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The Real State of Family Wealth: Will COVID-19 Worsen Racial, Educational and Generational Gaps in the U.S.?


Thursday, November 19, 2020
Gold colored balancing scale

By Ana Hernández Kent, Policy Analyst, Center for Household Financial Stability; Lowell R. Ricketts, Lead Analyst, Center for Household Financial Stability; William R. Emmons, Economist and Assistant Vice President, St. Louis Fed; and Ray Boshara, Director, Center for Household Financial Stability

Our team at the St. Louis Fed’s Center for Household Financial Stability presents an early look at how the COVID-19 pandemic has impacted average real (i.e., inflation-adjusted) family wealth and wealth inequality in the U.S. As part of this assessment, we track quarterly wealth trends from 1989 to the second quarter of 2020 using data from the Federal Reserve Board’s Distributional Financial Accounts (DFAs).

Our key findings show:

  • Wealth gaps between white families and both Black and Hispanic families remain wide.
  • Millennials have narrowed the gap in average family wealth with Gen Xers at similar ages.
  • Families headed by four-year college graduates have become much wealthier, on average, than families headed by those with less education.
  • Average household wealth dropped for nearly all racial/ethnic, generational and educational groups from the fourth quarter of 2019 to the first quarter of 2020, but then rebounded by the second quarter of 2020—this reflects the volatility of the coronavirus recession.
  • The overall effect on wealth inequality from the pandemic remains unclear based on the most recent data.

Estimating Average Family Wealth

The Federal Reserve’s DFAs provide quarterly, aggregate estimates of nominal U.S. household wealth for various demographic groups. To better understand the economic experience of the average household within these groups, we make two important and novel adjustments to this data set:

  • We adjust the DFA estimates for inflation using the consumer price index, yielding household wealth values in real terms. This adjusts for changes over time in the purchasing power of the dollar.
  • We adjust for household population. This allows us to account for changing group sizes and to assess outcomes in terms of the average family’s household finances.

The result is average real household wealth values, available on a quarterly basis. (See the note on data sources in the appendix below.)

Racial Wealth Gaps Are Large and Persistent

The Center has previously documented disturbingly wide and persistent median wealth gaps by race and ethnicity. Using the most timely data and averages instead of medians, we found that the average Black family had 23 cents for every $1 of wealth held by a white family as of the second quarter of 2020,Families are grouped by the primary race and ethnicity of the survey respondent. while the average Hispanic family had 20 cents for every $1 of white family wealth.

As seen in the figure below, Black and Hispanic family wealth has fluctuated relative to white family wealth from 1989 to 2020. Despite the ups and downs, the sizable gaps (represented by low ratios) have changed very little.

Average Real Wealth Gaps between Racial and Ethnic Groups

NOTES: This line chart shows ratios of average real wealth for Black households to white households and for Hispanic households to white households. A decreasing ratio (downward trend) means an increasing gap and greater inequality. Vertical bars indicate recessions.

SOURCES: Distributional Financial Accounts and authors’ calculations.

Millennials have suffered through two recessions in the early and middle stages of their careers.Millennials are not the first example of birth dates affecting financial outcomes. For example, early baby boomers faced difficult economic conditions in the 1970s and early 1980s. Americans born in the early 20th century came of age during the Great Depression and World War II. This has had lasting consequences for their financial well-being. In a report using data from 1989 through 2016, we questioned whether they would become a “lost-generation” in terms of lifetime savings goals. The figure below shows their average wealth has nearly caught up to Gen Xers’ over the past five years, suggesting that some millennial families have overcome past economic hurdles.

As of the most recent observation, millennials in 2020 had average wealth of $140,600 at age 31—close to Gen Xers’ average wealth of $152,000 at age 31 but below boomers’ average wealth of $221,100 at roughly age 34.We use the median of the generation’s age range. Note that millennials’ and boomers’ ages do not yet overlap in the data.

