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Economic Mobility Grinds to a Halt

July 17, 2012

The promise of economic mobility appears to be coming to an end, according to a recent study.

The Pew Charitable Trusts released a study last week that found while 84 percent of Americans have higher family incomes than their parents did at the same age, those born at the top and bottom of income ladder are likely to remain there in their adulthood.

Forty-three percent of Americans who are raised in the bottom quintile of incomes stay stuck in the bottom as adults, while 70 percent remain below the middle level. Forty percent raised in the top quintile remain at the top as adults, and 63 percent remain above the middle. Only 4 percent of those raised in the bottom quintile make it all the way to the top as adults, confirming that the “rags-to-riches” story is more often found in story books and movies than in reality. Similarly, only 8 percent of those who are raised in the top quintile fall all the way to the bottom.

The study, “Pursuing the American Dream: Economic Mobility across Generations,” found differences among different groups. African Americans are less likely to exceed their parents' income and wealth than are whites. They are also more likely to be stuck at the bottom of the economic ladder across a generation. 

A four-year college degree promotes upward mobility from the bottom and prevents downward mobility from the middle and the top, the study found. Most sons are meeting or exceeding the earnings of their fathers at the same age. However, the sons’ earnings represent a smaller proportion of family income than did men's earnings in the fathers' generation.

Despite the gloomy findings, the study does confirm that children generally earn more than their parents. Seventy-two percent of Americans whose parents were in the bottom fifth of the wealth ladder and 55 percent of those whose parents were in the middle quintile exceed their parents’ family wealth as adults.

So at least they can help support their parents in their retirement. Unfortunately, all too often these days, accountants are finding that it’s the parents who in their retirement are forced to support grown children who are unemployed or underemployed.

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