44 percent as
much income and owned only 18 percent as much
wealth as the median family headed by someone
who had a four-year degree.21
The share of U.S. families headed by a college
grad has increased significantly in recent years. (See
Figure 1.) In 1989, about 23 percent of families were
headed by someone with a four-year college degree
To measure income for the SCF, the inter- viewers requested information on the family’s cash income, before taxes, for the full calendar year preceding the survey. The components of income in the SCF are wages, self-employment and business income, taxable and tax-exempt interest, dividends, realized capital gains, food stamps and other related support programs provided by government, pensions and withdrawals from retirement accounts, Social Security, alimony and other support payments, and miscellaneous sources of income for all members of the primary economic unit in the household. All income figures are adjusted for inflation to be com- parable to values recorded in 2016.
Wealth is a family’s net worth, consisting of the excess of its assets over its debts at a point in time. Total assets include both financial assets, such as bank accounts, mutual funds and secu- rities, and tangible assets, including real estate, vehicles and durable goods. Total debt includes home-secured borrowing, or mortgages, other secured borrowing, such as vehicle loans, and unsecured debts, such as credit cards and student loans. Debt incurred in association with a privately owned business or to finance investment real estate is subtracted from the asset’s value, rather than being included in the family’s debt. All wealth figures are adjusted for inflation.
Sidebar 1: Family Income and Wealth
or more; by 2016, the share had reached 34 percent.
Families headed by someone with a postgraduate (as
well as a four-year college) degree increased from
almost 9 percent of all families in 1989 to about 13
percent in 2016. Among white families alone (not
shown), the share of families with a four-year degree
or more increased from 26 to 38 percent between
1989 and 2016, while among families of all other
races and ethnicities, the share increased from
13 to 25 percent.
Family income. Income and especially wealth gaps between college grad and nongrad families
have grown over the last few decades. (See Sidebar 1.)
At the same time, the number of families headed by
college grads has increased notably. Together, these
trends have resulted in a large shift of aggregate
income and wealth toward college-educated families.
The income received by the median college
grad family increased from almost $88,000 in 1989
to about $92,000 in 2016, an average annualized
increase of only 0.18 percent.22 (See Figure 2.)
Among nongrad families, the average percent-
age increase was about the same (0.15 percent)
Figure 2: Median Family Income by Education of Family Head
NOTE: Median family income is the value of cash income, before taxes, for the full calendar year preceding the survey for the family that ranks exactly in the middle of a ranking by income. See Sidebar 1 for more details.
120
100
80
60
40
20
0
Th o
us an
d s
o f
20 16
$
Four-year College Graduates
Less than a Four-year College Degree
All Families
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
The Demographics of Wealth 9
but amounted to an increase of only $1,557. The
share of all income earned by college grad families
increased from 45 to 63 percent between 1989 and
2016, as both the number of college grad families
and their average income increased faster than
those of nongrads.
Family wealth (net worth). Nongrad fami- lies’ wealth fell further behind that of college grads
than their income did. Figure 3 shows that median
college grad family net worth rose from around
$238,000 to $291,000 between 1989 and 2016, an
annualized increase of 0.8 percent. Meanwhile,
nongrad median family wealth declined from about
$66,000 to $54,000, an annualized decrease of 0.7
percent. This large cumulative decline left median
nongrad family wealth at just 18 percent of median
college grad family wealth, down from a peak of 37
percent in 1995. The share of all wealth owned by
college grad families increased even more than was
the case for income—from 50 to 74 percent between
1989 and 2016.
The declining fortunes of nongrad families. The overall conclusion from these statistics is that
Figure 3: Median Family Net Worth by Education of Family Head
NOTE: Median family net worth is the value of total assets minus total debts for the family that ranks exactly in the middle of a ranking by net worth. See Sidebar 1 for more details.
400
350
300
250
200
150
100
50
0
Th o
us an
d s
o f
20 16
$
Four-year College Graduates
Less than a Four-year College Degree
All Families
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Figure 4: Nongrad Families’ Income and Net Worth Relative to College Grad Families’
NOTE: Median family net worth is the value of total assets minus total debts for the family that ranks exactly in the middle of a ranking by net worth. Median family income is the value of cash income, before taxes, for the full calendar year preceding the survey for the family that ranks ex- actly in the middle of a ranking by income. See Sidebar 1 for more details.
60
50
40
30
20
10
0
P er
ce nt
Median Income
Mean Income
Median Net Worth
Mean Net Worth
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
nongrad families’ economic and financial status
is slipping—faster for wealth than for income but
undeniably downward on most measures. (See
Figure 4.) What is it about college that produces the
dramatic divide evident in these data? The following
sections show that only some of the observed differ-
ences in income and wealth are due to college ed-
ucation itself. Some of the association is spurious—
that is, due to other factors that may help determine
both who completes college and how much income
or wealth they have as adults. These important “third
factors” include inherited demographic characteris-
tics, as we discuss below.
II. Breaking Out Demographic
Characteristics
To what extent do large and growing income
and wealth differences between families with and
without four-year college degrees reflect individ-
ual efforts undertaken to complete a degree and
the benefits of college learning itself? On the other
hand, how important are inherited demographic
characteristics both in predisposing someone to
10 Federal Reserve Bank of St. Louis
complete a degree and in boosting later financial
achievement?
