New “Demographics of Wealth” Report Reveals a Financial Head Start for Some Begins At Birth

March 06, 2018

ST. LOUIS ― A new Demographics of Wealth report by the St. Louis Fed’s Center for Household Financial Stability (HFS) documents how the education of one’s parents, along with race or ethnicity, can influence the earning and wealth-building power of college for their adult children.

The study found that a typical family headed by a college graduate who had the inherited demographics of being white, being aged 40-61, and having college graduate parents, earned three times as much income and owned six and a half times as much wealth as the median family overall in 2016. While the family head’s own college education undoubtedly contributed to some of this success, more than half of their advantage over the general population ultimately can be attributed to their inherited demographic characteristics, not their own efforts or education.

The “Demographics of Wealth” series is based on analysis of the triennial Federal Reserve’s Survey of Consumer Finances (SCF). This is the first of the essays based on the 2016 SCF data to be published by authors William Emmons, St. Louis Fed assistant vice president and HFS lead economist; Ana Hernández Kent, HFS policy analyst and Lowell Ricketts, HFS lead analyst. Upcoming essays will document how race and birth year also shape financial outcomes.

In this first essay, “The Financial Returns from College across Generations: Large but Unequal,” Emmons, Kent and Ricketts explored 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, they examined two 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”). They found that inherited demographic characteristics significantly 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. The authors show that an adult’s wealth can be predicted to some degree based solely on his or her parents’ demographic characteristics.

For example, among families headed by someone 40 to 61 years old in 2016:

  • The median (middle-ranking) white family head whose parents were college-educated earned 2.2 times as much income as the median family overall, a gap of about $61,000.

  • The median (middle-ranking) white family head whose parents were college-educated owned 3.8 times as much wealth as the median family overall, a gap of about $277,000.

“These substantial income and wealth advantages associated with specific inherited demographic characteristics do not depend on the person’s own education or any other efforts he or she may have exerted,” said Emmons. “In other words, these income and wealth differences could be termed the result of ‘winning the birth lottery.’”

The authors documented three critical ways in which inherited demographic characteristics influence family income and wealth:

  • The head-start effect

    Families headed by someone with certain “favorable” inherited demographic characteristics typically earn much higher incomes and accumulate much more wealth than families without these characteristics, as illustrated above.

  • The upward-mobility (or exceeding-expectations) 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 and by more than college graduate families with more favorable inherited characteristics.

  • The downward-mobility (or falling-short) effect

    The authors found that family heads who have college-educated parents but who themselves do not finish college suffer notable negative consequences, slipping decisively downward in the overall income and wealth rankings compared to what their inherited demographic characteristics would have predicted.

“In summary, earning a four-year college degree tends to boost income and wealth. But the boost differs substantially depending on inherited demographic factors over which one exerts no control—how old you are, what race or ethnicity your parents were and whether they finished college themselves,” Emmons said. “Consequently, some families enjoy income and wealth head starts that are the result simply of who their parents were.”

For more information about the report and the Center for Household Financial Stability, see the Center’s website at

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