The gaps in income and wealth among families of different races and ethnicities have been well documented. A recent essay from the Federal Reserve Bank of St. Louis takes a deeper look at race, ethnicity and wealth and finds that dynamics are shifting for one race in particular.
In the essay, Senior Economic Adviser William Emmons and Lead Policy Analyst Bryan Noeth, both with the St. Louis Fed’s Center for Household Financial Stability, examined the role race and ethnicity played in the income and wealth of American families. This essay was the first in a series examining factors separating thrivers from strugglers. Subsequent essays will focus on education and age.
Perhaps one of the most notable findings is that Asian families are catching up to—and in some measurements, have surpassed—white families financially. The median wealth of white families grew just 3 percent (from $130,102 to $134,008) over the period 1989-2013.1 Asian families, however, saw their median wealth rise 42.5 percent (from $64,165 to $91,440) over the same period. Median wealth of all families declined 4.8 percent.
The median income of Asian families generally grew faster than the median income of white families since 1989 and has been greater than median white income for most of the past two decades.
One important factor was the higher income enjoyed by Asian families due to higher education levels. For example, 73 percent of Asians aged 35-39 had completed a degree or certificate beyond high school, compared with 54 percent of whites. In addition, 65 percent of Asians aged 35-39 had at least a four-year degree, compared with 42 percent of whites.
The authors noted, “Greater educational attainment is associated with higher income, a stronger incentive to accumulate wealth for retirement, more-conservative financial decision-making and, ultimately, greater wealth accumulation.”
Despite having greater income than whites for most of the past 20 years, median Asian wealth remained 30 percent below that of white families. However, the authors noted, “Education, income and wealth levels are rising rapidly among younger Asian families. If current trends continue, the median wealth level among Asian families could surpass that of white families in the near future.”
Another factor aiding in the relative increase of Asian wealth involves the financial habits of Asian families. The authors examined financial habits through a financial-health scorecard. They wrote, “The logic behind our financial-health scorecard is that a family’s ability to make good everyday-financial decisions—its financial health—and its ability to accumulate wealth over time are likely to be correlated.”
The scorecard involved rating families based on their answers to five financial questions asked on the Survey of Consumer Finances. (Details about the financial-health scorecard were covered in a previous blog post.) Responses were scored with a 0 (for a negative response) or a 1 (for a positive response). A maximum score was 5.
Asian and white families both had above average scores, and their scores were nearly identical when averaged over the period 1992-2013 (3.12 for Asians, 3.11 for whites). Since 2007, the average Asian financial-health score has exceeded the average white score by a considerable margin. As the authors noted, “This is the same time period during which median Asian wealth grew faster than median white wealth.”
1 Dollar amounts have been adjusted for inflation and are expressed in 2013 dollars.