There is, of course, no way to know for sure in
any individual case how much responsibility for a
particular income or wealth outcome to assign to
effort versus endowment. We proceed instead by
examining differences across demographically
defined groups. If there are economically and
statistically significant differences between the
median income and wealth of two groups that
differ only on one inherited demographic charac-
teristic, such as parents’ education, then we attribute
those group income or wealth differences to forces
related to the inherited characteristic rather than to
individuals’ own efforts or education.23
A demographic approach to income and wealth: Why age, race and (parents’) education? The logic behind our demographic framework for
analyzing income and wealth includes both prac-
tical and theoretical arguments. Demographically
defined groups show significant differences on
key outcome measures like income and wealth;
demographic classifications make predictions more
accurate. At the same time, demographic charac-
teristics of an individual that are determined before
birth are natural candidates to which one might
attribute a causal interpretation. The practical case for demographics: They
are strong predictors. It is important to take age into account because a powerful “life-cycle effect” characterizes many aspects of a person’s life course, not least income and wealth trajecto- ries.24 Race and ethnicity matter in profound and complex ways, supporting this variable’s inclu- sion in our set of explanatory factors, as well.25 It is uncontroversial to assert that one’s own education is related to one’s income and wealth; what is less well-known (but which will be shown later in the
essay) is that one’s parents’ education also seems
to matter. Knowing any of these demographic
details—a family head’s age, race or ethnicity, own
education or parents’ education—helps predict the
family’s income and wealth. For this reason alone,
demographic information is a valuable input to any
model seeking to explain or predict economic or
financial outcomes.
See Sidebar 2 for a discussion of why we believe
a demographic approach to income and wealth
determination is theoretically compelling; in short,
One of the most difficult tasks in empirical analysis is credibly separating correlation (that is, association) from true causation (inexorable consequences). Identifying the effects of educa- tion on adult outcomes is often confounded by a methodological challenge called the third variable problem: Two variables that are correlated may be jointly influenced by a third variable. Ignoring the existence of the third variable can obscure the true causal effect (if any) between the variables.
Take, for example, the positive correlation be- tween education and wealth. Education may help someone accumulate wealth; i.e., education causes wealth. But having more wealth may facilitate more education; i.e., wealth causes education. How important, then, is education for wealth accumu- lation? It also is possible that something else (i.e., a third variable), like parents’ education, supports both. These nuances are often overlooked.
We replace the context-free approach that sim- ply identifies a correlation between education and wealth as evidence of causation with the assump- tion that a person’s education and wealth do not exist in isolation. Education is the result, in part, of outside forces, such as parents and community, as well as social and political environments.
An economic argument for building an ana- lytical framework on age or birth year, race, and parents’ education—collectively, inherited demo- graphic characteristics—is that these observable, unchosen, unchangeable aspects of every per- son’s identity are valid instruments, or proxies, for powerful external forces. Their predetermined and unchanging nature allows us to more confidently identify cause and effect, pointing the arrow of causation from these factors to outcomes of inter- est like educational attainment, income and wealth. Understanding exactly why any of these factors exerts the influence it does is, of course, a difficult challenge in its own right. But possible reverse causation—for example, that your adult income somehow caused your parents to achieve a certain level of education—can be confidently ruled out.
Sidebar 2: The Theoretical Case for Inherited Demographics
The Demographics of Wealth 11
Characteristics of family respondent Percent of respondents
Young (under 40) 28.3
Middle-aged (40 to 61) 40.9
Old (62-plus) 30.8
Non-Hispanic white 68.0
Other races and ethnicities 32.0
Four-year college degree held by one or both parents
28.1
Four-year college degree holders 34.0
NOTES: Other races and ethnicities include all respondents who self-identify as anything other than non-Hispanic white, including Hispanics of any race, African-Americans or blacks, Asians, Native Americans, Pacific Islanders, Alaska Natives and people of more than one race or ethnicity. To code the education of an SCF respondent’s parents, the 2016 SCF contains an indicator variable for each parent on a four-point scale, with a four-year college degree or higher being the highest level. For simplic- ity, we classified parents’ education either as four-year college degree holders if at least one parent achieved a college degree or higher, or as nongraduate if neither did. Missing values were imputed by SCF staff. Instances in which survey responses were imputed include: The survey respondent didn’t know a parent’s educational attainment, refused to provide an answer, or the response was determined to be inadequate. For more information on the SCF imputation process, see Kennickell (1998).
Table 1. Families by Demographic Characteristics in the 2016 SCF
it helps isolate the true causal effect of education.
Separating endowment from effort. To isolate the effects of inherited versus acquired character-
istics on income and wealth outcomes, we divided
SCF families into successively smaller groups in
four steps. The resulting set of groups at each step is
called a partition of the sample families. The simplest
partition—before any demographic criteria are ap-
plied—contains all 6,248 families; the final and most
detailed partition is composed of 24 groups with
different numbers of families in each group.
The first partition resulted from dividing all
families into three age groups. We subdivided each
of these into two racial and ethnic groups, resulting
in six groups; then we subdivided each according
to the college-attainment status of the respondent’s
parents to create 12 groups. Finally, we subdivided
each of those groups according to the college-
degree status of the respondent, resulting in 24
groups. We used the following demographic criteria:
• Age groups: young (family head under 40);
middle-aged (40-61); or old (62 or older);
• Racial and ethnic groups: non-Hispanic white or
all other races and ethnicities;
• Parental educational attainment: at least one col-
lege graduate or none; and
• Respondent’s own education: four-year college
degree or none.
We termed the first three characteristics inherited;
the last is acquired. Table 1 provides details on the
distribution of these characteristics in the 2016 SCF.
How inherited and acquired characteristics play out for one group. Table 2 illustrates our de- composition method for a single group out of the
24 for both median income and median net worth.
The median income and wealth among all families
in 2016 are in Partition 0. By definition, the median
family in the sample ranks at the 50th percentile,
meaning 50 percent of families made more than
$52,657 a year, while 50 percent made less, and half
of families had more than $97,326 in wealth, while
half had less.26 These are the benchmarks to which
subsequent income and wealth outcomes will
be compared.
