Economic Equity: Demographics

September 30, 2020

This 25-minute podcast was released Sept. 30, 2020, as a part of the Timely Topics: Economic Equity miniseries.

From left: Lead economist William Emmons, policy analyst Ana Hernández Kent and lead analyst Lowell Ricketts, of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.

“When you were born, what race or ethnicity you are, how much education you obtained open up and, in some cases, limit the opportunities that you'll encounter,” says William Emmons, lead economist at the Center for Household Financials Stability at the Federal Reserve Bank of St. Louis. Emmons joins the Center’s lead analyst Lowell Ricketts and policy analyst Ana Hernández Kent in a discussion with Maria Hasenstab, media relations coordinator at the St. Louis Fed, about demographic variables and how they affect wealth and equity in the United States.



Maria Hasenstab: Welcome to Timely Topics, a podcast series from the St. Louis Fed. I’m your host, Maria Hasenstab, and today we have a special episode focused on racial equity. It’s a hot topic nationally, and now, we’ll focus on some of the specific research from the Federal Reserve Bank of St. Louis concerning this important topic.

I’m joined today by three members of the St. Louis Fed’s Center for Household Financial Stability. I’d like to introduce lead economist William Emmons, lead analyst Lowell Ricketts, and policy analyst Ana Hernández Kent. Thank you all for joining me.

Bill Emmons: Great to be here.

Ana Kent: Thanks, Maria.

Lowell Ricketts: Thanks, Maria. It’s good to be here.

Hasenstab: So, the Center for Household Financial Stability began at the St. Louis Fed in 2013, and, during these past several years, you have looked at various aspects of family wealth for different demographic groups. Would you say your thinking on this topic has evolved over the years?

Emmons: Yes, it certainly has. Our original questions were who suffered the most in the Great Recession and how were people recovering or not recovering. Our focus was on family wealth, both because it was less well-studied and because we thought it might be more informative than income, certainly about things like resilience to shocks and long-term mobility. Also, my background as a banking economist made me very interested in the balance sheets of ordinary families—your assets and liabilities, what you own and what you owe. Especially, again, carrying over from this other context, how do households measure up in terms of their leverage, how much debt they have, their liquidity, readily available cash, and asset diversification, how broadly are their assets spread?

When I began, I wanted an analytical framework that was simple, easy for ordinary people to understand, and which could shine light on the true driving forces underlying different outcomes. What I wanted to avoid was, what I would call, specious, or circular, reasoning like this. High-income people have a lot of wealth. Well, duh. High-wealth people usually have a lot of income, too, but this really doesn’t tell you anything you didn’t know.

So what we wanted to know is why is it that some families have a lot more income or a lot more wealth than others, and some were more resilient to the Great Recession and others not, and some recovered better. What are the deeper underlying causes of differences in income and wealth?

So I came up with three measurable factors: when you were born, what your race or ethnicity was, and your education, which relates to your natural abilities, your social class, your expectations for yourself, and your ability to thrive in the increasingly knowledge-based economy. All these elements came together in a framework we call the demographics of wealth, and, as you suggested, how we’ve applied that and, more importantly even, how we’ve interpreted those results has changed quite a bit over the years.

Hasenstab: Well, Bill, let’s talk a little bit more in-depth about those demographics. Why are they so powerful, and why not just focus on low-income or low‑wealth families?

Emmons: These demographic variables—your birth year, your race or ethnicity, your education—are either beyond your control, in the first two cases, or after a certain point, unchangeable. That is once you complete your education. This means they are exogenous, or predetermined, as economists say. This means that they truly could be causal variables. It avoids the trap of circular reasoning. In other words, having a certain outcome didn’t make you be born in 1960. That was certainly beyond your control. Another example, why did Joe serve in Vietnam, but Frank did not? Well, Joe was born in 1950. Frank was born in 1960. Birth year was obviously a causal factor here.

It turns out that many, many differences in income and wealth can be traced back to differences in demographic factors. Here’s another example. Why do the Smiths have five times as much wealth as the Joneses, even though they’re the same age, they have the same level of education, they work at the same jobs, they live in the same neighborhood, they have the same number of kids, and on and on? Well, it turns out the Smiths are white, and the Joneses are Black. In fact, your race or ethnicity is a very strong predictor of many, many outcomes, including your wealth, your health, whether you’re a homeowner, and many other things.

So, to your questions, why are things like your birth year, your race or ethnicity, your education, such strong predictors of adult outcomes? The way I think about it is that every person enters the world with a unique set of attributes. These determine much of how your life plays out. When you were born, what race or ethnicity you are, how much education you obtained, open up and, in some cases, limit the opportunities that you’ll encounter.

Hasenstab: That’s really interesting. Lowell, I want to turn to you now. Can you set the stage for the state of wealth and equality in the United States?

