Generational Wealth vs. the Wage Gap and Why the Distinction is Important


The term "wage gap" has become increasingly popular since the 1980s, but it doesn’t get to the heart of why inequality in the US is growing. The big issue is that, in the United States, it is expensive to be poor and it is cheap to be rich. Debts and late fees can grow over time - decreasing one's wealth. In the same way, wealth and investments can grow over time - increasing one's wealth.



The wage gap, being the difference in pay checks between individuals, actually has very little to do with generational wealth. Generational wealth usually comes from long term investments. In this sense, someone may be earning $50,000 a year at their job but may still be less financially stable than someone who is unemployed, but comes from a wealthy family. Focusing on the wage gap is miniscule compared to the generational wealth that accumulates from one’s ancestors' long term investments.


This wage gap is especially apparent between races. White families on average come from more wealth than Black families. The typical Black household had only 12.7 percent of the wealth of typical white families in 2019 and that gap in wealth has only increased since the pandemic. One reason for this is that the financial assets that determine generational wealth (such as property, investments, and intangible assets such as education and day to day habits) are passed down through generations.


The wealthy usually end up paying a larger sum at first, but paying less in the future. If one does not have the means to pay these larger sums up front, they may end up spending more money later on down the road. Health is a great example of this dichotomy. It may cost more upfront to eat healthy or to see a therapist, but these costs pay off in the future. Conversely, not taking care of your mental and physical health can cause serious consequences in the future, such as addiction, rehab, hospital bills, and long term health issues. Tangible wealth works the same way. When a house or a property’s mortgage is paid off and the property is taken care of, this property’s value appreciates over time. If the property is not taken care of, it loses value. In more serious cases, if parents can't pay off their mortgage on their house, their children inherit their debts. This applies to bank loans and late fees, demonstrating that just as easily as wealth can increase, debt can increase.



Although long term investments are the real reason behind generational wealth, a steady stream of income is necessary for most Americans to pay their rent and afford groceries. “The wage gap” is a term often used to describe how the average CEO’s pay has increased dramatically since the 1960s while the average worker’s pay has barely risen. The average CEO made 20 times the average worker’s salary in 1965. This rose to 30 times more in 1978, 58 times more in 1989, 121 times more in 1995, and over 367 times more than the average worker’s salary in the year 2000. Although the average worker’s salary has increased slightly to account for inflation, these numbers still reflect that CEO paychecks have increased at an exponentially higher rate.


The reasons CEOs have the power to keep their astronomical salaries are often due to nepotism, generational wealth, and how their wealth affects legislation pertaining to their interests. Wealth and politics have always gone hand in hand and are especially reliant on each other in a capitalistic society such as the United States. Politicians are usually from wealthy families and are often swayed, bribed, or blackmailed by other wealthy individuals with a specific agenda. Wealth passed down through generations is especially powerful in the U.S. where there is no cap on how much money you can make from any one specific job. While the classic narrative in the U.S. is to work hard at a 9 to 5 to become rich, the true way to attain generational wealth is through long term tangible and intangible investments.



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