Note that Partitions 1 through 3 are defined by
demographic characteristics that were established
before the respondent’s birth;27 that is, they are
inherited demographics. For the group of families
shown in Partition 3, median income was at the
12 Federal Reserve Bank of St. Louis
62nd percentile and median wealth was at the
49th percentile within the entire population.
The final step (Partition 4) differentiated between
respondents who have completed a four-year degree
and those who have not. The median family in this
element of Partition 4 had an income larger than
76 percent of the population, while the median fam-
ily’s wealth was larger than that of 74 percent of the
population.28 This group of families represented 1.7
percent of all families in the appropriately weighted
2016 SCF sample. Sidebar 3 discusses issues related
to the sample size of the 2016 SCF, which is relatively
small for our purposes.
Assessing the effects of achievements. In the next section, we will assign responsibility for a
family’s achievement either to acquired or inherited
characteristics. To do this, we first compare per-
centile ranks of group median income and wealth
when only the education of the SCF respondents
differs (the acquired characteristic); next, we com-
pare percentile ranks when background or inherited
factors differ.
Moving from right to left in Table 2, the dif-
ference between the median income (net worth
levels) in Partitions 4 and 3 can be attributed to the
education, efforts and achievements of respon-
dents—an increase of about $31,000 in median
income and about $251,000 in median net worth.
As discussed below, these are very large changes;
NOTES: The groups represented are sample groups from the subdivision of respondents into partitions by age, race or ethnicity, and the educa- tion of the respondents and respondents’ parents. Each numerical entry is the median family income or net worth in 2016 among included families in the element of the partition defined at the top of each
column. By definition, the median family in the sample ranks at the 50th percentile. All subsequent percentile ranks refer to the position within the entire population of the median family in the subgroup defined at the top of each column.
Table 2. Median Family Income and Net Worth for One Group
Reflects the effects of inherited characteristics only Reflects the effects of inherited
and acquired characteristics
Partition 0 Partition 1 Partition 2 Partition 3 Partition 4
All families Middle-aged
(40-61) Middle-aged; Other
race or ethnicity Middle-aged; Other race or
ethnicity; College grad parents
Middle-aged; Other race or ethnicity; College grad parents; SCF respondent
is a four-year college grad
Median income: $52,657
$67,239 $47,594 $71,695 $102,681
Percentile rank: 50 59 45 62 76
Median net worth: $97,326
$131,262 $37,970 $96,944 $347,586
Percentile rank: 50 55 36 49 74
hence, own education is of major significance for
this group.
The differences between median income and
wealth in Partitions 3 and 0 represent the contribu-
tions of inherited characteristics alone. For income,
those characteristics boost the median 12 percentile
ranks higher. For net worth, the contribution moves
the median 1 percentile rank lower. That is, simply
being middle-aged, of a race or ethnicity other
than white and having a college graduate parent
increases the income we predict for this family by
$19,000, but decreases predicted wealth by $382
relative to all families.
This framework allows us to identify the sources
of this group’s income and wealth advantages over
those of the median family in the sample—either
inherited or acquired characteristics. After taking
into account inherited characteristics, obtaining a
college degree boosted the income rank of the
median family in this group by 14 rungs above the
percentile predicted from inherited demographics
alone and lifted the median wealth rank 25 rungs.
In other words, the typical family in this group can
attribute more than half of its advantage over the
population median income to its own educational
accomplishments and all of its superior wealth posi-
tion—and then some—to having a college degree.
The Demographics of Wealth 13
Limited sample size is an important consideration in our analysis. For example, we examine a catch-all group defined as all races and ethnicities other than white because the number of respondents in the sample who identify as Hispanic, African-American, Asian or any other nonwhite group is too small to allow reliable inference using it alone. The immense heterogeneity of this “other” group obviously limits the generalizability of our results for this group.
Even after combining many disparate racial and ethnic groups into a single category, we still must pay attention to the statistical significance of differences we observe between groups. The 2016 SCF contains 6,248 families, but due to oversampling of high-income families (to obtain sharper estimates at the top end of the income and wealth scales), some low-income and
low-wealth groups are very thinly represented. More- over, some configurations of the demographic criteria are more common in the population than others, lead- ing to large differences in cell sizes.
The largest group (13.6 percent of families after weighting to ensure representativeness in the overall population) contains families headed by someone who is white, at least 62 years old and has neither a college degree of his or her own nor a parent with a college de- gree. The smallest group (0.3 percent of families after weighting) contains families headed by someone of another race or ethnicity who is 62 years or older, has a four-year college degree and is the son or daughter of a college graduate. Obviously, we have less confidence drawing conclusions about groups with very few mem- bers than about those that have better representation.
Sidebar 3: Sample-Size Issues in Using the 2016 SCF
III. The Role of Inherited Characteristics
Figure 5 portrays a slice of the median income
data for middle-aged families; Figure 6 shows the
same for median net worth. Tables 3 and 4 display
the remainder of the data for old and young families’
median incomes and median net worth, respectively.
The last column in the figures and tables shows the
change in income and wealth ranks associated
with own education (over and above inherited
characteristics). In other words, it shows how the
contribution of one’s own education increases (or
decreases) the middle-ranking family’s income and
wealth position in the overall population.
