4/6/2012 3:54 PM ET|
What the poor can teach the rich
Where you come from matters. The middle class is still pretty fluid in America. But if you're born either rich or poor, you're more likely to stay that way.
About 36% of Americans raised in the middle class (defined as the middle fifth of all incomes) move to a higher income bracket as adults, according to research by the Pew Research Center's Economic Mobility Project. A somewhat larger group, 41%, move down economically, and 23% stay in the middle class.
Meanwhile, 62% of Americans raised in the top fifth of incomes stay there or in the next-highest tier, while 65% born in the bottom fifth stay in the bottom two-fifths.
Another study, for the Institute for the Study of Labor at the University of Bonn in Germany, found the U.S. had less economic mobility than some European countries, including famously class-bound Britain. The researchers found that 42% of American males raised in the bottom fifth of incomes remained there as adults, compared with 25% in Denmark and 30% in Britain. Only 8% of American men who started out at the bottom rose to the top income quartile, compared with 14% in Denmark and 12% in Britain.
Obviously, mobility exists. But there are head winds at either end of the economic spectrum. Wealthier families can use their resources to get good educations for their kids, increasing the odds they stay at the top. Poorer families don't have the same access and may not understand how important education and their own savings are to their kids' economic futures. Consider the following:
- Education. Americans who start at the bottom of the income ladder quadruple their chances of making it to the top when they earn a four-year degree, the Pew Economic Mobility Project found. But parents who aren't college-educated often don't understand how important a degree is to their children's futures. There is a stronger link between parental education and children's socio-economic outcomes in the U.S. than in any other country investigated, the project found.
- Parental savings. People who save, even on low incomes, tend to move up economically, and so do their kids. Seventy-one percent of children born to "high-saving, low-income" parents moved up from the bottom income quartile over a generation, compared with 50% of children of "low-saving, low-income" parents. Among adults who were in the bottom income quartile in 1984-89, 55% moved up economically by 2003-05 if their initial savings rate was high, compared with 34% who left the bottom if their initial savings rate was low.
Here's what I glean from all this:
- If you're doing well economically and you come from a well-to-do family, a little humility may be in order. You don't want to be that person that former University of Oklahoma coach Barry Switzer described when he told the Chicago Tribune, "Some people are born on third base and go through life thinking they hit a triple."
- If you come from a poor family and want to better your circumstances, prioritize saving and education, for yourself and your kids. You may find inspiration in the stories of bloggers who came from poor backgrounds and went on to do well, including Get Rich Slowly's J.D. Roth, The Simple Dollar's Trent Hamm and MSN Money's own Donna Freedman.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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