Economic Find: Wealth Begets Wealth

A key thread of the American dream ethos is that we all have the opportunity to get rich through our own wits and hard work, a “pull yourself up by your bootstraps” kind of storyline.  And a key pathway to building that personal wealth is saving and investing the money we earn.

It turns out, however, that the wealthy have yet another advantage for creating their own American dream.  As the chart below illustrates, the average rate of return on wealth holdings increases as income rises.  In other words, the more income you have, the higher your rate of return and the more wealth you build. The poorer you are, the more difficult it is earn a return on, and build, your savings.  So, in other words, wealth begets wealth.  Doesn’t it seem like Americans need a new dream?

IncreasingReturnsToWealth

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Created by CPE Member Sue Holmberg

October 2011

 

Data Note:

Average rate of return on corporate wealth holdings for assets held longer than 5 years for different income groups. Each income class is defined as the gross income of the household less any capital gains from stock held.

 

Source:

Ashenfelter, O. ,and Cecilia Rouse, 2000: “Schooling, Intelligence and Income in America”. Meritocracy and Economic Inequality , Arrow, K, Samuel Bowles and Steven Durlauf Eds. Princeton University Press