What does economic inequality really look like? Income alone doesn’t give a complete picture. Income inequality describes the gap between a six-figure salary and minimum wage. But the more alarming gap occurs in wealth — a household’s total assets minus debts. To understand how inequality is playing out in the United States, we need to look more closely at the wealth gap.
In a recent paper, we examined wealth among families with children and among the elderly. We focused on children and the elderly because they are considered the most vulnerable in our society and because so much social policy is geared to help them. According to our research, wealth inequality is much worse among families with children, and the gap has widened greatly over the past two decades, with consequences that may cascade through generations. The extreme wealth inequality we have identified is a result of years of policies that have eroded both public spending and private income for families with children.
The demographer Samuel Preston warned in 1984 that the United States had made “a set of private and public choices that have dramatically altered the age profile of well-being,” by devoting resources toward improving conditions for the elderly while neglecting to do the same for families with children. “The constituency for children in public decisions simply appears too feeble to fight back,” he wrote.
We are seeing the consequences of these policies now, and they will follow today’s children throughout their lives. Unlike income, which can change quickly because of a booming economy or a rise in the minimum wage, changes in wealth usually happen slowly. The recently passed tax law, for example, may increase your take-home pay, but it’s unlikely to increase the value of your house.
Wealth also matters because it has profound long-term effects. Parental wealth, in addition to parental income, plays an important role in college attendance and graduation. Bachelor’s degree holders earn 56 percent more than high school graduates, the largest gap on record. So a parent’s ability to, say, pay for college tuition may be crucial to enabling children to become economically self-sufficient.
Parental wealth is also a critical determinant of where children live and the quality of the schools they attend. It can affect the kind of job they have, if and when they marry, and whether they own their homes. To understand how wealth and wealth inequality have changed among families with children and elderly households, we examined data from the Federal Reserve’s Survey of Consumer Finances, a large survey conducted approximately every three years that catalogs the total assets and debt of American households.