I often hear people around me say, “The rich get richer and stay rich,” talking about how wealth gets passed down through generations and creates more inequality. I never thought much about it until I stumbled across this NBER working paper that made me want to dig deeper.

The paper tracked millions of families from 1850 through the Gilded Age up to the 1940s, looking at how wealth moved between generations. I’ll be honest - I didn’t read the whole thing (who has the time?), so I asked ChatGPT for a summary. Two things I found really interesting:

  1. The top 1% wasn’t some exclusive club, there was tons of turnover. More than 70% of the rich actually fell out of the top 1% within just a decade. Being rich didn’t mean staying rich. People lost their wealth for all sorts of reasons: living too lavishly, economic crashes, wars, splitting inheritances between kids, or simply having kids who weren’t great at managing money.

  2. Even massive wealth didn’t last across generations. Here’s something shocking - over 90% of grandchildren with a top 1% grandfather couldn’t maintain that level of wealth. Even the ultra-wealthy families (top 0.1%) only saw about 13.5% of their grandkids make it to the top 1%. Better odds, sure, but still pretty low.

This got me thinking. Maybe things weren’t as rigged as I thought. But what about today? I dug into more recent research (again, with ChatGPT’s help) [1, 2, 3] and found something interesting:

Things are really different now. While historically 70% of the wealthy would fall out of the top 1% within a decade, today only 25-30% drop out even over several decades. The rich are much better at staying rich.

That’s because today’s wealthy have some serious advantages: they make more money from investments than regular income, and they have access to fancy financial tools and tax strategies that help them keep their wealth. While being rich still doesn’t guarantee your grandkids will be in the top 1%, their odds are way better than during the Gilded Age.

Looking at all this made me think differently about wealth inequality. It’s not just that the rich get richer - it’s that our modern system is actually better at helping them stay rich. Kind of explains why we’re talking about generational wealth and inequality more than ever.

References

[1] NBER Working Paper #25462
[2] NBER Working Paper #28239
[3] NBER Working Paper #33355