There’s startling new research that might quash the American Dream that if you work hard, you’ll be able to lead a more prosperous life than your parents.
The percentage of kids outperforming their parents has declined in recent decades, according to the new research by a team of economists led by Raj Chetty at Stanford University and Nathaniel Hendren at Harvard. When researchers compared the pre-tax incomes of kids born between 1940 and 1984 at the age of 30 to that of their parents and adjusted for inflation, they found that 90 percent of kids born in the 1940s did better than their parents, but that only 50 percent of kids born in the 1980s outperformed their parents.
Slower, Unequal Growth
The reasons are twofold — economic growth is happening at a slower pace, and the growth has not been distributed equally, as explained by The Atlantic’s CityLab.
Plus, there also were some geographical areas where the drop in kids outperforming their parents was more pronounced, such as industrial hubs in the Midwest.
But upward mobility is not dead. The research looked at children who are born to parents in the bottom fifth of the national income distribution but who go on to reach the top fifth.
“The differences in upward mobility across areas are caused by differences in childhood environment,” according to the website of the researchers’ The Equality of Opportunity Project, which uses big data to identify new pathways to upward mobility. “Every year of exposure to a better environment improves a child’s chances of success, based on an experimental study of housing voucher recipients and a study of 5 million families who moved across areas.”
It goes on to identify five characteristics that cities with high levels of upward mobility tend to have: lower levels of residential segregation, a larger middle class, stronger families, greater social capital, and higher quality public schools.
Improving Your Odds
What else can a millennial do to improve the 50-50 odds of making more than their parents?
Many have turned to financial arrangements with their parents. While there’s a stereotype of millennials mooching off parents by living back at home after college, Fidelity’s Millennial Money Study provides a different perspective. Many millennials who live with their parents have jobs and are using the money they normally would pay in rent to pay off student loans, build an emergency reserve, and even save for a down payment on a house or save for retirement. Mooching or a smart move?
Or maybe taking a step back to before college would be even smarter. With the average college student graduating with almost $30,000 in student loans, scrutinizing colleges’ costs and their value is a financial must. Many students are unaware that schools are required to provide access to net price calculators so they can estimate their true cost to attend.
You also can check out the 2016 Payscale College ROI Report, which allows you to see the best value colleges for various majors and career paths as well as evaluate ROI at a school overall. You can see which colleges are providing the best monetary return for their alumni via low cost of attendance, high earning potential, or a combination of the two.
Tell Us What You Think
Are you doing better or worse than your parents? We want to hear from you. Tell us your thoughts in the comments or join the conversation on Twitter.