The Changing Face of Wealth: Insights from "The Wealth of Generations" Study

  • From Xhulia Likaj
  • Reading duration 2 min

In a recent paper researchers Luis Bauluz and Timothy Meyer delve into the intricate landscape of wealth accumulation across generations in the United States. The study uncovers a series of compelling insights into the evolution of wealth, saving, and inequality over the past six decades. The authors reveal a significant shift in the age-wealth profile, marking a stark divergence in the wealth of older and younger generations since 1980. This phenomenon is attributed to the increasing importance of capital gains, particularly for more recent generations, altering the dynamics of wealth accumulation within birth cohorts.

Furthermore, the study highlights a deepening wealth inequality within generations, with the top 10 per cent experiencing a steeper wealth profile, while the bottom 50 per cent faces progressively lower levels than their predecessors. This internal inequality within cohorts has reached its zenith since World War II, painting a vivid picture of the changing economic landscape.

The paper also introduces the concept of a "life-cycle saving reshuffling," indicating a shift towards increased saving during middle age and a substantial decline in saving during old age. The authors connect these shifts to an overlapping generations model, linking increased longevity and income inequality to higher asset prices and subsequent intergenerational wealth transfers.

Connecting these micro-level observations to macroeconomic indicators, the study demonstrates that the combined increase in income inequality and life-cycle wealth profiles can account for the surge in aggregate wealth-income ratios since 1980. Additionally, a pronounced saving polarization emerges, with the middle-aged rich saving more and the elderly, both rich and poor, increasingly dissaving.

The findings have far-reaching implications for future economic trends and policymaking. The rise in capital gains since the 1980s emerges as a key driver of the observed changes in life-cycle profiles. As the paper suggests, understanding the driving forces behind these shifts, such as income inequality, life expectancy, and capital regulations, becomes crucial for shaping effective policies.

Overall, "The Wealth of Generations" not only sheds light on the intricate dynamics of wealth accumulation across generations but also raises critical questions about the future trajectory of the age-wealth profile and its impact on macroeconomic outcomes.

The whole study is available here.