Ricketts: Sure. I’d be happy to, Maria. So, what I’m going to present to you today is really 2016 observations. It’s the latest data we have from the Survey of Consumer Finances that the Federal Reserve Board of Governors puts out, although the 2019 survey wave should be released soon, this year. So we’re very excited about that. And let’s focus on three demographic characteristics: race and ethnicity, education and age.

And starting with race and ethnicity, a typical white family had about 10 times the wealth of the typical Black family. Similarly, the typical white family had over seven times the wealth of the typical Hispanic family. This significant racial wealth gap has been largely unchanged since 1989, and work by other scholars suggest a much longer timeline of racial inequity in wealth accumulation.

Moving on to education, more and more families are obtaining a college degree. Families headed by someone with at least a four-year degree rose from 23% of all families in 1989 to 34% in 2016, so a really incredible gain in terms of the number of families holding college degrees. Our work has found a four-year college degree to be an important dividing factor in financial outcomes in the U.S., and the typical college grad has over five times the amount of wealth of their nongrad peer. Again, I’m talking about families here. So the head of the household has a college degree is how we define that.

And lastly, age has a very important relationship to financial outcomes. In economics, we sometimes use the term life cycle. In other words, when you’re very young, you have had little wealth accumulated. You maybe had to borrow as well, so you might have negative wealth. But as you grow older, you have more opportunities to save and pay off debt, save for that college education that I talked about. So this leads to one of the largest differences in wealth. The typical family age 65 to 75 years old has over 12 times the wealth of the typical 25- to 35-year-old family.

So it’s important to keep the wealth life cycle in mind, but as Bill mentioned, it also matters when you’re born. Your wealth outcomes can vary at the same age in this life cycle depending on when you were born. So across all three demographic dimensions, we see significant inequality in wealth accumulation. However, the underlying reasons for these differences vary substantially. That’s another factor to keep in mind, and I know Ana is going to dive into some of the millennial outcomes.

Hasenstab: Well, Ana, I will turn it to you now. When we’re talking, we’re talking about medians. Right? So, the family at the middle point, correct?

Kent: Yes, Maria. That’s correct. When we’re doing simple comparisons like this, we prefer to talk about medians, or the family in the middle, the 50th percentile, because wealth is so skewed. There’s a small number of families who have a lot of wealth, which pulls up the average. In other words, the average then becomes nonrepresentative of most families’ experience. We see medians as more typical, but we also compare other parts of the wealth distribution, like the 75th percentile or relatively well-off families and the distribution. Blacks at this level, at the 75th percentile, actually have less wealth than the median or typical white family.

Hasenstab: And, I also wanted to talk to you, Ana, about millennials. Do you see any positive trends in the data?

Kent: So, we do. We have done a deep dive on older millennials, those born in the 1980s. One positive trend I’ve seen is in regard to Hispanic millennials. The Hispanic-white household wealth gap among millennials in 2016 was much smaller than in the overall population. It’s still large. Hispanic millennials hold about 48 cents in median household wealth per dollar of white millennial wealth, but it’s moving in a more equitable direction than in the overall population.

Hasenstab: The Center’s signature series is called the Demographics of Wealth, which Lowell mentioned just a little bit ago. The second Demographics of Wealth explore generational wealth. Bill, can you tell me a little bit more about that?

Emmons: Sure. This is the idea that when you’re born matters. So, things that could differ, depending on when you were born, include things like what was the educational system like; what was the public health situation; especially pertinent today, how much racial discrimination did you face; what job opportunities did you have when you came into the job market. Also, things like what was the state of the financial world, how much debt was available to you. As you started to accumulate wealth, how expensive were houses and stocks compared to your income or to previous levels? All of these factors mean that you, as a member of a particular birth cohort, experience the world differently than those of other birth years.

So what we wanted to do was combine the notion that Lowell mentioned, that regardless of when you’re born, we expect you to have a series of experiences. For example, wealth accumulation—that differs depending on where you are in your life cycle. People generally accumulate more wealth as they get older. But we were aware that that general pattern could differ depending on when you start. So someone born in 1940, for example, maybe entered the job market after going to college in the early 1960s, and someone who was born in 1980 went to college and maybe entered the job market in 2002. Very different time periods, and so what we tried to do was estimate that life cycle of wealth and how it differed by when you were born.

So every group experienced this life cycle somewhat differently we expected, and indeed, that is what we found. And our conclusion was that, roughly speaking, people born before 1960 who have, of course, mostly experienced their full life cycles, or much of them, they had experiences that, compared to people born after 1960, looked more favorable at virtually every comparable point along their life cycles.

