Research / BFI Working PaperFeb 21, 2018

Why do wealthy parents have wealthy children?

Andreas Fagereng, Magne Mogstad, Marte Rønning

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.

More Research From These Scholars

BFI Working Paper Jun 30, 2021

How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income

Mikhail Golosov, Michael Graber, Magne Mogstad, David Novgorodsky
Topics:  Economic Mobility & Poverty
BFI Working Paper Dec 31, 2020

Broadband Internet and the Stock Market Investments of Individual Investors

Hans K. Hvide, Tom G. Meling, Magne Mogstad, Ola L. Vestad
Topics:  Financial Markets
BFI Working Paper Jun 3, 2021

Family Background, Neighborhoods and Intergenerational Mobility

Magne Mogstad, Gaute Torsvik
Topics:  Economic Mobility & Poverty