Income and Wealth Gaps: College Grads vs. Nongrads

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Gaps in income and wealth are growing between families headed by someone with a four-year college degree and families without a degree. The latest essay in the Demographics of Wealth series, produced by the St. Louis Fed’s Center for Household Financial Stability, examined this trend in-depth.

In the essay “The Financial Returns from College across Generations: Large but Unequal,” authors William Emmons, Ana Hernández Kent and Lowell Ricketts noted that there was a strong association between a family head’s level of education and the family’s financial well-being. “In other words, we confirm the conventional wisdom that more education is associated with more income and wealth,” they wrote.

The authors first noted that the share of families headed by someone with at least a four-year college degree has risen, growing from 23 percent of families in 1989 to 34 percent by 2016.

A similar rise was noted in families headed by someone with a postgraduate degree. In 1989, almost 9 percent of all families were headed by someone with such a degree, while about 13 percent of families held a postgraduate degree by 2016.

These differences are notable, as the median family headed by someone without a college degree earned only 44 percent of what the median college grad family earned. The wealth gap was even more pronounced, with the median nongrad family having only 18 percent as much wealth as the median college grad family.

Coupled with the rise in the number of families headed by someone with a college degree, “these trends have resulted in a large shift of aggregate income and wealth toward college-educated families,” Emmons, Kent and Ricketts wrote.

College graduate and noncollege graduate families experienced similar percentage growth in income from 1989 to 2016:

• The median college graduate family saw income rise from almost $88,000 in 1989 to about $92,000 in 2016, an average annualized increase of 0.18 percent.
• The median nongrad family saw an average annualized increase in income of 0.15 percent over the same period.

These increases plus the increasing share of college grad families resulted in the share of all income earned by families with college degrees rising from 45 percent in 1989 to 63 percent in 2016.

Gaps in wealth between college grad and nongrad families widened even more:

• The wealth of the median college grad family grew from around $238,000 in 1989 to $291,000 in 2016.
• The wealth of the median nongrad family, however, fell from about $66,000 to $54,000 over the same period.

Emmons, Kent and Ricketts noted that “the share of all wealth owned by college grad families increased even more than was the case for income—from 50 to 74 percent between 1989 and 2016.”

“The overall conclusion from these statistics is that nongrad families’ economic and financial status is slipping—faster for wealth than for income but undeniably downward on most measures,” the authors wrote.

• Demographics of Wealth: The Financial Returns from College across Generations: Large but Unequal
• On the Economy: Born on 3rd Base? The Effects of Head Starts and College on Family Wealth
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