Now, of course, it is difficult to extrapolate what the life cycles of young people today, say someone born in 1980 or 1990, what that will be in the future. We cannot know that for sure, but what this second essay focused on was the early part of the life cycle, for which we did have information on earlier cohorts, as we call them. We looked at people born in decades—in the 1930s, the 1940s, etc., all the way through the 1980s. And as I said, 1960 looked like something of a pivot point. Those born before seem to have had more favorable wealth outcomes over the part of their life cycles that we could observe in the data, those was born after 1960 less favorable.

And what we really highlighted in this essay was that, for people born in the 1980s, as Ana said, older millennials, it looked like there had been a very big decline in wealth for the typical family around the time of the Great Recession, but that was not unique to that age group. All age groups suffered wealth losses, but what was different about the 1980s group is that they had not been making up much ground, or any ground, against that life-cycle increase in wealth that we would have expected them to be experiencing over those years.

So we ended up calling this essay, perhaps provocatively, “Is This a Lost Generation?” Are people born in the 1980s so hard hit by the Great Recession and struggling to recover to get back on that track, that this will leave long-term impacts or imprints on their financial lives? We simply don’t know, but I think this discussion has become, you know, more widespread. I think a lot of people are now concerned and thinking about how do we approach that? Are there even policy responses that we should be considering?

Hasenstab: Well, that is interesting, and we’ve mentioned how that report was based on data through 2016. And we’re all looking forward to the latest data that will be released later this year with data through 2019. But right now, we’re in the middle of 2020, which has been such a unique time. Have your predictions that older millennials would become a lost generation changed at all in light of the COVID-19 environment?

Ricketts: So, Maria, I think I can offer some speculation here. We don’t know for sure how the pandemic is going to impact wealth accumulation for this group. In fact, the 2019 data, when that comes out, that’s going to offer a perfect picture of what wealth outcomes were prior to the pandemic starting. And so it’s going to be difficult and take some time before we can understand how the pandemic has impacted this group as a whole.

But I think there are reasons to be pessimistic in the fact that when looking at the Census Bureau’s Household Pulse Survey, we’re seeing elevated levels of distress, whether that be financial distress or even mental distress, among millennials as a group. And so that gives me pause in thinking about what might the impact be. But I should also mention that our report was looking at, specifically, how the 1980s millennials—the older millennials—may have been held back in terms of their wealth accumulation based on asset prices, house prices, or the prices of financial investments.

And it’ll be interesting to see with the 2019 data, how that may have changed, how many millennials were now homeowners after the three years of time in between when we observed them last and how many were able to purchase financial investments despite their historically high asset prices. So there’s a lot of questions here, but I think there’s room for pessimism given the very high asset prices and also the turbulence we’re seeing in outcomes during the pandemic.

Hasenstab: So, COVID-19 has disproportionately affected certain groups. Can you tell me what you’re seeing in the data and if there’s anything specific to racial inequity?

Ricketts: Sure. Another great question, Maria. And using the Census Bureau’s Household Pulse Survey again, we see similar findings regarding which families are experiencing housing distress and food insecurity. And by housing distress, I mean they were late on their rent or mortgage payment or had that payment deferred, and a family experiencing food insecurity is defined here as those that sometimes or often didn’t have enough food to eat, so really severe forms of financial instability. And as of late July, both of these outcomes were more frequent among Black and Hispanic households, those without a four-year college degree, and members of Generation X, millennials and Gen Z. So we see the groups experiencing inequities in financial distress due to the pandemic or even longer-term forms of distress that were occurring before the pandemic are very similar to the longer-term inequities that our group has documented in wealth accumulation.

Hasenstab: So I also wanted to make sure that we talked about education. The Center has published an article called “Is College Still Worth It? The New Calculus of Falling Returns.” For those of us who don’t quite recall our 10th-grade math, can you break down the results for us?

Kent: Yes, Maria, definitely. I also don’t quite recall 10th-grade math, but luckily, I have replaced that knowledge with statistical knowledge. So for that project, we started by looking at how the college income and also wealth premium had changed over time. By premium, I mean the income or wealth bachelor’s degree holders had over that of non-bachelor’s degree holders.

We found that the income premium had held up over time, and the wealth premium had actually increased over time. However, we felt like this wasn’t really a fair comparison. We were lumping all families together, regardless of what race they were and how old they were and, by extension, as Bill mentioned, when they likely completed their degrees.

Hasenstab: And when you looked across generations, how did those results differ?

Kent: So, because of that, we wanted to look deeper, and so we looked across generations, as you said. The really innovative part of the project was, when we did so, we looked at the decade in which the respondent to the survey was born—the 1930s, ’40s, ’50s, ’60s, etc. We also compared within race. So we were comparing, for example, white college graduate respondents born in the 1980s to white nongraduates also born in the 1980s, comparing like with like.

