Wealth of parents strongly predicts our own wealth
Our wealth position at our fortieth birthday appears to largely depend on two factors: the wealth of our parents and extent to which we all build a financial buffer during our youth. Researchers recently concluded this on the base of personal finance data of 650,000 Danes in the years 2000 to 2011.
So the wealth of our ancestors largely determines our future wealth distribution. Of course many other factors such as our education, type of job and residence are involved, but (unfortunately) the Danish research shows that a matter which we do not control, the wealth of our parents, is highly relevant.
There is even a stronger connection between our wealth distribution at our fortieth birthday and the generosity of our parents (and grandparents) during our youth. The researchers checked to which extent savings accounts of Danish children receive money transfers from their (grand) parents. Although savings accounts of Danish children are limited to a max of 3,000 Danish kroner per year and a total limit of 36,000 Danish kroner, the scientists concluded that its incoming transfers are a very strong predictor for their future wealth.
At their eighteenth the savings accounts determine 50% of their wealth position, while the percentage of rich parents’ children is much higher. Assets that parents granted to Danish children are also an important predictor. Optional inheritances of their grandparents appear not to have a significant effect.
Wealth and mental problems
Earlier this week we already discussed recent scientific research showing that children with wealthy parents have fewer mental health problems as adults. Children with parents who earn below the average, have more anxiety disorders, mood swings and suffer more from obesity and asthma. On the other hand, this study showed that children of wealthy parents often struggle with significant mental health problems if they have not followed higher education.
Denmark has tax-favored rules for child savings on deposit accounts or securities. The capital income is tax exempt. In this way the Danish government wants to stimulate to teach the youth to save money and to have sensible financial behavior. Therefore, funds in an account can also not be withdrawn until at least seven years after putting the money in the account.