How Inheritances Make the Rich Get Richer

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The 19th century Industrialist Andrew Carnegie had strong opinions about passing down an inheritance. He felt that an inheritance “deadens the talents and energies” of the recipient.

Recipients generally feel differently. When not due to tragedy, most of us would love to receive an inheritance. Yet not everyone is so lucky. When we analyzed data the government collects on household finances, we found that only slightly over 20% of American households have received an inheritance, and that only about 7% of American households received inheritances of $100,000 or more.

Instead, inheritances are concentrated among a lucky few. One percent of American households that received an inheritance got $600,000 or more, and that top 1% accounts for 85% of all money inherited.

Our analysis also showed that inheritances tend to lead to the rich getting richer. The households likely to receive inheritances are headed by highly educated, high income, middle aged, white men. The rest of this article explores how likely certain groups are to receive an inheritance, and just how big that inheritance is likely to be.

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As part of the 2013 Survey of Consumer Finances, the Federal Reserve Board surveyed a representative sample of 30,000 American households about their financial history. Among the questions asked was “Have you ever received an inheritance, or been given substantial assets in a trust or in some other form?”

21.4% of American households responded that they received an inheritance. This means that in 2013, roughly 26 million out of 122.5 million American households had received an inheritance.

All of the data is reported at the household level, so if multiple people in a household received inheritances, that is only counted once.

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But not all inheritances are created equal. Certain households received as little as $20, while one household received $217,800,000. The average amount bequeathed to a household that received an inheritance was $156,400, and the median was $50,000.

The following chart shows the proportion of heirs who received amounts above certain thresholds.

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Over 80% of inheritances were for $10,000 or more. More than a third of American households that received an inheritance received $100,000 or more, which translates to almost nine million households.

The top 1% of households that received an inheritance received $600,000 or more. This means that just 250,000 households accounted for 85% of the total sum inherited.

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Beyond just looking at the amounts received, we were interested in who exactly is most likely to receive an inheritance. We examined this by gender, income level, education level, ethnic background and age group.

As part of the Survey of Consumer Finance, respondent households are asked to identify a head of household. 72% of respondents report that their head of household is a man. The following chart displays the percentage of households headed by men that received an inheritance versus the percentage headed by women.

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In the sample, 22.3% of male-headed households received inheritances, compared to 19.2% for women. This means households headed by men are 16% more likely to have received an inheritance.

Not only are households headed by men more likely to have received an inheritance, but when they do receive them, they are are likely to be larger. This next chart show the average and median amounts received by households headed by men and women. We report both averages and medians because the extremely large amounts received by a small number of families can distort the results.

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We found that male heads of households received an average inheritance ($178,800) that was almost twice the size of the average inheritance received by women ($90,900).

Next, we analyzed how likely households of different income levels were to receive an inheritance. Do inheritances lead to the rich getting richer? Or do they spread the wealth?

The answer is emphatically the former.

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The analysis shows a strong relationship between higher levels of income and the likelihood to receive an inheritance. Those households with a total household income of $250,000 or greater are more than twice as likely to have received an inheritance as those who made less than $35,000. And the inheritances they receive are dramatically larger.

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The average inheritance received by heirs who make $250,000 or more a year was over half a million, almost six times more than the $83,000 average inheritance received by heirs who make under $35,000. The median amount received is more than five times higher.

Education levels are also highly correlated with likelihood to receive an inheritance. (Not surprisingly, given the strong relationship between income levels and education.)

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Only 12% of households headed by an individual who did not complete high school received an inheritance. On the other hand, households headed by someone with a graduate degree were nearly three times more likely.

And once again for education level, those who are most likely to receive an inheritance are also those who are most likely to receive the largest inheritances, though the relationships is not quite as strong as for income.

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Households headed by those who received college degrees or graduate school degrees had similar outcomes. Interestingly, the median for household headed by someone with only a college degree is actually higher than that for people who completed graduate school. Yet both are more than double the median inheritance value received by a person who did not complete college.

We also examined inheritance patterns by ethnic background. The Survey of Consumer Finances separates out people of White, African American, and Hispanic/Latino ethnicities, but groups together those with Asian, American Indian, and Pacific Islander backgrounds along with the “Other” category in their publicly available dataset. This next chart shows the probability that each of these groups received an inheritance.

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At 26.6%, those who reported their ethnicity as White had, by far, the highest chance of reporting that they received an inheritance. Whites are followed by the group Asians, American Indian, Pacific Islander, Other (14.1%), African-Americans (10.4%) and finally Hispanics (6.0%). This means that households headed by Whites were greater than four times more likely than households headed by Hispanics to receive an inheritance.

Are ethnically White respondents also likely to get the largest inheritances? The chart below shows average and median inheritance amounts by ethnic group.

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The category including Asians, American Indian, Pacific Islander, Other showed the highest average inheritance, at $169,000. Whites were the second highest, at an average inheritance of $167,000, while respondents self-reporting as African-American received the lowest average inheritances.

The order changes if we look at medians. By that metric, households headed by a White individual received the most at $50,000, followed by African Americans ($40,000), Asian, American Indian, Pacific Islander, Other ($30,000) and Hispanic ($20,000). It seems that African American households that receive inheritances are likely to receive substantial amounts, but rarely extremely large ones.

Finally, we wanted to see how age at the time of interview correlated with amount received. We found that older respondents, but not the very oldest, were most likely to report receiving an inheritance.

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At 12.5%, young people are the least likely to receive an inheritance. This is unsurprising given that inheritances are frequently bequeathed due to a parent or grandparent passing away.

Age group is the area in which the amount received is least different by category.

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The average households with a head in the 35-54 and 55-74 age groups generally receive larger inheritances than others age groups. But there was not large variation in the median amount received between 35-54 year olds, 55-74 year olds and those 75+ – all had medians between $48,000 and $56,000. In contrast, 18-34 year olds typically receive $27,000 or less.

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Our analysis of inheritances suggests that there are certain characteristics that are correlated with not only an increased chance of receiving an inheritance, but also an average larger inheritance value.

If you’re a white, high earning male who has completed college and/or postgraduate education, you’re much more likely to receive an inheritance, and a big one, at that. And if you’re already well-to-do financially, you’re much more likely to receive a big inheritance than someone who’s struggling financially.

When it comes to inheritances, the rich do get richer.

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