The Myth of the Self-Made American Billionaire & The Reality of Inherited Wealth
The concept of the “self-made man” is as outdated as its origins. Coined in 1842 by Senator Henry Clay, it was used (and is still used) to describe those who owe their successes primarily to themselves, and not outside conditions, such as inheritance.
But the term embodies many of the same glaring contradictions it did back then when it implicitly referred to white male slave owners, like Senator Clay, whose wealth was predicated upon the systemic suppression and exploitation of others.
The American Dream is a fantastic bit of marketing, but the underlying statistics suggest that self-made wealth is less achievable than it’s ever been in the United States. According to research in Science, 90 percent of people born in 1940 ended up richer than their parents, compared to 40 percent of those born in 1980. Further research from the Centre for Economic Policy Research (CEPR) shows that one of the most significant indicators of financial success is the environment in which one grows up: a sum total of the education, investments, and neighborhood that one’s parents can provide.
Still, the self-made myth persists largely because financially successful people want to believe that they are chiefly responsible for their own success, while those who aspire to financial success want to believe that all it takes is hard work and dedication.
The idea of a self-made American billionaire is the super-sized version of all other self-made myths, and outlandish to the point of being at least mildly insulting. So when Forbes declared Kylie Jenner to be the world’s youngest self-made billionaire, public reaction was fierce: how could the child of one of the nation’s richest and most visible families be, in any sense, self-made?
It was a sensational headline in a year of similarly sensational headlines, but the resulting discussion has shown that many Americans are waking up to the impossibilities of the self-made myth.
Hard work and dedication still matter. Individual achievement still deserves recognition. But these things don’t operate in a vacuum—and massive wealth is never solely attributable to the actions of a single person.
Redefining Risk and Inherited Wealth
America is in the throes of an entrepreneur boom. New business applications are at their highest quarterly level on record, an aberration found in no other rich country, according to The Economist.
The nation also maintains a tabloid-esque obsession with Mark Zuckerberg, Bill Gates, and Elon Musk. A defining narrative of the self-made billionaire is that entrepreneurial success comes primarily from an enormous appetite for risk. But a 2003 study shows that America’s nascent entrepreneurs are actually more risk-averse than non-entrepreneurs, and suggests that most entrepreneurs are motivated by non-financial elements.
Not all risks are equal. Entrepreneurs like Gates or Zuckerberg, both of whom come from well-off families, are able to take on more risk, and defer self-payment longer, than entrepreneurs without such a safety net. Given the high failure rate of new businesses, the ability to tolerate higher levels of risk and unprofitability for a longer period of time amounts to a significant advantage.
Not all failures are equal, and the consequences of failure look very different depending on an entrepreneur’s starting position. If Facebook had failed in its first year, for example, Mark Zuckerberg could have gone back to Harvard, and financial success still would’ve been statistically likely for him, given his family’s income. Harvard’s student population has some of the highest family income in the nation, and students from well-off families tend to become wealthy themselves, but only 1.8 percent of Harvard students who come from poor families go on to become top earners. New entrepreneurs who are supporting their parents, instead of the other way around, are playing with different stakes.
About 30 percent of households can expect to receive a wealth transfer that will account for around 40 percent of their net worth, according to the Bureau of Labor Statistics (BLS). That alone is an arguable point of great inequality, but the reality of inherited wealth is that not all of it is tangible. Would-be entrepreneurs also inherit their parents’ social circles, which tend to cluster around income level, and, given the network-driven nature of entrepreneurship, act as a major resource.
Entrepreneurs also inherit a system with tilted scales, and this is where the myth of the self-made individual becomes tangibly detrimental. Research in the Journal of Economics, Race, and Policy found that, given the costs of failure, Black entrepreneurs are more likely to experience downward economic mobility, and less likely to experience upward mobility, than their white counterparts.
The study concluded that more focus needs to be placed on making Black-owned businesses successful rather than encouraging more Black entrepreneurs to enter the fold. There’s plenty of work to do: Black entrepreneurs are more likely to be turned down for a loan than a similarly-qualified white counterpart, while startup capital remains the most important factor in whether a new venture will be successful.
Building a Collectively Wealthy Future
Wealthy people generally believe that all people are getting wealthier and that the circumstances which create wealth are largely fair. Unfortunately, it’s not true: income inequality is higher in the United States than it is in any country in the G7.
Now more than ever, young Americans are looking outside the mainstream for opportunities to improve their financial standing. But a longer-term fix requires more clever investment in a collectively wealthy future, one where the idea of a self-made anything is replaced with the sober acknowledgment that economic success is linked to a host of interrelated components.
A healthy population costs less to take care of than an unhealthy one, making better healthcare services a prudent investment. An educated population outearns an uneducated one and contributes more to the economy.
The bottom line is this: a more equitable and diverse society is a more innovative and prosperous one, and a more level playing field would do much to encourage the next generation of entrepreneurs. Meanwhile, Kylie Jenner can keep her lipstick empire; entrepreneurship need not be a zero-sum game. The myth of self-made wealth may make for sensational headlines, but collective wealth is something everyone can cheer for.