Essay No. 1: Race, Ethnicity and Wealth

The Demographics of Wealth
How Age, Education and Race Separate Thrivers from Strugglers in Today's Economy
Essay No. 1: Race, Ethnicity and Wealth

Executive Summary

This first essay in the "Demographics of Wealth" series examines the connection between race or ethnicity and wealth accumulation over the past quarter-century. As with subsequent essays, this one is the result of an analysis of data collected between 1989 and 2013 through the Federal Reserve's Survey of Consumer Finances. More than 40,000 heads of households were interviewed over those years.

Our key findings in this essay:

  • When looking at median family wealth (assets minus liabilities), the ranking of the four racial or ethnic groups did not change order between 1989 and 2013. White families ranked first, followed by Asian families, Hispanic families and black families.
  • In inflation-adjusted dollars, the median wealth of a white family in 1989 was $130,102. In 2013, it was $134,008. For an Asian family, the two medians were $64,165 and $91,440. For a Hispanic family, they were $9,229 and $13,900. For a black family, they were $7,736 and $11,184.
  • Although the financial patterns over this period have changed little for whites, for Hispanics and for blacks, they have changed dramatically for families headed by Asians. Asian families' median income already has surpassed that of whites, while Asians' median wealth soon will surpass the white median level, most likely because of the remarkable increase in educational attainment by younger Asians in recent decades.
  • Median Hispanic and black wealth levels are about 90 percent lower than the median white wealth level, yet median income levels of Hispanics and blacks are only 40 percent lower. The larger wealth gap could be due to Hispanics' and blacks' investing in low-return assets like housing, as well as to borrowing at high interest rates. Hispanics and blacks could also feel less of a need to save for the future because society's progressive old-age safety-net programs will replace a relatively larger share of the normal incomes they earned during their working years.
  • Whites and Asians have stronger balance sheets—a key factor in wealth accumulation—than do Hispanics and blacks. The balance sheets of the former show more liquidity and asset diversification and less leverage (debt as a share of assets).
  • On our financial health scorecard—designed to measure whether a family is making sound, everyday-financial decisions—whites and Asians fared much better than Hispanics and blacks. The gap was even wider when restricting the comparison to just middle-aged, well-educated families in each of the four groups.
  • Age and education would seem to be logical explanations for the persistent differences in wealth accumulation across the racial and ethnic groups. However, an analysis of the data indicates that these two factors play only small roles in explaining the gaps. In particular, holding constant the age and educational attainment of a family head, racial and ethnic differences in average financial-health scores correspond closely to differences in the groups' median wealth levels.

Read all the essays and watch all the videos in this series »

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