Although class is discussed frequently and openly in Britain, it makes many of us on this side of the Pond uncomfortable. Even so, class in America has been covered humorously by Paul Fussell, and with great color and insight by the New York Times.
Because I am a trust and estates lawyer, my practice offers a fascinating perspective on a particular aspect of class: how inheritance affects adult children.
To quantify and explore representative effects of inheritance, I built a model illustrating how the balance sheet of a relatively high-earning professional can be expected to change over the professional’s working and retirement years.
Let’s call our professional Henry, for lack of something more fun. Assume that Henry is a likeable, industrious guy, and graduated as a superstar from “school” (i.e., high school!) in Louisville, from one of the usual suspects. Assume further that Henry studied finance at Notre Dame as an undergraduate, worked for two years in asset management in Chicago, and went to Kellogg for his MBA.
In the real world, Henry might be a spectacularly successful founder of a hedge fund, but that creates “noise” in the model, so let’s assume that Henry instead works as a well paid mutual fund manager in progressively more responsible positions over the course of a stable and successful career, earning a solid income that allows him to pay his student loans (for the model runs in which those apply) and “max-out” his 401(k) contributions.
The model assumes a realistic current rate and repayment terms for student loans, and what I believe is a realistic long-term projection of investment returns under current market conditions. (If you play around with the model, you can easily modify the student loan interest rate and investment return parameters, if you’d like to.)
Although it’s a simple model that ignores period-to-period volatility in investment returns, I think that’s not a material drawback for its purposes, which are to illustrate the substantial life cycle planning effects of inheritance events on adult children.
The model shows different life cycle outcomes for Henry, the same guy with the same career, depending on his being part of three different classes: upper middle, lower upper, and upper.
No class taxonomy is necessarily accurate, and all run distinct risks of being obnoxious.
With that caveat, for our discussion, I sort among the classes by one independent variable only: the amount of parental provision for children (whether by education funding or inheritance).