A Better Understanding of Wealth Inequality in the United States

Written by

William Darity
William Darity Dr. William Darity, Jr. is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics and the Director of the Samuel DuBois Cook Center on Social Equity at Duke University. He has served as chair of the Department of African and African American Studies and was the Founding Director of the Research Network on Racial and Ethnic Inequality at Duke. Previously, he served as Director of the Institute of African American Research, Director of the Moore Undergraduate Research Apprenticeship Program, Director of the Undergraduate Honors Program in economics, and Director of Graduate Studies at the University of North Carolina.
Dr. Darity will receive an award for his work at the 2017 Future of Wealth Summit.

 

It is vital in improving our understanding of wealth inequality in the United States — both racial and overall wealth inequality — that we recognize (by measuring the direct effect of inheritances and gifts on asset building for younger generations) how much we underestimate the impact of the intergenerational transmission of wealth.

In fact, we should refer to the intergenerational effects of the transmission of wealth, instead of the narrower concept of intergenerational transfers of wealth. In addition to making direct transfers of resources across generations, wealthier parents are able to provide a climate of general economic security for their children that reduces the likelihood that they will ever experience the traumas of economic deprivation.

Wealthier parents also have the capacity to allow the timing of their transfers of resources to give their children the greatest opportunities.

For example, if parents have the flexibility to provide their children with funds when they enter college or university or when they need to make a down payment for a mortgage on a home, this has vast ramifications on the child’s wealth position beyond the actual amounts of the transfers. By underestimating the intergenerational effects of parental wealth on the next generation’s wealth, we also overstate the importance of current income flows on asset building via savings activity. Correspondingly, we overstate the importance of education on asset building. There is a critical need for researchers to examine the association between the relative position of parental (and grandparental) wealth on the relative position of the younger generation’s wealth, rather than the direct contribution of inheritances and gifts to the net worth position attained by the younger generation. Work being done by Jermaine Toney, Darrick Hamilton and myself is intended to address that need, and we look forward to circulating it once it is complete.

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