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Why Net Worth Misrepresents Wealth Effects and What to Do About It

By on September 18, 2023 in Articles

Jascha Dräger, Klaus Pforr, Nora Müller

Sociological Science September 18, 2023
10.15195/v10.a19

Abstract

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Wealth plays an important role in social stratification but the results that can be obtained when analyzing wealth as a predictor variable depend on modeling decisions. Although wealth consists of multiple components it is often operationalized as net worth. Moreover, wealth effects are likely non-linear, but the functional form is often unknown. To overcome these problems, we propose to 1) split up net worth into gross wealth and debt and evaluate their joint effect and 2) use non-parametric Generalized Additive Models. We show in a simulation study that this approach describes systematic wealth differences in more detail and overfits less to random variation in the data than standard approaches. We then apply the approach to re-analyze wealth gaps in educational attainment in the US. We find that the operationalization of wealth as net worth results in a misclassification of which children have the best and the worst educational prospects. Not negative net worth is associated with the worst educational prospects but only the combination of low gross wealth and low debt. The most advantaged group are not only children with high net worth but all children with high gross wealth independent of the households’ amount of debt.
Creative Commons LicenseThis work is licensed under a Creative Commons Attribution 4.0 International License.

Jascha Dräger: Strathclyde Institute of Education, University of Strathclyde
E-mail: Jascha.draeger@web.de

Klaus Pforr: Department of Data and Research on Society, GESIS – Leibniz Institute for the Social Sciences
E-mail: klaus.pforr@gesis.org

Nora Müller: Department of Data and Research on Society, GESIS – Leibniz Institute for the Social Sciences
E-mail: nora.mueller@gesis.org

Acknowledgements: This work was supported by the German Research Foundation (DFG) under Grant No. 403547843. We thank Barbara Felderer, Max Thaning, Alejandra Rodríguez Sánchez, Øyvind Wiborg, the reviewer, and the editor for their helpful comments. Replication files can be found via https://www.openicpsr.org/openicpsr/project/187561/version/V1/view.

Supplemental Material

  • Citation: Dräger, Jascha, Klaus Pforr, and Nora Müller. 2023. “Why Net Worth Misrepresents Wealth Effects and What to Do About It.” Sociological Science 10: 534-558.
  • Received: January 26, 2023
  • Accepted: March 28, 2023
  • Editors: Arnout van de Rijt, Cristobal Young
  • DOI: 10.15195/v10.a19


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Marriage, Kids, and the Picket Fence? Household Type and Wealth among U.S. Households, 1989 to 2019

By on April 25, 2022 in Articles

Christine Percheski, Christina Gibson-Davis

Sociological Science April 25, 2022
10.15195/v9.a7

Abstract

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Evidence on how parenthood affects household wealth in the United States has been inconclusive, partially because previous studies have decontextualized parenthood from gender, marital, and relationship status. Yet, insights from economic sociology suggest that wealth-related behaviors are shaped by the intersection of identities, not by a binary classification of parental status. We examine net worth by the intersection of gender, parental, and relationship status during a period of increasing wealth inequality and family diversification. Using data from the Survey of Consumer Finances from 1989 through 2019, we show that aggregate comparisons between parents and non-parents mask substantial wealth variation across nine household types. Despite changing social selection into marriage and parenthood, married parents consistently held a wealth advantage over demographically similar adults in other household types. Married parents’ wealth advantage descriptively arises from homeownership, perhaps because the combined spousal and parental identities are normatively and culturally associated with homeownership.
Creative Commons LicenseThis work is licensed under a Creative Commons Attribution 4.0 International License.

Christine Percheski: Department of Sociology, Northwestern University
E-mail: c-percheski@northwestern.edu

Christina Gibson-Davis: Sanford School of Public Policy, Duke University
E-mail: cgibson@duke.edu

Acknowledgments: We gratefully acknowledge funding from the National Science Foundation (award 1459631) and advice from Sara McLanahan, Michael Hout, Michelle Weinberger, and several anonymous reviewers.

