“Why Do Wealthy Parents Have Wealthy Children?”, 2021-02-05 (; similar):
We show that family background matters statistically-significantly for children’s accumulation of wealth and investor behavior as adults, even when removing the genetic connection between children and the parents raising them. The analysis is made possible by linking Korean-born children who were adopted at infancy by Norwegian parents to a population panel data set with detailed information on wealth and socioeconomic characteristics. The mechanism by which these Korean-Norwegian adoptees were assigned to adoptive families is known and effectively random. This mechanism allows us to estimate the causal effects from an adoptee being raised in one type of family versus another.
…The linear rank correlations are 0.24 and 0.16 for the samples of non-adoptees and adoptees, respectively. This means that, on average, a 10 percentile increase in parent net wealth is associated with a 2.4 percentile increase in a biological child’s net wealth and a 1.6 percentile increase in an adoptee’s net wealth…On average, the adoptees accrue an extra US$2,250 of wealth if they are assigned to an adoptive family with US$10,000 of additional wealth. The magnitude of this estimate suggests that adoptees raised by parents with a wealth level that is 10% above the mean of the parent generation can expect to obtain a wealth level that is almost 3.7% above the mean of the child generation.
…We find that the indirect effects arising from changes in the observed mediator variables explain about 37% of the average causal effect from assignment to wealthier parents on children’s accumulation of wealth. Direct transfers of wealth are the most important mediator variable, accounting for almost 90% of the indirect effect.
…Columns 1 and 2 in panel A of Table 5 suggest that both family environment and genetics are important in explaining the variation in children’s wealth accumulation. Shared environment accounts for about 16% (10%) of the variation in net (financial) wealth accumulation. Relative to shared environment, the genetic factors explain a larger portion (twice as much or more) of the variation in wealth accumulation (both net and financial wealth). These findings are consistent with the results in Table 3, showing statistically-significant but less wealth transmission from parents to adoptees as compared with non-adoptees.
As shown in column 3 in panel A of Table 5, shared environment is also important for explaining the variation in financial risk-taking, as measured by the risky share. By comparison, genetic factors explain little of the variation in this measure of financial risk-taking. In column 4 of Table 5, we report results for education as measured by years of schooling. These results are close to the American study of Korean adoptees by 2007, who finds that 9% of the variation in years of schooling can be explained by shared environment, while 60% is attributable to genes.