Educational Differences in Stock-Linked Wealth Trajectories and Wealth Accumulation across Generations

• In Event: 30852 - Wealth

Abstract

While research on the wealth disparity between college and non-college graduates has traditionally focused on labor income, intergenerational wealth transfers, and homeownership, recent studies on the growing importance of stock-linked wealth primarily emphasize its period trends. This study adopts a cohort-life-course perspective to examine how educational differences in stock-linked wealth trajectories contribute to wealth accumulation disparities across generations in the United States. Using Panel Study of Income Dynamics (PSID) data, the study finds that college graduates accumulate more stock-linked assets, allocate a larger share of wealth to them, and achieve higher absolute returns. These advantages grow with age up to certain points and are more pronounced among younger generations (Baby Boomers and Generation X) than older ones (Greatest and Silent Generations). Stock-linked wealth surpasses housing wealth in driving the college wealth premium during midlife or later, with this transition occurring earlier for younger generations. The college premium in absolute returns to stock-linked wealth across age and generations stems from both larger stock-linked asset holdings and higher return rates among college graduates, explaining a substantial portion of their faster wealth accumulation. These findings highlight the importance of stock-linked wealth trajectories and cohort shifts in shaping wealth inequality in a financialized society.

Author

• Zhi Li, New York University