At the heart of notions of meritocracy and social mobility is that the status of our parents should have minimal impact on our own fortunes in life.  Unfortunately, that is seldom the case, and research from the University of Bath highlights how parental wealth is more important in Britain today than it has ever been before.

The study shows that parental wealth accounts for around 35% of the wealth differences across British society.  What’s more, it’s a relationship that is only getting stronger.

“Inequalities in wealth are highly persistent throughout people’s lives and this will bring challenges in the years ahead when today’s younger cohort reach retirement age,” the researchers say. “At that point, there will be clear distinctions between the haves and have nots which will be further exacerbated by the effects of inheritance receipt and how this also varies by family background.”

Wealth inequality

The findings emerged after assessing the Wealth and Assets Survey to understand what is known as the intergenerational wealth elasticity (IWE) of society.  This is a metric that helps to quantify the relationship between parental wealth and that of their offspring.  After analyzing the survey data from 2010 to 2018, the researchers found that IWE was growing at a rate of 6% per decade.

The findings suggest that individuals in their 20s and 30s will have far higher levels of wealth inequality by the time they reach retirement age than retirees today.  The authors suggest that people born from 1968 onwards have significantly higher levels of ‘cross-generational persistence’ in wealth than those people born before 1952.  In other words, parental wealth plays a much bigger role in explaining current wealth than it has before.

The researchers believe the findings are hugely important and have significant implications for those concerned with the growing levels of inequality seen in society today.  With the data suggesting that intergenerational wealth persistence will double every six decades, it’s a problem that will only get worse.

“If we are serious about addressing wealth inequalities and their impact on social mobility then understanding the extent of intergenerational wealth transmission is fundamental to this,” the researchers say. “Family background can affect individual’s life chances, in particular the age and location of their first home purchase which has long-term ramifications for wealth accumulation.”

Long-term implications

The implications are indeed profound, as the rapid pace by which wealth inequalities are widening means that there is a considerably higher wealth persistence in seemingly identical individuals if one is born later than the other.

This has significant implications for living standards as the rapid pace of this change means that family background has an ever-growing role in explaining the wealth inequalities that exist in society today.  It’s an issue that the researchers hope policymakers sit up and take notice of.

“The issue for policymakers then is to focus efforts on policies which enable wealth mobility, especially among individuals from less privileged backgrounds,” the authors conclude. “Such policies should be targeted at young ages to give individuals the best chance to improve their living standards in later life. Simply put, we must address the mechanisms which have led to increasing wealth inequality in Britain.”