Supplemental Material

  • Citation: Percheski, Christine, and Christina Gibson-Davis. 2022. “Marriage, Kids, and the Picket Fence? Household Type and Wealth among U.S. Households, 1989 to 2019.” Sociological Science 9: 159-183.
  • Received: March 10, 2021
  • Accepted: April 30, 2022
  • Editors: Jesper Sørensen, Vida Maralani
  • DOI: 10.15195/v9.a7


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The Inheritance of Race Revisited: Childhood Wealth and Income and Black–White Disadvantages in Adult Life Chances

By on December 1, 2020 in Articles

David Brady, Ryan Finnigan, Ulrich Kohler, Joscha Legewie

Sociological Science December 1, 2020
10.15195/v7.a25

Abstract
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Vast racial inequalities continue to prevail across the United States and are closely linked to economic resources. One particularly prominent argument contends that childhood wealth accounts for black–white (BW) disadvantages in life chances. This article analyzes how much childhood wealth and childhood income mediate BW disadvantages in adult life chances with Panel Study of Income Dynamics and Cross-National Equivalent File data on children from the 1980s and 1990s who were 30+ years old in 2015. Compared with previous research, we exploit longer panel data, more comprehensively assess adult life chances with 18 outcomes, and measure income and wealth more rigorously. We find large BW disadvantages in most outcomes. Childhood wealth and income mediate a substantial share of most BW disadvantages, although there are several significant BW disadvantages even after adjusting for childhood wealth and income. The evidence mostly contradicts the prominent claim that childhood wealth is more important than childhood income. Indeed, the analyses mostly show that childhood income explains more of BW disadvantages and has larger standardized coefficients than childhood wealth. We also show how limitations in prior wealth research explain why our conclusions differ. Replication with the National Longitudinal Survey of Youth and a variety of robustness checks support these conclusions.
Creative Commons LicenseThis work is licensed under a Creative Commons Attribution 4.0 International License.

David Brady: School of Public Policy, University of California, Riverside, and WZB Berlin Social Science Center
E-mail: dbrady@ucr.edu

Ryan Finnigan: Department of Sociology, University of California, Davis
E-mail: rfinnigan@ucdavis.edu

Ulrich Kohler: Faculty of Economics and Social Sciences, University of Potsdam
E-mail: ukohler@uni-potsdam.de

Joscha Legewie: Department of Sociology, Harvard University
E-mail: jlegewie@fas.harvard.edu

Acknowledgments: Direct correspondence to David Brady, School of Public Policy, University of California, INTS 4133, 900 University Ave., Riverside, CA 92521; email:dbrady@ucr.edu. The last three authors are listed alphabetically and contributed equally. This article benefitted from presentations at the New York University–Abu Dhabi Social Research and Public Policy seminar; University of California, Santa Barbara, Broom Center for Demography; the PAA meetings; the University of California Riverside Applied/Development Economics Brown Bag; theWorking Groups on Stratification, Inequality, and Mobility and Movements, Organizations, and Markets in the Department of Sociology at the University of California, Los Angeles; and the WZBUSP Writing Workshop. We appreciate suggestions from Sociological Science reviewers and editor Jesper Sorensen, Thomas Biegert, Agnes Blome, Irene Boeckmann, Eduardo Bonilla-Silva, Tyson Brown, Mareike Buenning, Rich Carpiano, Joe Cummins, Chenoa Flippen, Sanjiv Gupta, Martin Hällsten, Lena Hipp, Sabine Huebgen, Bob Kaestner, Sasha Killewald, Nadia Kim, Matthew Mahutga, Fabian Pfeffer, Emanuela Struffolino, Florencia Torche, Zachary Van Winkle, Andres Villarreal, and Hanna Zagel.

Supplemental Material

  • Citation: Brady, David, Ryan Finnigan, Ulrich Kohler, and Joscha Legewie. 2020. “The Inheritance of Race Revisited: Childhood Wealth and Income and Black–White Disadvantages in Adult Life Chances.” Sociological Science 7: 599-627.
  • Received: August 7, 2020
  • Accepted: September 24, 2020
  • Editors: Jesper Sørensen, Kim Weeden
  • DOI: 10.15195/v7.a25


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