Perhaps the most striking aspect of the data
is the wide range of median income and wealth
levels and rankings on display in Partition 3. Figure
6 shows that, based simply on different inherited
demographic characteristics, the median net worth
of middle-aged families ranges from $26,718 (33rd
percentile) among families in the other races group
without a college grad parent to $374,640 (75th
percentile) among white families with a college grad
parent. In principle, these differences could have
been predicted at birth. Of course, the latter group
contains many more college graduates than the for-
mer; this illustrates our earlier point that one’s own
education is affected by external forces such as one’s
parents’ education as well as one’s race or ethnicity
and even birth year. See Sidebar 4 on links between
parents’ and children’s education levels.
A fact laid bare by our demographic framework
is that inherited demographic characteristics are
very important determinants of adult outcomes like
education, income and wealth. The typical member
of the most favored group in Figure 6 had 14 times
as much wealth as the typical member of the least
favored group, even before one’s own educational
attainment is taken into account.29 This wealth
disparity is completely arbitrary in the sense that
no one in either group chose his or her own
parents. Similarly, Figure 5 shows that the typical
member of the demographically favored group
received an income of $113,618 (the 80th percen-
tile), compared to $41,518 (the 40th percentile)
among the least favored group. This income
multiple of 2.7 times for the typical member of the
favored group could be described as a payout from
“winning the birth lottery.”
College clearly is important, but contrary to
conventional wisdom, your own college education
does not completely level the playing field. The
birth advantage (or disadvantage) remains. For
example, compare rows 2 and 7 in the second-to-
14 Federal Reserve Bank of St. Louis
last column in Figures 5 and 6. The income and
wealth of a nongrad with the most advantaged
inherited demographics are 9 percent and 58
percent higher, respectively, than the income and
wealth of a college grad with the least advantaged
inherited demographics.30 In this comparison,
inherited demographics—including the college
education of the parents’ generation—outweighed
the benefits of obtaining a college education.
The returns on one’s own college education. We highlight three key results related to the
income and wealth implications of completing or
not completing college in light of one’s inherited
demographic characteristics. Each of the results is
visible to some extent in all age groups and in both
median income and median net worth measures.
For ease of exposition, we highlight results only for
middle-aged families.
The head-start effect. Certain inherited demo- graphic characteristics are associated with consis-
tently higher median income and median wealth.
As closer examination of Figures 5 and 6 and Tables
3 and 4 reveals, simply having at least one college-
educated parent greatly boosts median income
and wealth. (To see this, compare income or wealth
differences in Partition 4 between row 1 and row 3;
between rows 2 and 4; etc. Where it is present, this
effect is highlighted in yellow.) In Figure 6, for
example, among middle-aged white families headed
by someone with a four-year degree, simply having
a college-educated parent boosts median wealth to
$629,900 (the 83rd percentile), from $409,110 (the
76th percentile) among otherwise similar families
without a college-educated parent. Among middle-
aged families of other races and ethnicities, the
boost to median net worth associated with having a
college-educated parent is from $100,354 (the 50th
percentile) to $347,586 (the 74th percentile).
The upward-mobility (or exceeding-expecta- tions31) effect. The second important result is that completion of a four-year college degree pays off
proportionately more among groups with less-
Figure 5. Median Middle-Aged Family Income by Inherited Characteristics and Own Education
Parents’ Education
Expected Income Based on Inherited
Demographics Own
Education
Expected Income Based on Inherited
Demographics and Own Education
Percentile Increase or Decrease from Addition of Own
Education
All Families $52,657
(50th percentile)
Middle-aged $67,239
(59th percentile)
Whites $79,593
(66th percentile)
Other Races and Ethnicities
$47,594
(45th percentile)
7
–15
22
–8
14
–15
21
–7
$71,695 (62nd percentile)
$65,659 (58th percentile)
$41,518 (40th percentile)
$113,618 (80th percentile)
$76,758 (65th percentile)
$156,756 (87th percentile)
$52,657 (50th percentile)
$114,225 (80th percentile)
$49,417 (47th percentile)
$102,681 (76th percentile)
$35,240 (33rd percentile)
$70,479 (61st percentile)
Partition 0 Partition 1 Partition 2 Partition 3 Partition 4
NOTES: Percentile rank is determined by the position of the median family in a particular partition element relative to the overall distribution of all families. Numbers highlighted in yellow in the next to last column represent the “head-start” effect. The last column shows the difference in
overall percentile ranks between the relevant elements in Partitions 3 and 4. Numbers highlighted in green represent the “upward-mobility” effect. Numbers highlighted in red represent the “downward-mobility” effect.
The Demographics of Wealth 15
Figure 6. Median Middle-Aged Family Net Worth by Inherited Characteristics and Own Education
See notes to Figure 5.
All Families $97,326
(50th percentile)
Middle-aged $131,262
(59th percentile)
Whites $203,578
(63rd percentile)
Other Races and Ethnicities
$37,970
(36th percentile)
8
–17
17
–9
25
–13
17
–4
$96,944 (49th percentile)
$162,094 (59th percentile)
$26,718 (33rd percentile)
$374,640 (75th percentile)
$158,656 (58th percentile)
$629,900 (83rd percentile)
$97,572 (50th percentile)
$409,110 (76th percentile)
$37,768 (36th percentile)
$347,586 (74th percentile)
$18,500 (29th percentile)
$100,354 (50th percentile)
Parents’ Education
Expected Net Worth Based on Inherited
Demographics Own
Education
Expected Net Worth Based on Inherited
Demographics and Own Education
Percentile Increase or Decrease from Addition of Own
Education
Partition 0 Partition 1 Partition 2 Partition 3 Partition 4
advantageous inherited demographic characteristics.
