RACIAL WEALTH

INEQUALITY
Christian E. Weller, University of
Massachusetts Boston and Center for
American Progress
Introduction and Overview

■ Wealth is key for families to navigate an economic emergency and to

prepare for a secure retirement.
■ Yet, wealth inequality is high, even greater than income inequality,
which leaves many households ill prepared for the future.
■ Wealth inequality has risen over the past three decades.
■ Wealth inequality has grown especially by race and ethnicity.
■ The growing racial wealth gap mainly reflects structural obstacles
such as housing and mortgage market discrimination, higher cost
financial services, more precarious jobs, to name the most relevant
ones.
 The Importance of Wealth
■ People in theory save – build wealth – for a lot of different reasons:
emergencies, buying a house, starting a business, supporting children’s
education and retirement, to name some of the most prevalent.

■ Surveys indicate that people prioritize short-term emergency savings as

their savings goals, but they will need a lot more money for retirement
than for anything else.

■ A typical family will need amounts approximating 10 times their income

just before retirement to supplement Social Security.

■ Rising wealth inequality then foreshadows economic insecurity in

retirement for a growing share of households.
 Possible Obstacles to Building Wealth
■ U.S. public policy puts substantial emphasis on private savings for future
income security, but provides inefficient policy support to families to save.

■ This means that savers face a number of obstacles in saving for the future:
– They may not get an affordable mortgage to buy a home.
– They may not get a valuable home for their mortgage dollars.
– They may not get a retirement savings plan at work and thus no added help
from their employer.
– They may face too many present demands on their finances from unstable
jobs, leaving them with little room, energy and focus to save for retirement.

■ Communities of color are a lot more likely to encounter these problems than is
the case for whites.
 Data Source To Analyze Wealth Inequality
■ All figures and tables in this presentation are based on calculations from the Federal Reserve’s
triennial Survey of Consumer Finances.

■ This is the primary data source to analyze household wealth:

– Consistent data available from 1989 to 2016
– Specifically designed to show households’ finances – assets and debt.
– Calibrated to match national aggregates
– Detailed data for all assets and debt.
– Oversamples high net worth households.

■ The data, though, have some drawbacks:

– Collected only every three years, which could miss large swings during market
downturns. The Fed collected extra data in 2009 to overcome this problem.
– Small sample sizes require the Fed to aggregate data categories to protect respondents’
privacy. There is, for instance, no category for Asian-American available to the public.
– The data are complex due to a multitude of questions. The Fed provides an SAS macro
code and summary data in spreadsheets. Users still need to work through many details
 A Few Basic Facts About Racial Wealth
■ Inequality
Wealth has become increasingly concentrated at the top.

■ The growing wealth concentration has gone with rising retirement income insecurity.

■ The wealth gap by race and ethnicity is largest for African-Americans, followed by
LatinXs and then Asian-Americans.

■ The racial wealth gap has widened since the Great Recession of 2007 to 2009,
especially for African-Americans and LatinX

■ Wealth inequality among Asian-Americans is greater than among whites, even if they
have similar average and median wealth.

■ Wealth inequality persists by age, education and income, suggesting that

race/ethnicity play key roles in driving inequality, independent of other observable
 Wealth Increasingly Concentrated Among the Wealthiest/Richest Households

65%

60%
Share of Wealth Held By Wealthiest/Richest 10%

55%

50%

45%

40%

35%

30%
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Year

Top 10% By Wealth Top 10% by Income

 Share of Working Households at Risk in Retirement
60%

53%
52%
50%
50%

45%
Share of working households (in percent)

44%

40%
40%
38% 38%
37%

30% 31% 31%

30%

20%

10%

0%
1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Year

A. Munnell, W. Hou, and G. Sanzenbacher. 2018. National Retirement Risk Index Shows Modest Improvement in 2016. CRR Issue Brief IB #18-1, Boston, MA: Center for
 Wealth Inequality Between Whites and African-Americans Among Non-retirees Older Than 25
years, 1989 to 2016
Median wealth Share with no or Median wealth to income
Year negative wealth
White Black Ratio of Black White Black White Black
to White
median wealth
1989 $ 129,771 $ 7,090 5.5% 7.1% 32.2% 180.8% 32.1%

1992 $ 106,494 $ 13,417 12.6% 7.1% 21.2% 176.7% 37.6%

1995 $ 112,752 $ 19,622 17.4% 6.7% 23.4% 174.8% 62.8%

1998 $ 129,014 $ 24,198 18.8% 8.2% 19.3% 187.4% 71.9%

2001 $ 162,447 $ 28,316 17.4% 6.3% 17.7% 219.2% 66.9%

2004 $ 169,338 $ 24,927 14.7% 6.9% 17.5% 229.8% 68.9%

2007 $ 188,756 $ 25,841 13.7% 7.6% 20.8% 245.6% 57.2%

2010 $ 126,063 $ 17,133 13.6% 11.6% 22.7% 183.2% 45.6%

2013 $ 124,258 $ 10,115 8.1% 10.0% 28.7% 188.9% 29.1%

2016 $ 142,180 $ 13,460 9.5% 10.6% 25.8% 210.7% 39.3%

 Wealth Inequality Between LatinX and Whites Non-Retirees 25 Years Old and Older, 1989 to 2016
Median wealth Share with no or Median wealth-to-income
Year negative wealth ratio
White Latinx Ratio of White Latinx White Latinx
Latinx-to-
white median
  wealth
1989 $ 129,771 $ 9,329 7.2% 7.1% 29.1% 180.8% 38.4%

