Wealth Accumulation in the U.S.: A Cohort-Based Analysis

Diego Daruich, B Ravikumar and Guillaume Vandenbroucke

No 1124, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Data from the Survey of Consumer Finances reveal that the ratio of wealth to income for U.S. households grew at a higher rate for the older cohorts than for the recent cohorts. It grew by a factor of 1.2 between ages 25 and 42 for the 1980 cohort whereas the growth was a factor of only 0.6 for the 2000 cohort. What explains the flattening of the wealth-to-income ratio over the life cycle of U.S. households? We evaluate the potential of a variety of factors. (i) The income, in particular labor income, grew at a different rate for recent cohorts relative to older cohorts. (ii) There has been a secular decline in long-term interest rates and recent cohorts face different rates of return on their wealth compared with the rates experienced by older cohorts. (iii) The starting wealth of the most recent cohort is higher than that of older cohorts. We construct a model of consumption and savings over the life cycle to evaluate the potentials of such factors. Our preliminary results indicate that the combination of (iI) and (iii) can go along way toward accounting for the flattening of the lifecycle profiles of wealth-to-income ratio.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:1124

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