(To see this, look in the last column of Figures 5 or 6
or Tables 3 or 4, contrasting rows 1 and 3 and rows
5 and 7. Where it is present, this effect is highlighted
in green.) For example, middle-aged, white family
heads whose parents were highly educated get an
8 percentile rank boost in median net worth above
the level predicted purely by inherited characteristics
when those family heads earn a college degree. That
increase is large but much less than the 17 percentile
rank boost for the group that was similar in all re-
spects except that its parents were not well-educated.
With a few exceptions, this pattern recurs throughout
the figures and tables.
The downward-mobility (or falling-short) effect. The third clear result is that failure to complete a four-year college degree is more costly in terms of
falling short of the demographically predicted level
of income and wealth when one’s parents included a
college graduate. (To see this, look in the last column
of Figures 5 or 6 or Tables 3 or 4, contrasting rows 2
and 4 and rows 6 and 8. This effect, which occurs in
every comparison shown in the figures and tables, is
highlighted in red.) The wealth and income shortfall
was 15 to 17 percentile ranks for a nongrad family
head who was white and was the child of well-
educated parents. This exceeded the 8 to 9 percentile
rank decline of the otherwise similar families whose
parents were not well-educated. (See rows 2 and 4
in the last column in Figures 5 and 6.) Nonetheless,
the presence of college-educated parents provides a
buffer of sorts, preventing the median member of the
downwardly mobile groups from falling to the level
of their nongrad counterparts without college-
educated parents.
The importance of inherited demographics for the income and wealth payoffs of college. As we showed in the case illustrated in Table 2, it is possi-
ble to estimate how much of each demographically
defined group’s median income and median wealth
deviations from overall median income or median
wealth should be assigned to inherited demographics
and how much to acquired characteristics—namely,
a college degree. Table 6 summarizes our estimates
for college graduates.
The college grad groups with the most-favorable
inherited demographics—families headed by some-
one over 40 who identifies as white and has at least
16 Federal Reserve Bank of St. Louis
one college-educated parent—benefit from strong
“tailwinds.” The first and fifth rows in the second-to-
last column of Panels A and B in Table 6 indicate that
the median members of the two groups that fit this
description climb between 14 and 31 percentile ranks
in income and wealth distributions simply by virtue
of their inherited demographics. No other group of
college graduates comes close to receiving a boost
of this magnitude to their starting positions on both
measures.
Nonetheless, some other college grad groups
receive benefits from inherited characteristics. For
example, families headed by someone who is middle-
aged, identifies as another race or ethnicity and is
part of a two-generation college-educated family
(row 7 in the second-to-last column of Panels A
and B in Table 6; also highlighted in Table 2 and the
accompanying discussion) received a 12 percentile
boost in income distribution. There was no boost to
the group’s wealth ranking, however. Other groups
receiving modest boosts from inherited characteris-
tics typically were 40 and older, or white, or both.
Inherited demographic characteristics also can
reduce typical income and wealth, of course. Young
families, those of other races or ethnicities and those
without a college grad parent generally receive
negative contributions from their inherited
demographic characteristics. This means that,
rather than enjoying a head start when they
approach college and adult life, they actually
are behind most other families.
Some of the income-earning and wealth-
accumulating power of college therefore must be
used to dig out from the disadvantage they face.
For example, families headed by someone who
is middle-aged, of a race or ethnicity other than
white and whose parents were not college grads
begin with a predicted income rank 10 rungs below
the population median and a wealth rank 17 rungs
below the median before their own education is
Table 3. Median Family Income by Inherited Characteristics and Own Education
Partition 3: Percentile rank of median income based on inherited characteristics alone
Partition 4: Percentile rank of median income based on inherited characteristics and own education
Percentile rank difference associated with own
education
Family income: old families
White, college parents 64 College grad 77 13
Nongrad 40 –24
White, noncollege parents 45 College grad 71 26
Nongrad 36 –9
Other race, college parents 53 College grad 70 17
Nongrad 34 –19
Other race, noncollege parents 27 College grad 61 34
Nongrad 20 –7
Family income: young families
White, college parents 54 College grad 66 12
Nongrad 42 –12
White, noncollege parents 46 College grad 59 13
Nongrad 41 –5
Other race, college parents 40 College grad 56 16
Nongrad 34 –6
Other race, noncollege parents 34 College grad 57 23
Nongrad 31 –3
See notes to Figure 5.
The Demographics of Wealth 17
See notes to Figure 5.
Table 4. Median Family Net Worth by Inherited Characteristics and Own Education
Partition 3: Percentile rank of median net worth based on inherited characteristics alone
Partition 4: Percentile rank of median net worth based on inherited characteristics and own education
Percentile rank difference associated with own
education
Family net worth: old families
White, college parents 81 College grad 87 6
Nongrad 62 –19
White, noncollege parents 69 College grad 85 16
Nongrad 62 –7
Other race, college parents 58 College grad 72 14
Nongrad 44 –14
Other race, noncollege parents 42 College grad 72 30
Nongrad 38 –4
Family net worth: young families
White, college parents 35 College grad 42 7
Nongrad 28 –7
White, noncollege parents 30 College grad 39 9
Nongrad 28 –2
Other race, college parents 22 College grad 29 7
Nongrad 18 –4
Other race, noncollege parents 24 College grad 31 7
Nongrad 22 –2
Table 5 displays the share of 2016 SCF two- generational families in each of four possible cate- gories—both generations are college graduates; neither generation has a college graduate; only the parent generation has a college degree; and only the child generation has a college degree. The first panel shows all families, while the second and third panels show data for white families and families of other races and ethnicities, respectively.