1992 $ 106,494 $ 11,052 10.4% 7.1% 25.6% 176.7% 31.2%

1995 $ 112,752 $ 20,045 17.8% 6.7% 20.2% 174.8% 45.3%

1998 $ 129,014 $ 21,704 16.8% 8.2% 20.4% 187.4% 54.2%

2001 $ 162,447 $ 23,303 14.3% 6.3% 16.3% 219.2% 57.2%

2004 $ 169,338 $ 17,423 10.3% 6.9% 14.8% 229.8% 47.4%

2007 $ 188,756 $ 32,656 17.3% 7.6% 14.8% 245.6% 79.9%

2010 $ 126,063 $ 20,338 16.1% 11.6% 14.8% 183.2% 55.0%

2013 $ 124,258 $ 15,209 12.2% 10.0% 15.6% 188.9% 47.6%

2016 $ 142,180 $ 20,765 14.6% 10.6% 14.9% 210.7% 66.5%

 Wealth Inequality Between Asian-Americans and Whites, 1989 to 2016
Period Share Ratio of Ratio of Median to 20th Median (in 90th
with no 90th 90th 20th percentile 2016 percentile (in
or percentile percentile percentile (in 2016 dollars) 2016 dollars)
negative to 20th to median (in percent) dollars)
wealth percentile (in percent)
(in (in percent)
percent)
Whites
1992 to 1998 7.3 47.9 6.0 8.0 $ 15,722 $ 125,600 $ 753,068
2001 to 2007 6.8 61.6 7.1 8.7 $ 20,261 $ 175,813 $ 1,248,208
2010 to 2016 13.1 124.4 9.5 13.1 $ 11,097 $ 145,770 $ 1,380,081
Asians
1992 to 1998 9.3 97.9 7.6 13.0 $ 6,659 $ 86,312 $ 652,077
2001 to 2007 8.7 106.5 6.1 17.4 $ 11,653 $ 203,120 $ 1,241,013
2010 to 2016 9.9 173.5 11.1 15.6 $ 9,714 $ 151,711 $ 1,685,497
 Real Median Wealth For African-Americans and Whites in 2016, by Select Characteristics
White Black
Education
No college $ 81,650 $ 9,100
At least college $ 325,600 $ 57,250
Marital status
Single $ 61,000 $ 5,800
Married $ 212,080 $ 40,310
Age
25-34 years $ 31,610 $ 2,750
35-44 years $ 98,000 $ 6,530
45-54 years $ 211,400 $ 36,000
55-64 years $ 272,790 $ 18,900
Income
Bottom fifth $ 11,700 $ 1,300
Second fifth $ 37,100 $ 9,620
Middle fifth $ 74,000 $ 22,770
Fourth fifth $ 162,250 $ 77,500
Top fifth $ 785,250 $ 243,500
Key Obstacles To Wealth Building Among
Communities of Color

■ Housing market discrimination, which means that communities of color pay

relatively more than whites do for a house and their houses may appreciate
more slowly than would be the case for whites.

■ Occupational steering, which means that communities of color are more likely
to end up in low-paying jobs with fewer benefits and less stability than is the
case for whites.

■ Mortgage market discrimination, which makes it harder for communities of

color to purchase a house in the first place, but also increases the cost of their
debt when they buy a house.

■ Credit market steering leads communities of color to end up with relatively

higher costs of debt, even when they have less debt than is the case for
 Differences in Key Assets Between African-Americans and Whites in 2016

White Black
Share households with specified assets
Retirement savings 65.9% 37.5%
Homeownership 71.8% 41.0%
Non retirement financial assets 96.0% 85.2%
Business ownership 19.6% 7.6%
Median assets for households with specified assets
Retirement savings $ 67,000 $ 23,000

Home equity $ 92,000 $ 45,000

Non retirement financial assets $ 12,400 $ 2,650

Business equity $ 90,600 $ 30,000

 Debt and Debt Payments for African-Americans and Whites in 2016

White Black
Share of households with specified debt
Any debt 85.0% 78.9%
Mortgages 53.9% 31.8%
Installment credit 57.4% 58.7%
Credit card debt outstanding 46.8% 47.5%
Median debt for households with specified debts

Debt $ 93,000 $ 35,560

Mortgages $ 125,000 $ 87,000
Installment credit $ 18,000 $ 20,000
Credit card debt outstanding $ 3,300 $ 1,400
Median debt payments for households with any debt $ 12,900 $ 6,840
Median debt to income for households with debt 115.1% 85.0%
Median debt payments to income for households with 15.5% 14.4%
debt
The Need for Savings Is Greater Among
Communities of Color

■ They have less stable jobs, which requires more emergency funds to
cover short-term income fluctuations.

■ Their assets are more concentrated in housing, which puts more of

their wealth at risk when things go wrong.

■ They have less ability to rely on family and friends in an emergency,

which means they need to have more money available by themselves.
 Differences in Financial Shocks and Security Between African-Americans and Whites in 2016

White Black
Has experienced a negative income shock in the 14.7% 20.5%
past year
Could get financial assistance equal to $3,000 72.5% 43.8%
from friends/relatives in an emergency

Has been delinquent on any payments in past six 5.7% 10.4%

months
 Summary of Key Facts

■ African-Americans have one-tenth the wealth of whites

■ Wealth inequality by race and ethnicity has widened after the Great Recession

■ African-Americans with college degrees have less wealth than whites without college
degrees.

■ Communities of color have more economic and financial risks

■ Whites have more debt relative to income than communities of color do, but their debt
payments are similar.
Conclusion

■ Wealth inequality by race and ethnicity has persisted for decades (and
likely for centuries).

■ Communities of color face structural obstacles to building wealth in

debt and asset markets.

■ Shrinking wealth inequality then will mean removing these obstacles

through substantial, targeted policy interventions.