Intergenerational wealth transmission in Great Britain

• Published date: 01 December 2023
• Author: Paul Gregg,Ricky Kanabar
• Date: 01 December 2023
• DOI: http://doi.org/10.1111/roiw.12620

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Review of Income and Wealth

Series 69, Number 4, December 2023

DOI: 10.1111/roiw.12620

INTERGENERATIONAL WEALTHTRANSMISSION IN GREAT BRITAIN

BY PAUL GREGG and RICKY KANABAR∗

Department of Social and PolicySciences, University of Bath

Wedocument the intergenerational wealth transmission between adult offspring and their parent’susing

the Wealthand Assets Survey for Great Britain. Weestimate an intergenerational wealth elasticity of 0.4

and Rank-Rank elasticity of 0.3 and nd intergenerationalwealth transmission for individuals in their

60s is lower than for those currently aged in their 30s and early 40s, though rank based estimates are

stable. Our estimationresults imply that the intergenerational wealth elasticity is 3.8 percentage points

higher when comparing people with those the same age 6years previously suggesting strong evidence

of higher intergenerational wealth persistence in youngerage cohorts. Taken together, the ndings have

important implications for future wealthinequalities and must be addressed.

JEL Codes: D31, D63, I24

Keywords:wealth, inequality, intergenerational mobility,Great Britain

1. INTRODUCTION

Understanding inequalities in areas such as health, income and wealth has

come to the forefront of the policy agenda (Gale and Scholz, 1994; Piketty and

Saez, 2014; Killewald et al.,2017;Blacket al.,2020). From an intergenerational

perspective the scale and nature of wealth compared to even income means signif-

icant differences in holdings among parents can have far-reaching implications for

their offspring’s livingstandards and intergenerational social mobility more gener-

ally. Indeed, to understand the determinants of living standards one has to consider

both income and wealth. Previous research has demonstrated the importance of

the former (see inter-alia Gregg et al., 2017) whereas wealth has received far less

attention even though recent evidence shows wealth has grown more rapidly than

incomes (Advani et al.,2020). Whilst the general pattern in wealth inequality has

been well documented in the UK (see Cowell et al.,2018), relatively few studies have

sought to shed light on the scale and speed at which the association between parent

and offspring wealth is changing.

Such evidence is important for several reasons. As a cumulative stock wealth

can be easily transferred to successive generations via inter vivo transfers or inher-

itances. Research based on UK data show the size of these transfers is non-trivial

(Palomino et al.,2020). Parents can also use their wealth during their lifetime to

act as collateral and facilitate major lifecycle decisions such as their offspring’s

Note: The authors would liketo thank the Editor (Conchita D’Ambrosio), two anonymous referees

and Lindsey Macmillan for helpful comments.

*Correspondence to: RickyKanabar, Department of Social and PolicySciences, University of Bath,

Claverton Down,Bath, BA2 7AY, UK (rk735@bath.ac.uk).

© 2022 The Authors.Review of Income and Wealth published by John Wiley & Sons Ltd on behalf of

International Association forResearch in Income and Wealth.

This is an open access article under the terms of the Creative Commons Attribution License,which

permits use, distribution and reproductionin any medium, provided the original work is properly cited.

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Review of Income and Wealth, Series 69, Number 4, December 2023

0

100000

200000

300000

400000

500000

600000

20 23 26 29 32 35 38 41 44 47 50 53 56 59 62 65 68 71 74 77 80 83

Mean Median

Figure 1.Averageindividual level total net wealth.

Notes: Averageindividual level total net wealth. Figures based on WASwave 3 (2010– 2012). Y axis

measures individual level total net wealth. X axis refers to age. See online Appendix A in Appendix S1

for denition of total net wealth. Figures quoted in 2015 prices.N=38,020.

rst house purchase or in the form of early life investments such as their chil-

dren’s education which in turn inuences their earnings and savings (see inter alia

Pfeffer et al.,2016; Davenport et al.,2021). Indeed, one recent estimate based on

UK data found intergenerational transfers contribute 33 percent of total wealth

inequality, falling to 23 percent after controlling for family background and high-

lighting the importance of characteristics such as parental education (Palomino

et al.,2020).

As a general pattern, people in the UK accumulate wealth primarily through

housing and pension wealth up to around age 64 and then consume some portion

of that wealth through to death (see Figure 1). As such assessing intergenerational

wealth offers a number of distinct challenges compared to that for earnings or

incomes. Being a cumulative stock, the ideal age to assess wealth is just beforeretire-

ment (mid-60s), as this represents the cumulative life-time position from working

life and the potential for future consumption in retirement, unlike earnings which

are an annual ow. In the absence of very long panel data survey data allows us to

observe wealth in the current population at age 64, however it is more difcult to

establish the wealth of parents of the current population approaching retirement,

as the parents retired 25–30 years in the past. Alternatively, we can look at wealth

holdings of current offspring, with parentsat around age 64. In this case the parental

wealth measure is at the ideal agebut the offspring are young, around their mid-30s.

In this second case the current information of wealth of offspring is reliable and

valuable but there is a substantial life-cycle bias issue when observing people at

young ages for the purposes of wealthaccumulation and intergenerational associa-

tions in wealth holdings.

© 2022 The Authors.Review of Income and Wealth published by John Wiley & Sons Ltd on behalf of

International Association forResearch in Income and Wealth.

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