“You know what kind of plan never fails? No plan. No plan at all. You know why? Because life cannot be planned. ... It doesn’t matter what will happen next. Even if the country gets destroyed or sold out, nobody cares.”
This quote from the Oscar-winning film “Parasite” was spoken by Kim Ki-taek, the father of a very low-income South Korean family who manage to mischievously secure employment with a quite wealthy South Korean family, the Parks.
In light of COVID-19’s dramatic effect on the U.S. economy and the financial security of millions of Americans, Kim has a point: Life cannot be planned.
Social scientists call Kim’s resigned thinking “learned helplessness,” resulting from a lack of power and control. While he speaks these words as if they are absolute truth, it’s unlikely Park Dong-ik, father of the wealthy family, would agree.
That’s because wealthier people are more likely to believe they have control over their lives, and according to some research, they probably do. Kraus, Michael W.; Piff, Paul K.; Mendoza-Denton, Rodolfo; Rheinschmidt, Michelle L.; and Keltner, Dacher. "Social class, solipsism, and contextualism: how the rich are different from the poor." Psychological Review, 2012, Vol. 119, No. 3, pp. 546-72. Having more income and, especially, wealth can mean having more autonomy and options when faced with difficult situations.
And one would certainly call COVID-19 a “difficult” situation, one that underscores how critical it is to have wealth to fall back on when such an event strips you of your income. Unfortunately, as we will show, too many Americans lack such a wealth “buffer,” whether it be emergency savings, home equity, retirement savings, stocks or assets in a small business.
While the film is Korean, its juxtaposition of families at the far ends of the economic spectrum resonates with many American families. This focus is well-placed. The Center for Household Financial Stability recently published a primer on wealth inequality in America, where we found that many wealth gaps have grown significantly in recent decades.
As the general public often does, let’s start with overall wealth inequality, which dwarfs income inequality and, we at the Center believe, is more consequential. Not only did the richest families in the U.S. (the top 10%) own a larger slice of the total household wealth “pie” in 2016 than in 1989, but the average wealth of these families also increased over that period.Note that the actual families in this group change over time, and that the figures have been adjusted for inflation. On the other hand, the bottom half of families (ranked by wealth) saw their collective wealth sliver shrink from 3% (already quite low) to just 1%. Their average wealth also decreased. In other words, the “Parks” have more while the “Kims” have less—a lot less.
Far more meaningful, however, are the demographic wealth gaps we examined, specifically in three areas:
In fact, we believe race, education and age are key to understanding what’s driving wealth inequality in the U.S.
Many of these demographic wealth gaps grew between 1989 and 2016 (the most recent data available). The wealth of the typical highly educated family (i.e., those with at least a four-year college degree) increased, while the wealth of the typical family with less education either stayed roughly the same or actually shrank. The result: The gap between the least and most educated families has grown.
The wealth gap between the generations has grown, too. Older families in 2016 were far wealthier than older families in 1989, while the wealth of younger families has basically flatlined since 1989.
Meanwhile, the wealth gaps between whites and blacks (around 10 to 1) and between whites and Hispanics (around 7 to 1) have fluctuated a bit but have remained essentially unchanged since 1989. These gaps persist despite broad social, educational, political, legal and other progress over the past few decades among people of color. Somehow these commendable national gains are not, for them, translating into more family wealth.
However, it’s not just the gaps that matter. The actual levels of wealth matter, perhaps even more than the gaps. This is especially apparent when an economic shock—like the one generated by COVID-19—forces us to rely on that wealth. The family in the middle or median of a group gives an approximation of the “typical” family’s experience. The figure below shows the median wealth of all families and selected groups.
As the chart shows, the typical family in each of these groups had considerably less wealth in 2016 that the typical family overall. Even worse, 11% of all families actually had negative net worth—their debts exceeded their savings and assets.
Keep in mind: We’re talking about a family’s total net worth—all their savings (including emergency and retirement savings) and assets (such as homes and businesses) less all of their debts (including mortgages). Imagine trying to achieve some level of financial stability—let alone upward mobility—with such alarmingly low levels of wealth.
For the struggling Kim family to achieve financial stability—as well as partially live out their fantasies of upward mobility—they became financial parasites on the well-to-do Park family. That’s of course not a sustainable or scalable strategy. Still, as our own data and the movie’s U.S. reception suggest—and the COVID-19 pandemic strikingly underscores—wealth inequality is real and deserves national attention.
1 Kraus, Michael W.; Piff, Paul K.; Mendoza-Denton, Rodolfo; Rheinschmidt, Michelle L.; and Keltner, Dacher. "Social class, solipsism, and contextualism: how the rich are different from the poor." Psychological Review, 2012, Vol. 119, No. 3, pp. 546-72.
2 Note that the actual families in this group change over time, and that the figures have been adjusted for inflation.