Average Real Wealth by Generational Age

NOTES: This line chart shows average real household wealth for millennials, Gen Xers and boomers at different ages during their lifetime. Values are on a log scale to better show life-cycle effects, and they are centered on the median of the group’s age range. For example, the median of the age range for millennials in the second quarter of 2020 was 31, and their average household wealth was about $140,600. This age for Gen Xers in the second quarter of 2004 was also 31, and their average household wealth was about $152,000.

SOURCES: Distributional Financial Accounts and authors’ calculations.

Less Educated Lose Ground to College Graduates

The average wealth of families headed by a bachelor’s degree holder has grown substantially over the past few decades, as seen in the figure below. The wealth of less educated families has not kept pace; thus, educational wealth inequality has grown on average. We note that our previous work, which allows for a disaggregation by birth decade, race and ethnicity, has found that the wealth returns attributed to a college degree are diminishing across generations (as opposed to all college graduates of any age and generation, as shown here), particularly for Black graduates.

Cumulative Changes in Average Real Wealth by Education

NOTES: This line chart shows the cumulative changes in average real household wealth by level of education attained by the household head. Values are indexed to the third quarter of 1989. Values above 100 indicate an increase in average wealth since the third quarter of 1989, while values below 100 indicate a decrease in average wealth.

SOURCES: Distributional Financial Accounts and authors’ calculations.

We previously found persistently low levels of median wealth for Black, Hispanic and less educated households, which impede efforts to promote resiliency and mobility. With this timely assessment, we also document similar trends for average wealth for these groups over time.

  • We found large and persistent average wealth gaps between Black and white households, between Hispanic and white households, and between highly educated and less educated families.
  • In contrast, average millennial wealth outcomes appear brighter than our previous work anticipated.

Pandemic’s Effects on Wealth Gaps Remain Uncertain

With the COVID-19 pandemic persisting, the second quarter of 2020 presents only a glimpse at how wealth may be affected. Recessions can impact demographic groups differently based on their balance sheets, as seen during the housing-centric Great Recession. As of this latest data point, there is insufficient evidence to determine how wealth trends by race, ethnicity, generational cohort and educational level may change to influence longer-term wealth inequality.

Our team will monitor these wealth trends as more data are released in coming quarters. Stay informed of updates to these figures and others by subscribing to the Center for Household Financial Stability e-mail alert and bookmarking The Real State of Family Wealth webpage.

Notes and References

  1. Families are grouped by the primary race and ethnicity of the survey respondent.
  2. Millennials are not the first example of birth dates affecting financial outcomes. For example, early baby boomers faced difficult economic conditions in the 1970s and early 1980s. Americans born in the early 20th century came of age during the Great Depression and World War II.
  3. We use the median of the generation’s age range. Note that millennials’ and boomers’ ages do not yet overlap in the data.

Additional Resources

Appendix

A Note on Data Sources

The Federal Reserve Board creates the DFAs by combining data from the triennial Survey of Consumer Finances (SCF) and the quarterly Financial Accounts of the United States. See a paper by the Board of Governors of the Federal Reserve System for a discussion of how the estimates are constructed.

Many of our reports, like the Demographics of Wealth series, use the SCF instead of the DFAs. The SCF is an extensive survey that allows us to examine median household wealth (wealth at the middle or 50th percentile), which we believe is more representative of a demographic group’s typical economic experience than is average wealth. However, the SCF is released only every three years, with the most recent survey featuring 2019 data.

While we prefer the depth of information provided by the SCF data, the DFAs allow us to study wealth trends in a more timely fashion, though with less flexibility than the SCF and an inability to examine median household wealth. Because specific DFA estimates change from quarter to quarter as data are updated, we advise placing more weight on trends than specific values. Overall, as average wealth trends roughly track median wealth trends, we find large wealth gaps and alarmingly low levels of wealth among vulnerable groups using both the SCF and DFAs.

To stay informed as new quarterly data and observations are released, bookmark The Real State of Family Wealth and sign up for updates.

Posted In Labor  |  Tagged ana kentlowell ricketsray bosharawilliam emmonscenter for household financial stabilityhfsfamily wealthwealth inequalitycovid19coronavirusrecession