The real causes of wealth

by Caleb Reading

Steven Venti of Dartmouth and David Wise of Harvard studied the issue of income versus wealth for the National Bureau of Economic Research a few years ago  [The abstract of the paper can be viewed here.], using Social Security lifetime earnings and net income assessments for 3,992 households whose heads were near retirement age. Among their conclusions:

[…] income differences explain just 5% of the wealth dispersion the researchers found.

What the researchers called “chance events” — inheritances, medical bills, marital status, number of children — explained about 4% of the dispersion.

Investment choices explained about 8% of the variations.
In other words, the vast majority of the differences in wealth had nothing to do with income, chance events or investment choices.

What did explain most of the differences in wealth? Venti and Wise concluded it was this: How much the families chose to save. Those who made it a priority to save built wealth, regardless of their income level, individual circumstances or choice of investments.

It’s obvious, but how many people nonetheless blame their lack of wealth on income, chance events, and investment choices, instead of on the more likely culprit, lack of discipline?