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Passion guided by reason's avatar

>"Accruing wealth takes time, usually generations."

I know that's conventional wisdom. But I wonder how broadly true it is today. (A theme for me today it seems :-)

First, let's be clear what type of wealth we are talking about. When the question is about a wealth gap, it's usually measured at the median (50 percentile), so we are not talking about the wealth of the top 10%, 1% or 0.1%. So wealth among ordinary people consists of net assets - add up all that one owns and subtract all of one's debts.

I see people around me to earn similar incomes, but use it in different ways. Some borrow constantly, buying cars and boats and taking vacations; some are more frugal and save a larger portion of their income. Their net assets (ie: wealth) can vary wildly on the same income, depending on spending and investing habits. How large is this effect, compared to inherited wealth, among ordinary people?

I know that I personally inherited no wealth (indeed needed to support my mother), but managed to make it into a frugal middle class. I always saved the maximum possible on work plans (invested in tax free stock market funds), and had additional savings as well. My partner and I bought a house as soon as we were able, which along with subequent residences have appreciated at about 10% per year on average (no bonanzas, but ongoing growth). As a result, I'm doing OK - not wealthy but comfortable.

Others I know have had different trajectories, up or down from their parents. The state of their net assets today has depended more on their personal behaviors and choices, than their parent's status.

I do understand that I've been focusing on inherited money, and that intergenerational wealth correlations may sometimes involve more than money, like inculcated attitudes about handling money. So even if a child does not get much money from their parents, they might gain from wise attitudes regarding use of income to build wealth. Or even if they get financial assistance from a parent, they may use that to build net assets, or spend it on consumables. But the information about spending habits which build wealth rather than consumption, can be transferred laterally, and can be learned in a single generation.

I am NOT saying that there is no effect from having parents who can afford to fund a good university education, or an earlier down payment for their kids. I'm just questioning the degree to which that is the dominant factor in accumulating net assets today, for those in the middle of the income and/or wealth spectrum. Admittedly, my wanting to look more deeply is inspired by looking around me at ordinary people who do not seem to follow the same patterns as wealth among the 1% does. That's enough to raise questions, but not to answer them.

TL;DR: When we speak of wealth we can too easily have unconscioiusly in mind the dynamics we associate with rich people, say elite1% and above, while the gap is measured at the 50 percentile, where wealth (net assets) has as much to do with choices as with inherited money. This difference could taint our "intuitions", and thus would need deeper analysis.

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