Economic and Social Mobility New Directions for Data, Research, and Policy (2025) / Chapter Skim
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5 Wealth, Credit, and Debt
5 Wealth, Credit, and Debt
Pages 138-166
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From page 138... ...
. Wealth is itself a central dimension of social mobility in the United States but also a driver of other socioeconomic and racial/ethnic inequalities (e.g., Shapiro, 2017; Zucman, 2019)
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From page 139... ...
This is problematic, as debt and credit play a major role in the economic well-being and mobility of U.S. families: As of the first quarter of 2023, American households held more than $17 trillion in debt, including approximately $12 trillion in mortgage debt, $340 billion in home equity–based debt, $1.6 trillion in student loan debt, $1.6 trillion in auto debt, $1 trillion in credit card debt, and $500 billion in "other" debt (Federal Reserve Bank of New York, 2023a)
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From page 140... ...
Beyond housing, credit and debt provide many individuals with opportunities to take risks that engender wealth accumulation and upward mobility; yet, for others, they are insurmountable obstacles that hinder mobility, if not direct sources of downward inter- and/or intragenerational mobility. Finally, we acknowledge that wealth is unique in its importance as both a mechanism of mobility and an outcome (or measure)
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From page 141... ...
. Most existing evidence on intergenerational wealth correlations in the United States is based on the Panel Study of Income Dynamics, as it is the only nationally representative household panel study that has collected measures of family wealth early enough -- starting in the 1980s -- and has continued to do so long enough to allow the comparison of the wealth holdings of parents and their adult children.
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From page 142... ...
Furthermore, the extent of upward mobility in wealth has decreased precipitously over time, from about half of all children born in the 1950s and 1960s being upwardly mobile in terms of wealth to just 28 percent for children born in the 1980s. Intergenerational wealth correlations have also been estimated for additional countries in just the last few years (see Hällsten, 2024, for a review)
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From page 143... ...
They also show that only half of the grandparent–grandchild association flows through parental wealth, meaning that grandparental wealth is associated with grandchild wealth net of parental wealth. The relative importance of multigenerational wealth transmission appears to be even more pronounced in Denmark, where the size of the grandparent–grandchild wealth correlation is about three-quarters that of the parent–child correlation and most of the grandparent–grandchild association persists when parental wealth is controlled (Boserup et al., 2014)
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From page 144... ...
Trajectories of Wealth Accumulation Intragenerational wealth trajectories -- stability and change in wealth over the life course -- are also key components of economic mobility. Economic studies of wealth accumulation processes often focus on the roles of income, consumption, capital gains, and financial transfers (Feiveson & Sabelhaus, 2019)
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From page 145... ...
found that divorce leads to declines in net worth primarily because of loss in housing wealth around the time of divorce, although divorcees' rates of postdivorce wealth accumulation are comparable to those of married individuals. Prior research has also shown that acute health events lead to changes in household wealth, with differential effects across racial groups: while health shocks affect both White and Black families, they have a disproportionately deleterious impact on the financial well-being of Black families as the family heads approach retirement (Thompson & Conley, 2016)
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From page 146... ...
noted substantial racial inequality in wealth by midlife: White households had accumulated an average net worth of $105,000, compared with less than $5,000 and $39,000, respectively, for Black and Mexican American families. In addition, White individuals experience much faster rates of wealth accumulation in their 50s and 60s than their minority counterparts, resulting in wealth inequalities that increase with age, consistent with a process of cumulative disadvantage.
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From page 147... ...
Wealth as a Mechanism of Mobility As noted above, wealth transmission also occurs through indirect channels, such as when family wealth supports children's development, educational achievement, and degree attainment, as well as their early careers and labor market experiences. Accumulation of earnings can lead to higher income and wealth.
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From page 148... ...
. While these earlier-life intergenerational influences of family wealth can be thought of as indirect channels of intergenerational wealth mobility, they are also the foundation for an even broader role of family wealth in processes of intergenerational mobility: Family wealth fosters early life advantages that eventually support social mobility in other dimensions, such as educational, income, and occupational mobility.
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From page 149... ...
. American housing policy has long promoted homeownership, codified in postwar lending practices, as a vehicle for increasing economic and social mobility and wealth-building specifically (Fischel, 2005; McCabe, 2016)
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From page 150... ...
. Conversely, housing market appreciation during this same period largely benefited White homeowners, and recent research has found that such housing market dynamics can account for nearly three-quarters of the increase in the median White–Black wealth gap between 1984 and 2019 (LaBriola, 2024)
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From page 151... ...