And what we found was that income premiums were fairly similar across 1940s-born through 1980s-born groups within the same race, for both whites and Black families. The wealth premiums, however, didn’t have the same staying power. They had fallen fairly sharply for white families and were actually not significantly different from zero for the 1970s born and 1980s born Black graduates on average. So summarizing this research, we basically found that the financial benefits of obtaining a postsecondary degree were weaker for recent graduates than they were for older graduates.

Hasenstab: Some of those findings are surprising, and given the results, what would you say to a Black or a white high school student thinking about going to college?

Emmons: You’re right. It is difficult. I think the way we think about it is that college is an investment, increasingly, obviously, an expensive investment. There is risk. There is no guarantee. As Ana mentioned, in very broad strokes, it’s clear that college is associated, finishing college is associated with good outcomes, higher incomes, accumulating more wealth, actually better health, and all sorts of other outcomes.

For those young people that see themselves in college, that have the preparation, the ability, and increasingly critical, the financial wherewithal to go to college, the income benefits, we believe, are still there as they have been in the past, even for the people just entering college now.

The thing that Ana really highlighted was that it’s more complicated in that wealth accumulation has been much less clear for these more recent college graduates. And we think that’s really shining a light on the cost problem of how the price of admission, even after taking into account financial aid for some students, has risen so much that it has made it a much more difficult decision, strictly in dollars-and-cents terms. So, that’s, kind of, the discouraging part of the findings.

We’re fully aware, of course, that there are other reasons that people go to college, other benefits people receive from college other than the dollars and cents that we focused on. Not least, the first generation of a family to go to college is investing in that next generation’s ability to benefit from college. So that’s a very long-term, but a real benefit. It’s also possible that college is necessary to get into a particular type of job or industry that somebody is interested in. So I guess I would summarize it by saying we recognize that our results are limited to the dollars and cents, but we think that they do highlight that we have, as a society, I would say, a problem with how we’re paying for this. And we need to focus more on making that opportunity available to all of the young people for whom it’s the right path.

Hasenstab: I want to hit upon one final topic, and that I’d like to ask you each to tell me a couple things that you think would help move the needle on the types of inequality we just discussed. What should the conversation about inequality, and specifically racial inequality, in America look like in the future?

Ricketts: So, when thinking about some of the inequities by race and ethnicity that we’ve outlined earlier, I think it’s helpful to consider a policy framework offered by Michelle Jackson, a sociologist at Stanford University. And in this framework, Jackson offers a contrast between two conversations. Conversation one outlines expedient, small-scale interventions aimed to solve tightly defined problems or improve existing institutions. Whereas, conversation two involves a deeper discussion about where wealth gaps come from and what larger-scale changes might close them.

And I think both of these conversations are necessary, but often in social sciences, the first is preferred or crowds out the second. I think we can design research studies that really do a nice job at identifying the impact—the causal effect, so to speak—of various interventions, such as financial coaching or offering different ways to invest tax time savings. These are great changes, but we have to ask ourselves how much can they really impact these structural and systemic inequities by race and ethnicity in terms of wealth outcomes? They have been so persistent and so long-lasting that I think we need to consider conversation two, despite the challenges associated with measuring the impact of these larger-scale changes.

Emmons: We often ask if demographics are destiny, and it is discouraging that the demographic factors we talked about—beyond your control, in some cases—seem to be very powerful predictors of adult outcomes. I think that is discouraging, and, yet, it has to be part of that conversation two that Lowell mentioned. We have to understand how deeply rooted many of the inequities that we see truly are before we can productively engage.

Kent: Absolutely. So ultimately, I think that much of what we’ve talked about today—particularly with regards to racial inequality—seems to stem from systemic barriers, like Lowell mentioned. The longstanding barriers that we’ve talked about won’t be changed by individual behaviors. Instead, they require structural systemic change. Many people have written extensively on what these types of changes might look like. So for example, a solution known as baby bonds has been proposed by scholars Derek Hamilton and Sandy Darity, and these baby bonds seem to be in every conversation. Also improving the stock of affordable housing is being widely discussed. But no matter the solution, it’s clear that creating an inclusive economy that works for all racial groups is critical for widespread resilience and economic flourishing.

Hasenstab: Your team has shared so much important research and so many important things to think about today. So, thank you so much for your time.

Emmons: Great to be here.

Kent: Thanks, Maria.

Ricketts: Thanks, Maria.

Hasenstab: For more Timely Topics podcast episodes, visit You can also subscribe to our Timely Topics podcast series on Apple podcasts, Stitcher, and Spotify.

Economists and experts talk about their research, topics in the news and issues related to the Fed. Views expressed are not necessarily those of the St. Louis Fed or the Federal Reserve System.

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