Chart: Will Your Kids Earn a Higher Income Than You?

Parents want their children to have a better life than their own. We want our kids to eat more healthily, accumulate more knowledge, enjoy closer relationships, live longer, and – if we’re honest – make more money. However, the academic paper The Fading American Dream: Trends in Absolute Income Mobility Since 1940 by Chetty et al. shows us that earning more money than your parents has gone from nearly a sure thing to no better than a 50/50 coin flip. Via WSJ Daily Shot.

Here is a chart where each line shows the percentage of children born in the indicated year that earned more than their parents, as a function of their parent’s income percentile.

Every decade, the numbers get consistently worse. In terms of overall percentages:

For children born in 1940, over 90% grew up to earn more than their parents.
For children born in 1980, only 50% grew up to earn more than their parents.

What does that mean? Even if you as parents today earn an above-average income, there is no guarantee that your kids will grow up to earn more than you on an inflation-adjusted basis. In fact, if the trend holds, the odds are that they will end up earning less.

Very few parents have the kind of wealth that guarantees financial security for their offspring. This creates increasing stress about gifted programs, private schools, magnet schools, sports teams, test prep, and any other opportunities that can give them an edge.

We took our kids to a local pumpkin patch this weekend, and in between choosing your own pumpkin and feeding farm animals, our oldest started complaining about not having $5 lemonade. This reminded me of a simple rule:

Happiness equals reality minus expectations.

My kids should not expect to have a certain lifestyle. I hope (!) to teach them gratitude for the many advantages that they have been given, a strong work ethic for obtaining what they want to achieve, and tempered expectations of what makes a good life (not just money). Now, how do I pull that off?

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Chart: Will Your Kids Earn a Higher Income Than You? from My Money Blog.