Time discounting and wealth inequality

We use standard experimental methods to elicit how much people discount the future for a large sample of middle-aged individuals in Denmark and link it to information about their real-life wealth over a 15-year period obtained from administrative registers. The results show that individuals with relatively low time discounting are consistently positioned higher in the wealth distribution. The association between time discounting and the position in the wealth distribution is significant and of the same magnitude as the association between length of education and the position in the wealth distribution, and it exists after controlling for education, school grades, income, initial wealth, parental wealth, and credit constraints. Our results are consistent with the prediction of standard life-cycle savings theory that differences in time preferences generate differences in savings behavior and thereby wealth inequality.