Why the Rich Get Richer

Two recent academic studies – one from Europe and another from a Harvard and Yale-trained economist at NYU – show a pretty stark difference in the wealth accumulation habits of the rich as contrasted to the middle and other classes. For one thing, higher incomes allow more savings after taxes and consumption. And contrary to popular opinion, the rich are no better at getting better stock market returns then others – like most folks, they tend to react more emotionally and take more gut-feeling risks than are prudent, prompting poorer decisions. But despite this, the big surprise is they tend to put more of their savings into stocks, and less into other investments that generally over time are far less profitable, such as their homes and other real estate. According to a recent Bloomberg article on this research, “rich people own the upside of the economy in the form of stock, while the middle class’s gains are limited by the slow growth of housing wealth…the concentration of stock ownership is a big reason for wealth inequality.” Strong food for thought, especially for those concentrated in real estate.

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