![[images 1.jpeg|317]] Can wealth be explained more by **family background** or by **financial behaviors**? In this project, I built machine learning models to predict individual net worth using demographic, career, behavioral, and circumstance-related features. Using LightGBM and SHAP, I quantified the relative importance of life factors, investment behaviors, and external circumstances, while comparing the wealth drivers of the **bottom 90%** and the **top 10%** of the population. The analysis reveals how the determinants of wealth change across the wealth distribution and identifies the financial decisions most strongly associated with long-term wealth accumulation. ## Feature Categories ### 🏡 Life Factors These represent characteristics related to an individual's life stage and career progression. They describe where a person is in life rather than specific financial decisions. Examples: - Age - Years working - Annual income - Education - Homeownership - Number of dependents ### 📈 Investment Behaviors These represent financial decisions that individuals can largely control. They reflect how people save, invest, and manage their money over time. Examples: - Savings rate - Investing in financial markets - Years investing - Portfolio equity allocation - Diversification - Financial literacy - Budgeting consistency - Planning ahead - High-interest debt - Retirement account ### 🎲 Circumstances These represent external factors that are largely outside an individual's control. They capture advantages or disadvantages someone experiences due to family background or unexpected life events. Examples: - Parental wealth - Inheritance received - Health shock - Regional cost of living # For majority of people: ## Feature Importance | Rank | Feature | Importance | Interpretation | | ---- | -------------------- | ---------: | ---------------------------------------- | | 1 | Homeowner | 18.4% | Strongest predictor of wealth | | 2 | Years Working | 14.9% | Longer careers accumulate more wealth | | 3 | Savings Rate | 11.6% | Consistent saving is critical | | 4 | Inheritance Received | 11.0% | Family wealth still matters | | 5 | Invests in Markets | 9.8% | Investing substantially increases wealth | | 6 | Health Shock | 9.6% | Unexpected life events reduce wealth | | 7 | High-Interest Debt | 6.8% | Credit card debt destroys wealth | | 8 | Annual Income | 4.7% | Income matters, but less than expected | ## Relative Importance by Category | Category | Importance | | -------------------- | ---------: | | Life Factors | **39.1%** | | Investment Behaviors | **36.7%** | | Circumstances | **21.9%** | | Other | **2.2%** | Life-stage variables and financial behaviors explain approximately **76%** of the model's predictive power, while external family circumstances explain about **22%**. This suggests that although family background influences wealth accumulation, personal financial decisions and career progression play a substantially larger role for the majority of the population. ## 1. Homeownership is the strongest wealth indicator - Owning a home dramatically increases predicted net worth. - The effect is binary and very large. - Homeownership likely captures both asset appreciation and long-term wealth accumulation. ## 2. Wealth increases rapidly during early career, then levels off The relationship between **years working** and wealth is nonlinear. The wealth growth rate begins to level off after approximately **25 years of work**. - Very low wealth during the first years of employment. - Rapid wealth growth throughout early and mid-career (**10-25 years** of work). - Growth gradually slows after decades in the workforce. ![[Screenshot 2026-09-06 at 12.23.22 AM.png|302]] ## 3. Saving rate has one of the largest impacts The dependence plot shows a clear nonlinear threshold. Individuals with very low savings rates experience dramatically lower predicted wealth. This suggests: - increasing savings from very low levels provides the largest benefit, - while extremely high savings rates produce diminishing marginal returns. Increasing savings from approximately **10% to 30% of income** has the largest impact on predicted net worth. Beyond roughly **30%**, additional increases continue to improve wealth but with noticeably smaller marginal benefits. ![[Screenshot 2026-09-06 at 12.23.38 AM.png|305]] ## 4. Inheritance provides a significant advantage Inheritance consistently increases predicted net worth. Small inheritances don't impact wealth accumulation, while larger inheritances approximately more than **$150K-$250K** correspond to substantially higher wealth predictions, which is roughly the amount of principle payment for a house in majority regions. Unlike behavioral variables, inheritance represents an external advantage that individuals cannot directly control. ![[Screenshot 2026-09-06 at 12.34.11 AM.png|325]] ## 5. Investing in financial markets matters Individuals who invest have much higher predicted wealth than those who do not. The effect is immediate and substantial. This supports decades of evidence that long-term market participation is a major contributor to wealth accumulation. ## 6. Health shocks substantially reduce wealth Experiencing a major health or financial shock causes a large **decrease** in predicted wealth. Health shock have mainly negative impact instead of positive impact on wealth. Possible mechanisms include: - medical expenses, - income interruption, - reduced ability to save, - liquidation of investments. This highlights that wealth depends not only on financial decisions, but also on unexpected life events. ![[Screenshot 2026-09-06 at 12.34.42 AM.png|333]] ## 7. High-interest debt is strongly associated with lower wealth Individuals carrying high-interest debt experience a significant reduction in predicted wealth. Debt likely reduces: - monthly cash flow, - investment capacity, - and long-term compounding. Avoiding expensive debt appears to be one of the most impactful financial behaviors. ## 8. Income matters less than expected Although annual income is positively associated with wealth, its importance ranks below: - homeownership, - saving behavior, - investing, - inheritance, - years working. This suggests that **earning more alone is insufficient** for building wealth. **How income is managed** appears to matter more than income itself. ## Key insights For the majority of households, wealth is **not determined solely by where someone starts in life**. Instead, long-term wealth accumulation is primarily associated with: - consistent saving, - investing early, - avoiding high-interest debt, - maintaining stable employment, - maintaining a healthy lifestyle, - and eventually owning appreciating assets such as a home. # For top 10% rich people: ## Feature Importance | Rank | Feature | Interpretation | | ---- | -------------------- | --------------------------------------------------- | | 