The most important fact shown in all panels of Table 5 is that adults’ and children’s education levels tend to be the same, even when we use only a crude two-point scale. Fully 54 percent of all families have no college graduate in either generation; an additional 16 percent of families have college graduates in both generations. The remaining 30 percent of families
have different college-degree statuses across genera- tions, with 12 percent having a college grad only in the older generation and 18 percent only in the younger generation. We termed the younger generation in the former group downwardly mobile and, in the latter group, upwardly mobile.
The remaining panels of Table 5 show that, while the basic patterns are similar among whites and other races separately, important differences also exist. Two-generational white families are somewhat less likely to have no college graduates in either generation and somewhat more likely to have at least two genera- tions of college graduates. Families of other races with college degrees in both generations are uncommon— only about one in eight, compared to about one in five among whites.
Sidebar 4: Links between Parents’ and Adult Children’s Education Levels
18 Federal Reserve Bank of St. Louis
taken into account. (See row 8 in the fourth column
in both panels of Table 6.)
Comparing the last two columns in Table 6, only
two groups out of 12 college grad groups—namely,
middle-aged and old whites with college grad par-
ents—receive more than half of their total advantage
over population median income and wealth levels
by dint of their inherited demographic characteris-
tics alone.32 The tailwinds these families enjoy are
particularly strong for wealth accumulation, with the
vast majority of their advantage due to winning the
birth lottery rather than to their own education.
IV. The Effect of Parents’ Education on How Their Adult Children Handle Money
Why does the education of an adult child’s par-
ents matter so much to their income and wealth?
Some of the inherited advantage plausibly flows
through greater monetary transfers (in gifts and
bequests) and more-intensive childhood invest-
ments, particularly in education, provided by
college-educated parents who also are, in general,
wealthier than nongrad parents.
Another likely source of inherited advantage for
accumulating wealth is what we term balance sheet
and financial behavior channels. Panel A in Table 7
shows that families headed by someone who is middle-
aged and has at least one college graduate parent
typically have a greater amount of safe and liquid
assets at their disposal than families without a college
grad parent. Strong balance sheet liquidity predicts
higher wealth and greater resilience.33 While families
with a college grad parent typically hold a somewhat
higher share of assets in residential real estate than
other families, balance sheet leverage is no higher.
This suggests that their real-estate holdings are less
exposed to default risk.
Panel B of Table 7 shows that families with a
college grad parent are more willing to take some
risks to earn a higher return on investments.
Respondents with a college grad parent score higher
on a test of financial literacy. These families search
more intensively when borrowing and investing.
Families headed by someone with a college grad
parent have a 10-percentage-point greater likelihood
of saving regularly than other families. Finally, as
explained in Sidebar 4, children tend to mirror their
parents’ educational attainment—respondents with a
See notes to Table 1 for definitions of race and ethnicity, and college attainment. Numbers are rounded.
Table 5. Parents’ and Own Education: Percentage of All Families
All families
Parents’ education Own education
Nongraduate Four-year college degree All
Nongraduate 54 18 72
Four-year college degree 12 16 28
All 66 34 100
Non-Hispanic white families
Parents’ education Own education
Nongraduate Four-year college degree All
Nongraduate 34 13 47
Four-year college degree 8 13 21
All 42 26 68
Other races and ethnicities
Parents’ education Own education
Nongraduate Four-year college degree All
Nongraduate 20 5 25
Four-year college degree 4 4 7
All 24 8 32
The Demographics of Wealth 19
college grad parent are more likely to become college
grads themselves. All of these facts point to tangible
ways in which families with a college grad parent
may accumulate more wealth than other families.
V. Conclusions
We documented a strong relationship between
SCF respondents’ own education and their adult
outcomes such as income and wealth. We also
showed that inherited demographic characteristics
modify the relationship in important ways. We con-
cluded that inherited demographic characteristics
are important predictors of income and wealth.
Our main focus was on the education level of a
respondent’s parents. This matters both because
children tend to achieve educational outcomes sim-
ilar to their parents’ and because the effects of higher
education appear to compound across generations.
That is, having a college-educated parent enhances
the income-earning and wealth-accumulating
power of an adult child’s college education.
We document three key results connecting
education and wealth in a two-generation con-
text. First, families headed by someone with favor-
able inherited demographic characteristics—being
white, being over 40 and having parents who were
Table 6. College Graduates: Effects on Overall Median Levels Due to Inherited and Acquired Characteristics
Inherited characteristics Differences between Partitions 3 and 4
Age of family head Race or ethnicity
of family head College education of respondent's parents
Change from 50th percentile rank due to
inherited characteristics
Change in rank due to own education
(acquired characteristic)
Panel A: Income
Old
White College 14 13
None –5 26
Other College 3 17
None –23 34
Middle White
College 30 7
None 8 22
Other College 12 14
None –10 21
Young White
College 4 12
None –4 13
Other College –10 16
None –16 23
Panel B: Net worth
Old
White College 31 6
None 19 16
Other College 8 14
None –8 30
Middle
White College 25 8
None 9 17
Other College –1 25
None –17 17
Young
White College –15 7
None –20 9
Other College –28 7
None –26 7
See notes to Table 1 for definitions of age group, race and ethnicity, and college attainment.
20 Federal Reserve Bank of St. Louis
well-educated—on average earn significantly higher
incomes and accumulate much more wealth than
families without these characteristics.
Second, among college graduate families with
the least-advantageous demographic characteristics,
such as no college-educated parents, completion
of a four-year degree typically boosts income and
wealth far above the levels predicted solely from
inherited characteristics.
Finally, we show that families with the most-
advantageous inherited characteristics whose heads
do not complete a four-year college degree suffer
greater proportionate shortfalls of income and wealth
than their predicted levels, compared to families
whose heads also do not complete four-year degrees
but who have less favorable inherited demographic
characteristics.
