Differences in savings behavior between households with different incomes are key for wealth inequality. We propose differences in asset market access as a novel explanation for these differences. Decomposing household wealth into its main portfolio components, we document three new facts about the US wealth distribution: (i) wealth gaps are primarily driven by differences in asset market participation rather than investment amounts; (ii) participation heterogeneity mirrors differences in observed market access; and (iii) most wealth is accumulated through financial products with contractual savings flows, such as mortgage payments and retirement contributions.
Motivated by these findings, we develop a life-cycle model of financial lifetime decisions: buying a home, starting a retirement plan, and becoming an entrepreneur. In the model, income-dependent access to mortgages and retirement plans shape household participation decisions, while financial contracts govern wealth accumulation of participants. The calibrated model closely matches observed participation and wealth accumulation patterns. Equalizing initially heterogeneous access increases wealth for the bottom half of the income distribution by 32%. With access heterogeneity, top-decile households realize five times more capital gains than those in the bottom quintile.
Expanding access to retirement plans fosters broad-based wealth accumulation, a prediction supported by historical data.