1 | Inheritance Received | Strongest predictor of wealth | | 2 | Years Investing | Long-term compounding becomes critical | | 3 | Annual Income | Higher income continues to matter | | 4 | Savings Rate | Continued disciplined saving remains important | | 5 | Years Working | Longer careers accumulate greater assets | | 6 | Portfolio Equity % | Higher equity exposure increases wealth | | 7 | Invests in Markets | Market participation remains beneficial | | 8 | Age | Older individuals generally accumulated more wealth | ## Relative Importance by Category | Category | Importance | | -------------------- | ---------: | | Investment Behaviors | **48.6%** | | Life Factors | **24.2%** | | Circumstances | **21.9%** | | Other | **5.4%** | Among the wealthiest individuals, **investment behaviors explain nearly half of the model's predictive power**, making them the dominant driver of wealth. Life-stage variables contribute approximately **24%**, while childhood circumstances account for about **22%**. Unlike the bottom 90%, **long-term investing decisions** become substantially more important than homeownership or avoiding debt. ## 1. Inheritance is the strongest predictor of exceptional wealth The SHAP dependence plot reveals a clear **threshold effect** rather than diminishing returns. Inheritance has relatively little influence on predicted wealth until it reaches approximately **$1.6 million in this dataset**. Beyond this threshold, the relationship becomes nearly linear, with larger inheritances consistently associated with higher predicted net worth. This suggests that among already wealthy households, exceptionally large inheritances continue to widen wealth differences instead of reaching a saturation point. ![[Screenshot 2026-09-06 at 1.28.10 AM.png|321]] ## 2. Time in the market becomes one of the largest wealth drivers The SHAP dependence plot shows a nonlinear relationship between investment experience and wealth. Wealth increases slowly during the first several years of investing, then accelerates as compound returns accumulate over time during **10 to 25 years**. The relationship begins to level off after approximately **30 years of investing**. **Interestingly, majority household need 10-25 years of work to accumulate wealth while richest group of people do invest.** ![[Screenshot 2026-09-06 at 1.33.32 AM.png|331]] ## 3. Annual income remains important Higher income continues to increase predicted wealth. Unlike the majority 90%, income is more valuable because it provides larger amounts of capital available for investment and compounding. Income alone is still not the strongest driver, but it becomes an important contributor to exceptional wealth. ![[Screenshot 2026-09-06 at 1.34.33 AM.png|342]] ## 4. Saving rate continues to matter Savings rate remains one of the strongest behavioral predictors. The dependence plot shows a nearly monotonic relationship: - Higher savings rates consistently increase predicted wealth. - There is little evidence of diminishing returns within the observed range. Even among wealthy individuals, continued saving remains an important contributor to long-term wealth accumulation. ![[Screenshot 2026-09-06 at 1.35.16 AM.png|356]] ## 5. Equity allocation contributes to wealth growth Portfolio equity percentage has a clear positive relationship with wealth. Individuals allocating a greater proportion of their portfolios to equities tend to have higher predicted net worth. This reflects the long-term return premium associated with equity investing. ![[Screenshot 2026-09-06 at 1.38.20 AM.png|367]] ## 7. Years working and age reflect long-term accumulation Both age and years working show positive relationships with wealth. These variables likely capture: - cumulative earnings, - longer investment horizons, - and additional years of compound growth. Among the wealthiest individuals, wealth continues to accumulate over long careers. This relationship likely reflects the cumulative effects of earning, investing, and compounding over time rather than the direct value of labor itself. Years worked appears to act as a proxy for the length of time available to accumulate and grow capital, suggesting that sustained participation in wealth-generating activities remains important even after reaching high levels of net worth. Many wealthy people continue working because: - they enjoy it, - they own businesses, - work creates new investment opportunities, - executive compensation includes stock, - they continue accumulating wealth. Those are different mechanisms compared with majority people. ![[Screenshot 2026-09-06 at 1.47.28 AM.png|374]] # Comparison Several variables that were highly important for the bottom 90% become much less influential among the top 10%. These include: - Homeownership - High-interest debt - Health shocks This suggests that once individuals reach high wealth levels, these factors contribute relatively little to explaining additional differences in wealth. Instead, wealth is increasingly driven by: - investment experience, - investment allocation, - long-term saving, - and inherited capital. | Bottom 90% | Top 10% | | ----------------------------------------- | --------------------------------------------- | | Homeownership is the strongest predictor | Inheritance becomes the strongest predictor | | Avoiding debt is important | Debt has minimal influence | | Health shocks significantly reduce wealth | Health shocks have little predictive impact | | Homeownership drives wealth accumulation | Equity investing becomes more important | | Saving builds financial security | Long-term investing builds exceptional wealth | # Conclusion This project demonstrates that wealth accumulation is driven by a combination of **life factors, financial behaviors, and external circumstances**, but their relative importance changes across the wealth distribution. For the **majority 90% people**, wealth is primarily associated with controllable behaviors such as **saving consistently, investing, avoiding high-interest debt, homeownership and healthy life**, while inheritance provides a moderate advantage. In contrast, among the **top 10%**, **long-term investment behaviors—including years investing, equity allocation, and sustained market participation—become the dominant drivers, with large inheritances further amplifying wealth accumulation**. Overall, the findings suggest that while circumstances influence where people start, disciplined financial behaviors play the largest role in building wealth for most individuals, whereas exceptional wealth is more strongly differentiated by long-term capital accumulation and inherited assets. These results highlight that the path to financial security differs from the path to extraordinary wealth, providing data-driven insights into how wealth is created across different segments of the population.