Chart: Will Your Kids Earn a Higher Income Than You?

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Parents want their children to have a better life than their own. We want our kids to eat more healthily, accumulate more knowledge, enjoy closer relationships, live longer, and – if we’re honest – make more money. However, the academic paper The Fading American Dream: Trends in Absolute Income Mobility Since 1940 by Chetty et al. shows us that earning more money than your parents has gone from nearly a sure thing to no better than a 50/50 coin flip. Via WSJ Daily Shot.

Here is a chart where each line shows the percentage of children born in the indicated year that earned more than their parents, as a function of their parent’s income percentile.

Every decade, the numbers get consistently worse. In terms of overall percentages:

  • For children born in 1940, over 90% grew up to earn more than their parents.
  • For children born in 1980, only 50% grew up to earn more than their parents.

What does that mean? Even if you as parents today earn an above-average income, there is no guarantee that your kids will grow up to earn more than you on an inflation-adjusted basis. In fact, if the trend holds, the odds are that they will end up earning less.

Very few parents have the kind of wealth that guarantees financial security for their offspring. This creates increasing stress about gifted programs, private schools, magnet schools, sports teams, test prep, and any other opportunities that can give them an edge.

We took our kids to a local pumpkin patch this weekend, and in between choosing your own pumpkin and feeding farm animals, our oldest started complaining about not having $5 lemonade. This reminded me of a simple rule:

Happiness equals reality minus expectations.

My kids should not expect to have a certain lifestyle. I hope (!) to teach them gratitude for the many advantages that they have been given, a strong work ethic for obtaining what they want to achieve, and tempered expectations of what makes a good life (not just money). Now, how do I pull that off?

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Comments

  1. Sounds like you have a good plan!

  2. I am making slighty more than my parents but their money carries a lot further, especially with housing..

  3. Not sure I really believe this is the whole picture. I was a child of the 60’s. A TV cost more then than today in unadjusted dollars. We lived in houses that were half as big with twice as many people. OTOH I make twice what my father did, but work a LOT more. He was a school teacher who was home by 3:30 and had ten weeks off every year. Plus he ended up with an old-fashioned pension. I suspect he actually made more per hour than me despite me having a professional income.

    • Like your response and I’m a child of 60’s. Working in the 70s and 80s, I remember when the weekend was really a weekend. My children make more money than I did at their age but they work a lot of hours.

  4. I think that another way of looking at this chart is that : Its really just a reflection of the fact that incomes in the US rose higher in the 40’s to 60’s.

    If incomes are going up then everyones chances of making more than their parents is high.
    If incomes aren’t going up then your chance of making more of your parents flattens out.
    I don’t think the chart at least is as much about income mobility.

    Mobility is more about starting poor and ending up middle class or starting middle class and ending up upper class. The chart is just how much you make vs your parents.

  5. “Now, how do I pull that off? ”

    Relatively easy to do. Buy showing them how much better off you are than the rest of the population.
    My dad constantly showed me statistics about how we have earned, saved & invested to be in the top 5% of the population & what sacrifices it took to get there.

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