Previous research has demonstrated how people with higher-earning parents tend to have higher earnings. This IFS research, funded by the Economic and Social Research Council, shows that having wealthy parents is even more important when it comes to determining the wealth of younger generations.
The level of intergenerational mobility is the extent to which parents’ economic position in their generation is reflected in their children’s economic position in their generation. Understanding the extent of intergenerational mobility, and its determinants, helps to make clear which policies will do most to promote equality of opportunity among children of different backgrounds.
Much of the analysis of social mobility to date has focused on differences in education and earnings outcomes and their relationship to differences in the education and earnings levels of parents. While education and earnings channels are very important in driving wealth persistence, they only account for around half of the intergenerational persistence in wealth.
The gap in wealth between those at older and younger ages has been growing over time in the UK. Even before the economic effects of the COVID-19 pandemic, working-age generations had seen relatively low growth in their incomes and wealth for more than a decade.
There are a number of channels that look likely to contribute to the persistence of wealth, beyond that explained by the persistence of education and earnings. The report found that parental wealth, over-and-above parents’ education and earnings, had a strong relationship with children’s earnings. Further, even among those with a given education level, those with wealthier parents earned more.