In part, this is because of the stagnant supply of housing choice vouchers and the shift in federal housing policy since the 1970s toward market-based rental subsidies (relying on private-market landlords) rather than the construction of public housing units (Hackworth, 2007; Rosen, 2020; Schwartz, 2015)
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From page 152... ...
and past-due public utility/amenity bills. Retrospective obligations to market institutions include medical debt, past-due rent and other bills, and child support arrears owed to custodial parents.
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From page 153... ...
debt may be linked to intra- and intergenerational mobility. Indeed, the committee is aware of no study to explicitly examine such links; however, as discussed below, a small group of studies have examined links between access to credit and key mechanisms for economic and social mobility, such as investments in children's human capital, college attendance and completion, and young adult earnings (Braxton et al., 2024; Lochner & Monge-Naranjo, 2012; Mayer, 2021; Ringo, 2019; Sun & Yannelis, 2016)
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From page 154... ...
, civil and criminal legal debt, medical debt, unpaid bills, loans from nonfinancial institutions (employers, family, friends, pawn shops) , child support debt, and other debts owed to government -- are frequently missing from these data sources (Finnigan & Meagher, 2019; Fourcade & Healy, 2013; Ghaffary, 2019; Halpern-Meekin et al., 2015; Harris, 2016; Wherry et al., 2019)
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From page 155... ...
, using child fixed effects regressions, found associations of mortgage and educational debt with better child socioemotional development, potentially reflecting greater parental educational attainment, wealth, and neighborhood quality, and between greater unsecured debt and poorer child socioemotional well-being, potentially reflecting greater parental stress and/or constrained consumption. Berger and Houle (2019)
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From page 156... ...
At the same time, however, they also found that expanded access to credit for disadvantaged families can suppress intergenerational economic mobility because, whereas expanded access to credit (increased credit limits and decreased cost of bankruptcy) offers increased opportunities for human capital investment, it also reduces incentives for saving among disadvantaged families, which are more likely than advantaged families to reach their credit limits and struggle with repayment and, in response, may decrease human capital investments in children.
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From page 157... ...
The existing literature on employment suggests that credit checks are not typically the deciding factor in hiring decisions but are often taken into consideration, which may constrain employment options for those with poor credit scores. At the same time, research evaluating legal bans on employer credit checks has produced mixed results on whether such policies increase or decrease employment among disadvantaged populations (see, e.g., Ballance et al., 2020; Friedberg et al., 2021)
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From page 158... ...
. Nonetheless, far too little is known about how widespread is the use of credit checks in the private rental market and whether credit checks are a primary cause or mechanism through which to understand restricted housing and neighborhood opportunities -- and thus economic mobility -- of low-income and racial minority households.
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From page 159... ...
and, similar to the revenue raised through estate taxation, could fund other policies geared at building wealth and supporting wealth mobility. Some of these wealth-building policies can be classified by the point of the wealth distribution they target: homeownership policies help build middle-class wealth, asset-building policies (such as matched savings account)
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From page 160... ...
tax policy has supported homeownership through the mortgage interest deduction, a tax expenditure that is highly regressive because it benefits higher-income households. And although initial analyses suggest no direct racial bias in the home mortgage interest deduction, through their underrepresentation at higher income levels, racial minority households also benefit less from this tax provision (Cronin et al., 2024)
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From page 161... ...
. Besides the targeted wealth policies described above, universal policies that provide a wealth transfer to all or most families or young people have recently gained interest.
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From page 162... ...
. Finally, acknowledging that wealth advantage is transmitted to the next generation throughout their life course and through multiple channels, broader policies and reforms could consider reforming the institutions that currently require families to rely on wealth to facilitate their offspring's success.
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From page 163... ...
These indirect channels of wealth transmission also undergird wealth's role in sustaining other forms of social mobility. Family wealth has broad intergenerational impacts that accrue through multiple mechanisms.
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From page 164... ...
Wealth accumulation and intergenerational wealth transmission are shaped by multiple institutional and structural features of U.S. society that have not been and are still not race neutral, with the segregated housing market and racialized lending practices being just one prime example.
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From page 165... ...
Recommendation 5-3: Researchers should further examine the ongoing role of institutions, policies, and practices in reproducing racial/ethnic wealth gaps and expand beyond White and Black populations to generate evidence on wealth mobility patterns for other racial/ethnic groups. Credit and debt provide many individuals with opportunities to make investments in human capital and core assets, such as a home, as well as opportunities to take risks that engender wealth accumulation and upward mobility.
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From page 166... ...
Conclusion 5-4: Targeted policies can address the intergenerational transmission of wealth at different points of the wealth distribution, from the top (through inheritance and wealth taxation) , to the middle (chiefly through housing policies)
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