Why Do Wealthy Parents Have Wealthy Children?

52 Pages Posted: 25 Mar 2018

See all articles by Andreas Fagereng

Andreas Fagereng

Statistics Norway

Magne Mogstad

Statistics Norway; IZA Institute of Labor Economics

Marte Ronning

Statistics Norway - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: February 21, 2018

Abstract

Strong intergenerational associations in wealth have fueled a longstanding debate over why children of wealthy parents tend to be well off themselves. We investigate the role of family background in determining children’s wealth accumulation and investor behavior as adults. The analysis is made possible by linking Korean-born children who were adopted at infancy by Norwegian parents to a population panel data set with detailed information on disaggregated wealth portfolios and socio-economic characteristics. The mechanism by which these Korean- Norwegian adoptees were assigned to adoptive families is known and effectively random. We use the quasi-random assignment to estimate the causal effects from an adoptee being raised in one type of family versus another. Our findings show that family background matters significantly for children’s accumulation of wealth and investor behavior as adults, even when removing the genetic connection between children and the parents raising them. In particular, adoptees raised by wealthy parents are more likely to be well off themselves, whereas adoptees’ stock market participation and portfolio risk are increasing in the financial risk taking of their adoptive parents. The detailed nature of our data allows us to explore mechanisms, assess the generalizability of the lessons from adoptees, and compare our findings to results from behavioral genetics decompositions.

Keywords: Intergenerational Transmission, Wealth, Financial Risk Taking, Family Background

JEL Classification: D31, J62

Suggested Citation

Fagereng, Andreas and Mogstad, Magne and Ronning, Marte, Why Do Wealthy Parents Have Wealthy Children? (February 21, 2018). Available at SSRN: https://ssrn.com/abstract=3146928 or http://dx.doi.org/10.2139/ssrn.3146928

Andreas Fagereng (Contact Author)

Statistics Norway ( email )

Postboks 8131 Dep, 0033 Oslo
Oslo, Oslo 0033
Norway
+47 2109 4700 (Phone)

HOME PAGE: http://sites.google.com/site/andreasfagereng/

Magne Mogstad

Statistics Norway ( email )

N-0033 Oslo
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Marte Ronning

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

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