Family Wealth and Climbing the Income Ladder: The Well-Off Prevail

Can being well-off increase your children’s outcomes in life? Of course. Poorer children are more overweight or obese, often have worse behavioral problems, and are likely underprepared for school. These effects have lasting consequences through the child’s life. 

A 2008 study by the Brookings Institute shows just how long these effects can last. Your parents’ income has a large effect on college degree competition. Children from the top income quintile are 42 percentage points more likely to complete college than the bottom quintile. As you can see below, this effect is persistent across all quintile ranges. College completion decreases steadily from the top to bottom quintiles.

Source: Brookings tabulation of PSID data

Two reasons we may see these huge differences in college completion is the increasing cost of college and the difficulty of finding student loans. In 2012, those in the lowest quintile were earning at most $20,599 with an average income of $11,490. This puts the average income in the bottom quintile below the 2012 poverty line of $19,090 for an average family size.

These college graduation disparities have major impacts on intergenerational mobility for those from the lowest income quintile. Graduating college increases the chance of breaking out of the lowest quintile from 45 percent to 84 percent. It also increases the chance of reaching the top income quintile from 5 percent to 19 percent. The graphic below gives a further breakdown of mobility for those in the lowest income quintile.

Source: Brookings Tabulation of PSID data

But how do poor children who attend college and well-off children who don’t attend college compare? Surprisingly similar, but the well-off still prevail. The non-college going well-off are still 4 percentage points more likely to reach the top quintile of income compared to college going poor children, though they are 2 percentage points more likely to fall to the bottom quintile.

Source: Brookings Tabulation of PSID data

But these differences are due to more than just dollars and cents; differing parental strategies may have an effect on children’s outcomes. The Home Observation for Measurement of the Environment (HOME) Inventory measures how strong or weak a parent is by observing parent-child interactions and the home environment. These observations include emotional connections, verbal communication, language stimulation, mental stimulation, and many more. While roughly 39 percent of parents in the top quintile are ranked among the strongest parents, less than 5 percent of low-income parents are rated strongly. This pattern, unfortunately, holds the other direction as well. Roughly 48 percent of parents in the lowest income quintile are rated among the least effective parents while only around 5 percent of parents from the highest quintile are. While this scale is not wholly unbiased – some measures, such as presence of educational toys and the amount of living space per home occupant, may be directly related to income – these biases cannot account fully for the vast difference between parenting effectiveness in income quintiles.

What does this mean for our poor families and children? Likely that the cycle of poverty will remain unbroken. Combining college-going and economic mobility rates shows that 41 percent of the poorest children end up earning in the lowest income quintile as adults, while only 6.5 percent will end up earning in the highest quintile. However, children coming from the highest income quintile have a 39 percent chance of reaching the highest income quintile and only a 10 percent chance of dropping to the lowest quintile. And even if a poor child attends college, they are much more likely to drop out. As this Washington Post article puts it, “the afflictions of poverty don’t just disappear after a student gets into college.” Nor do these afflictions subside after graduation. Well-off children have more, and better, social and business connections that they can exploit to find post-graduation jobs. When climbing the income ladder, well-off children are often starting many rungs above our poor children.

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