Wealth inequality: Brits with wealthy parents more likely to own homes and save more
Children of wealthy parents are more likely to be higher earners, own homes and save more, new data revealed.
A report by the Institute for Fiscal Studies, funded by the Economic and Social Research Council, shows that having wealthy parents is significant when it comes to determining the wealth of younger generations.
It also found that the persistence of wealth inequality across generations is high in the UK.
For instance, children of wealthier parents are significantly more likely to be homeowners by age 30 — 65% for those with parents in the top third of wealth distribution, compared with 56% and 41% for those whose parents were in the middle and bottom thirds, respectively.
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And this is not entirely explained by their higher earnings.
For those on average earnings, 56% of those whose parents had an average level of wealth were homeowners, rising to 64% for those whose parents were in the wealthiest third and falling to 47% for those whose parents were in the poorest third.
The report also said that even among those who earn the same amount, those with wealthier parents save more as a portion of their earnings.
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Holding earnings fixed, the average saving rate was 3% of earnings for those with the parents in the poorest fifth and 12% for those with parents in the wealthiest fifth.
This could be because the children of wealthier parents receive more transfers and capital income on top of their earnings, and save some of this additional income.
Similarly, among those whose parents have the same levels of earnings and education, those with wealthier parents tend to earn more.
Holding parents’ earnings fixed, those with parents in the top fifth by wealth earned around £6,000 ($8,255) more per year than those with parents in the second-to-top fifth and £10,000 more than those with parents in the bottom fifth.
Among those who earn the same amount, those with wealthier parents are more likely to hold higher-risk, higher-return investments such as stocks and shares.
“Around half of the persistence of wealth can be explained by the fact that more highly educated and higher-earning parents have more highly educated and higher-earning children,” the report said.
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“This leaves significant room for financial transfers from parents to children, differences in saving behaviour, and differences in returns earned on investments, in driving the intergenerational persistence of wealth.”
"Policies that seek to improve educational progression and labour market outcomes for those with low-education and low-income parents could, if designed and implemented well, be important for wealth mobility but would not on their own equalise wealth outcomes between those with wealthier and poorer parents," said David Sturrock, a research economist and author of the report.
“A significant amount of the inequalities in wealth by parental background appear to be due to other channels through which parents transmit advantages to their children."