To be fruitful, policy should build on the fact base
established here. The return on college is large, on
average, but it is unequal across the population and,
while positive, diminishes across successive gen-
erations of college graduates. Income and wealth
disparities are deeply rooted because inherited
demographic characteristics exert significant effects.
In addition to race and ethnicity, as well as birth year
and age, we have shown that parental education
is another key background factor influencing the
earning and wealth-accumulating power of a college
education.
Table 7. Balance Sheet and Financial Behavior Channels of Wealth Accumulation
A. Balance Sheets by Parents’ Education Level: Middle-aged Families
Balance sheet measures College grad parents Nongrad parents
Median liquid assets $11,750 $3,032
Median primary RRE/total assets 37.8% 33.5%
Median debt/assets 25.7% 25.9 %
B. Financial Behavior by Parents’ Education Level: Middle-Aged Families
Financial behavior measures College grad parents Nongrad parents
Financial Risk-Taking (Scale of 0 to 10) 5.0 4.3
Mean Test Score (Maximum score is 3) 2.4 2.1
Credit Search Intensity (Scale of 0 to 10) 7.2 6.7
Investment Search Intensity (Scale of 0 to 10) 6.5 6.0
Saving Rate (Percentage of households) 53.3 43.3
Definitions
Liquid assets: Safe and liquid assets include holdings of checking, savings, money market, and call accounts, certificates of deposit, savings bonds, and prepaid debit cards.
Primary RRE/total assets: Ratio of market value of primary residential real estate to total assets.
Debt/assets: Ratio of total liabilities to total assets.
Definitions
Financial Risk-Taking: Self-assessed willingness to take financial risks when saving or making investments.
Mean Test Score: Sum of correct questions in assessment of financial literacy. For more information regarding specific questions asked, see variables X7558, X7559 and X7560 in the 2016 SCF codebook.
Credit Search Intensity: Self-assessed search intensity for best terms when borrowing money or obtaining credit.
Investment Search Intensity: Self-assessed search intensity for best terms when making saving and investment decisions.
Saving Rate: Share of households whose spending was less than income.
Endnotes
1 The previous edition of The Demographics of
Wealth appeared in 2015 and was based on data
through 2013 (https://www.stlouisfed.org/house-
hold-financial-stability/the-demographics-
of-wealth).
2 For expositional convenience, we use the term
“head of household” interchangeably with “sur-
vey respondent.” In a small number of Survey of
Consumer Finances (SCF) families, the identities
of these individuals differ. The definitions and
figures reported here always reflect the survey
respondent.
3 Mirowsky and Ross (2017).
4 Zhu et al. (1996).
5 Reiman and Leighton (2017).
6 Isen and Stevenson (2010).
7 Cheng and Furnham (2012).
8 Emmons and Noeth (May 2015).
9 Friedline, Nam and Loke (2014).
10 McCarthy (2011).
11 Hanushek and Kimko (2000).
12 Bérenger and Verdier-Chouchane (2007).
13 The median income in 2016 among college-
grad-headed, middle-aged white families with
at least one college grad parent was $156,756,
compared with $114,225 for otherwise compara-
ble families without a college grad parent. Median
wealth was $629,900 among college grad families
with at least one parent who also had a college
degree, versus $409,110 among similar college
grad families without a college grad parent. All
data are from the Federal Reserve’s (SCF).
14 Median income and wealth boosts from college-
educated parents among nonwhite college fami-
lies were 46 and 246 percent, respectively. Median
income and wealth for nonwhite college grad
children of college grad parents were $102,681 and
$347,586, respectively. These levels were only 66
and 55 percent, respectively, of the levels enjoyed
by their similarly educated white counterparts.
15 Pfeffer and Killewald (2017) and Pfeffer (Forthcom-
ing) document strong intergenerational wealth
and education links. They find that parental
investments in children’s education may be even
more consequential than monetary transfers.
16 Emmons and Ricketts (2017) found that balance
sheet and financial behavior variables were
strong predictors of family wealth in a multiple-
regression framework.
17 This comparison includes families of all education
levels, races and ages. The effect of a college grad
parent on saving behavior is even more pro-
nounced among families headed by someone of
a race or ethnicity other than white or who is
young or middle-aged. Among all nonwhite
middle-aged (40- to 61-year-old) families, those
headed by someone with at least one college grad
parent were 17 percentage points more likely to
save than otherwise similar families without a
college-grad parent.
18 See Emmons and Noeth (May 2015).
19 This essay highlights just one inherited character-
istic: parents’ education. The other two inherited
demographic characteristics—race or ethnicity,
and age and birth year—are the main focus of
the forthcoming Essays No. 2 and 3 in the series,
respectively.
20 See Bricker et al. (2017) for a description of the
methodology and some results from recent waves
of the SCF. See Emmons and Noeth (May 2015) for
income and wealth trends through 2013 using
four levels of educational attainment: less than
high school; high school or GED; a two- or four-
year college degree; and a postgraduate degree.
21 Comparing means (i.e., averages) rather than
medians, the ratios were 31 and 18 percent,
respectively.
22 All dollar amounts in this essay are expressed in
2016 dollars, deflated by the Consumer Price Index
for All Urban Consumers, Research Series
(CPI-U-RS).
23 A key implicit assumption in our approach is that
the distribution of effort—that is, the range of how
hard people work, from very little to very hard—
is basically the same across groups. In particular,
we assume that the typical or median amount of
effort exerted is about the same across groups.
Indeed, if we believed there were a systematic dif-
ference in the amount of effort the members of a
particular demographically defined group exerted,
we would attribute the effort difference itself to the
demographic factor that defines the comparison
groups. This assumption is important in ruling out
The Demographics of Wealth 21
a potential explanation of differences in out-
comes along the lines of “People with/without
Characteristic X earn less income because they
simply don’t work as hard.”
