When Is the Top 1% Downwardly Mobile?

When the Federal Reserve looks at our wealth, they think of our assets and liabilities. For many of us, a house is our biggest asset. Then, the value of our securities, the businesses we own, what our pensions might be worth, and our durable goods (goods that last three years or more) are among the other things they would include.

Below you can see that a larger proportion of the wealth of the most affluent comes from stocks and bonds. Next, moving down the wealth ladder, real estate and pensions become more dominant:

Multigenerational Wealth

Curious about whether the most affluent retain their wealth, for a recent study, scholars looked at data from 1850 to 1940. In addition to traditional assets, they included the number of servants.

Not at all typical but so very interesting, the first John D. Rockefeller had 8 live-in “observable” servants. Twenty years later, listed in the 1920 census, John D. Jr. had 19:

Individuals 

More than we might expect, multigenerational individual wealth diminishes.

Comparing the wealth of grandfathers in the top 1% to their grandchildren, surprisingly, 90% of the grandchildren do not retain that level.  Furthermore, in only a decade, a whopping 85% of the people in the top .1% drop lower.

Leaving the elite in a decade, families with multiple servants, no longer had them:

Also, looking from state to state, we see that the top 1 percent’s downward mobility stats far exceed upward mobility from grandfather to grandchild:

However, people’s retention odds increase with their wealth. If they were in the top .1% the chance of grandchildren being up there also went up. But still, 41% of the households with 3+ live-in servants had none 10 years later. Correspondingly, researchers estimated that a whopping 70-75% of the top 1% changes every 10 years.

Our Bottom Line: Gini Curves

As a final thought, from our vertical perspective of multigenerational wealth, we can move to a horizontal look at income distribution through Gini Coefficients. Using a scale of 0 to 1, a Gini Index quantifies inequality in a country. The higher the number, the more unequal the distribution of income or consumption expenditures. Consequently, zero is perfect equality while 1 is complete inequality.

Our World in Data shared Gini Coefficients:

Returning to where we began, asset allocation among different income groups provides insight about the relatively high Gini Coefficient for the United States. From there, we can hypothesize what our grandchildren will have.

My sources and more: Thanks to my Hutchins email for alerting me to the intergenerational wealth study. Next, for more on Gini Coefficients, Our World in Data is always a handy data source. And then, for my recent wealth statistics, I went to this the Federal Reserve website.

Please note that several of today’s sections were in this past econlife post.