Do Rich Get Richer While Poor Get Poorer? 3 Truths and 2 Myths to Wealth-Building
Written by
Vance Cariaga
Edited by
Cory Dudak
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It’s no secret that there’s a large wealth gap in the United States, and it’s been growing larger in recent years. Federal Reserve data show that as of June 2023, the top 1% of U.S. households by income held about 26.5% of household net worth, Reuters reported. That ratio is up about 1.5 percentage points since 2019, before the COVID-19 pandemic.
Learn More: 7 Ways the Upper Middle Class Can Become Rich in 2024
Read Next: 6 Genius Things All Wealthy People Do With Their Money
The U.S. Census Bureau found that the share of income going to the top 5% grew to 23.5% through 2022 from 23.0% three years earlier, continuing a trend that dates to the 1980s. Meanwhile, the bottom 40% of earners saw their share of the country’s wealth shrink to 6.7% from 7% over the same time frame.
These figures provide fodder for the idea that the rich get richer while the poor get poorer. But how accurate is that? Here are three truths and two myths about the idea.
Truth: The Very Rich are Getting (Very) Richer
In recent years, the wealthiest 1% of people worldwide have accumulated almost two-thirds of all new wealth created, according to an Oxfam study. “This is six times more than the bottom 90% of humanity,” the report noted, citing Credit Suisse Data.
Myth: All Poor Are Getting Poorer
This is (mostly) not true. Although the lowest-income Americans have seen their share of the nation’s wealth decrease in recent years, it doesn’t mean they have less money. In fact, the collective net worth of the bottom one-fifth of earners rose 27% to $4.2 trillion at the end of the 2023 second quarter from $3.3 trillion four years earlier, Reuters reported.
Truth: The Wealthy Get a Bigger Lift From Tax Breaks
When you have built up enough wealth, you can afford to invest in assets that bring tax advantages. For example, Survey of Consumer Finances data found that 93% percent of top-earning households had tax-advantaged 401(k) and other retirement plans as of 2022, while a large percentage of lower-income Americans had no retirement plans at all. The wealthy can also afford to wait for the tax benefits of long-term vs. short-term capital gains.
Myth: The Rich Get Richer Because They Are Better at Managing Money
This is a common myth that ignores the fact that many rich people end up going broke. According to a blog by renowned penny stock investor Timothy Sykes, the average millionaire goes bankrupt at least 3.5 times. While Sykes doesn’t cite the source for that statistic, there’s no denying that the wealthy can afford to hire the best financial advisors and investment professionals.
Truth: People Who Grow Up Poor Can Become Rich
As previously reported by GOBankingRates, research from “Rich Habits” author Tom Corley found that 41% of the 177 self-made millionaires he surveyed were reared in poor households. One of the keys to their ability to get out of poverty is their willingness to take risks.
“Growing up poor forces you to take risks in the pursuit of wealth,” Corley said. “Overcoming the fear of taking risks, therefore, becomes a habit.”
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