24 Figure 4 in Emmons and Noeth (July 2015)
shows that income typically increases from a low
level at the beginning of one’s working life to a
peak near the end of the working life before
declining in retirement. Figure 7 shows that
wealth usually also rises into middle age but
typically does not decline as much as income
in old age.
25 See Emmons and Noeth (February 2015).
26 We divided the overall income and wealth distri-
butions into 100 equal parts, or percentiles. Each
median income and net worth statistic discussed
here that falls between percentiles was assigned
to the lower of the two.
27 We assumed that parental education, which is
outside of the respondent’s control, was com-
pleted prior to birth or very early during develop-
ment in the vast majority of cases.
28 Income and wealth rankings were determined
separately, so the median families mentioned
here are not necessarily the same ones.
29 Compare the values shown in the highest and
the lowest elements of Partition 3.
30 The median income and wealth of a white,
middle-aged nongrad with at least one college-
educated parent were $76,758 and $158,656,
respectively, while the median income and
wealth of a middle-aged college grad of another
race or ethnicity without college-educated
parents were $70,479 and $100,354, respectively.
31 We term this the “exceeding-expectations” effect
because only a quarter of children without
college-educated parents complete college
themselves. (See Sidebar 4 and Table 5.)
32 See rows 1 and 5 in both panels of Table 6.
Old white college grads without college grad par-
ents (row 2) receive more than half of their total
wealth, but not income, advantage from inherited
characteristics.
33 Emmons and Ricketts (2017).
References
Bérenger, Valerie; and Verdier-Chouchane, Audrey.
“Multidimensional Measures of Well-Being:
Standard of Living and Quality of Life across
Countries.” World Development, 2007, Vol. 35,
No. 7, pp. 1259-76.
Bricker, Jesse; Dettling, Lisa J.; Henriques, Alice;
Hsu, Joanne W.; Jacobs, Lindsay; Moore, Kevin B.;
Pack, Sarah; Sabelhaus, John; Thompson, Jeffrey;
and Windle, Richard A. “Changes in U.S. Family
Finances from 2013 to 2016: Evidence from the
Survey of Consumer Finances.” Federal Reserve
Bulletin, September 2017, Vol. 103, No. 3.
Cheng, Helen; and Furnham, Adrian. “Childhood
Cognitive Ability, Education, and Personality
Traits Predict Attainment in Adult Occupational
Prestige over 17 Years.” Journal of Vocational
Behavior, October 2012, Vol. 81, No. 2, pp. 218-26.
Emmons, William R.; and Noeth, Bryan J. “Race,
Ethnicity and Wealth.” The Demographics of
Wealth, Federal Reserve Bank of St. Louis, February
2015, Essay No. 1.
Emmons, William R.; and Noeth, Bryan J. “Education
and Wealth.” The Demographics of Wealth, Federal
Reserve Bank of St. Louis, May 2015, Essay No. 2.
Emmons, William R.; and Noeth, Bryan J. “Age, Birth
Year and Wealth.” The Demographics of Wealth,
Federal Reserve Bank of St. Louis, July 2015,
Essay No. 3.
Emmons, William R.; and Ricketts, Lowell R. “Col-
lege is Not Enough: Higher Education Does Not
Eliminate Racial and Ethnic Wealth Gaps.” Federal
Reserve Bank of St. Louis Review, First Quarter
2017, Vol. 99, No. 1, pp. 7-39.
Friedline, Terri; Nam, Ilsung; and Loke, Vernon.
“Households’ Net Worth Accumulation Patterns
and Young Adults’ Financial Health: Ripple Effects
of the Great Recession?” Journal of Family and
Economic Issues, September 2014, Vol. 35, No. 3,
pp. 390-410.
Hanushek, Eric A.; and Kimko, Dennis D. “Schooling,
Labor-Force Quality, and the Growth of Nations.”
American Economic Review, December 2000,
Vol. 90, No. 5, pp. 1184-1208.
Isen, Adam; and Stevenson, Betsey. “Women’s
Education and Family Behavior: Trends in
22 Federal Reserve Bank of St. Louis
The Demographics of Wealth 23
Marriage, Divorce and Fertility.” NBER Working
Paper, No. 15725, February 2010.
Kennickell, Arthur B. “Multiple Imputation in the Sur-
vey of Consumer Finances.” Federal Reserve Board
of Governors Working Paper, September 1998.
McCarthy, Yvonne. “Behavioural Characteristics and
Financial Distress.” European Central Bank Working
Paper No. 1303, February 2011.
Mirowsky, John; and Ross, Catherine E. Education,
Social Status, and Health. New York: Routledge, 2017.
Pfeffer, Fabian T. “Growing Wealth Gaps in
Education.” (Forthcoming in Demography.)
Pfeffer, Fabian T.; and Killewald, Alexandra. “Genera-
tions of Advantage: Multigenerational Correlations
in Family Wealth.” Social Forces, December 2017,
https://doi.org/10.1093/sf/sox086.
Reiman, Jeffrey H.; and Leighton, Paul. The Rich Get
Richer and the Poor Get Prison: Ideology, Class,
and Criminal Justice. New York: Routledge, 2017.
Zhu, Bao-Ping; Giovino, Gary A.; Mowery, Paul D.;
and Eriksen, Michael P. “The Relationship Between
Cigarette Smoking and Education Revisited:
Implications for Categorizing Persons’ Educational
Status.” American Journal of Public Health,
November 1996, Vol. 86, No. 11, pp. 1582-89.