The Financial Gaps Widen between Those with Advanced Degrees and Everyone Else

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The gaps in income and wealth between households headed by someone with a professional or graduate degree and everyone else have been widening, according to an essay by the St. Louis Fed’s Center for Household Financial Stability (HFS).

In the second essay of “The Demographics of Wealth” series, Senior Economic Adviser William Emmons and Lead Policy Analyst Bryan Noeth, both with HFS, examined the correlation between education and wealth. Using data from the Federal Reserve’s Survey of Consumer Finances for the period 1989-2013, they divided families into four groups:¹

• Those headed by someone with less than a high school diploma or GED
• Those headed by someone with exactly a high school diploma or GED
• Those headed by someone with exactly a two- or four-year degree
• Those headed by someone with a graduate or professional degree

Income

Of those four groups, only one had a median inflation-adjusted income that was higher in 2013 than 1989: those with advanced degrees saw their median income rise 4 percent. Median incomes fell 1 percent for those without a high school diploma or GED, 16 percent for those with only a high school diploma or GED and 5 percent for those with a two- or four-year degree.

Accordingly, the earnings per family relative to those with advanced degrees also fell during this period. As a percent of the median income among families with a graduate or professional degree:

• The income of a median college family declined from 72 percent to 66 percent.
• The income of a median high school family declined from 44 percent to 35 percent.
• The income of a median family without a high school diploma declined from 20 percent to 19 percent.

Wealth

Those with advanced degrees also saw a significant increase in median net worth over the same period. The median wealth of this group rose 45 percent, while median wealth rose just 3 percent for those with two- or four-year degrees and declined 36 percent and 44 percent for those with and without a high school diploma or GED, respectively.

These numbers translate to declines in median wealth relative to families with advanced degrees. For college families, their relative wealth fell from 56 percent to 40 percent; for high school families, from 31 percent to 14 percent; and for no-high school families, from 14 percent to 5 percent.

The authors noted that the fact that wealth gaps were growing faster than income gaps suggests that factors beyond schooling are playing a role. They wrote, “These factors, in other words, may be increasing the extent to which the correlation between education and wealth is spurious—that is, caused not by educational attainment itself but by factors correlated with it, such as ability, family background, assortative mating and others discussed previously.”

Notes and References

¹ The authors limited the sample to families with a head of household who was 40 years old or older, because by age 40, the vast majority of adults have completed their formal education.

Additional Resources

• Center for Household Financial Stability: The Demographics of Wealth: The Role of Education
• On the Economy: Education, Financial Decisions and Wealth
• On the Economy: Other Sources of the Education/Wealth Correlation