St. Louis Fed Report Documents Enduring Wealth Disparities among Races

ST. LOUIS – A new report from the Federal Reserve Bank of St. Louis shows that disparities in wealth across race and ethnicity remain largely unchanged from a quarter-century ago.

Authors William Emmons and Bryan Noeth, senior economic adviser and policy analyst at the St. Louis Fed’s Center for Household Financial Stability, found that black-white and Hispanic-white gaps in median income and wealth remain large, not budging, in effect, in 25 years.  White and Asian families continue to be more than twice as likely as Hispanic and black families to have above-median wealth.

But unlike the case of those historically disadvantaged minorities, the Asian-white gap is diminishing. In fact, Asians’ median wealth is on track to surpass that of whites, most likely because of a dramatic increase in educational attainment by younger Asians in recent decades. The Asian median income long ago surpassed white median income.

This report is the first in a series titled “The Demographics of Wealth: How Age, Education and Race Separate Thrivers from Strugglers in Today’s Economy.” The series will explore what race, education and age mean in terms of a family’s ability to thrive financially.

For the full race and ethnicity report and a video summarizing the findings, please go to https://www.stlouisfed.org/household-financial-stability/the-demographics-of-wealth/essay-1-race-ethnicity-and-wealth.

Other key findings of the report:

• Differences in average age and educational attainment explain very little of the wealth gaps across race and ethnicities. In fact, the disparities were starker when comparing only older and better-educated groups across those demographics, groups that generally are wealthier.
• Median Hispanic and black families’ wealth levels are about 90 percent lower than the median white family’s wealth level, yet median family income levels of Hispanics and blacks are only 40 percent lower. This difference may be due partly to financial choices and partly to the expectation that traditional safety-net programs will be in place during old age, lessening the need  for poorer families—including many Hispanic and black families—to reduce spending during their working years in order to accumulate wealth for retirement.  
• White and Asian families generally have stronger balance sheets than Hispanic and black families. In particular, white and Asian families typically hold a much higher share of their assets in cash or other highly liquid assets than Hispanic and black families, which buffers the former families from financial emergencies and reduces their recourse to high-cost loans or costly defaults. White and Asian families also typically own a broader array of assets, including stock and bond investments and small businesses in addition to houses and vehicles. Finally, white and Asian families use much less debt to finance their assets, improving their cash flow and reducing their exposure to large losses of wealth in the face of declining house or other asset prices.
• The ranking of the race and ethnicity groups on median wealth levels strongly correlates with the ranking of their scores on the authors’ financial health scorecard, designed to measure whether a family is making sound, everyday-financial decisions. Thus, differences in seemingly mundane financial behaviors may be important for wealth accumulation.
• Greater focus on the causes of upward mobility of many Asian families may provide insights into the lack of mobility observed in other groups.