Wealth Lab 3 0 Keygen Download
Ainoha Sistek
Just how large and persistent are these racial wealth gaps? As figure 1 shows, median net worth for white households has far exceeded that of Black households through recessions and booms over the last thirty years. While movements in white wealth are easier to see due to the larger scale, during the most recent economic downturn, median net worth declined by more for Black families (44.3 percent decline from 2007 to 2013) than for white families (26.1 percent decline). In fact, the ratio of white family wealth to Black family wealth is higher today than at the start of the century.
Wealth is the sum of resources available to a household at a point in time; as such it is clearly influenced by the income of a household, but the two are not perfectly correlated. Two households can have the same income, but the household with fewer expenses, or with more accumulated wealth from past income or inheritances, will have more wealth. Figure 3 shows median net worth at different points in the family income distribution. What is immediately evident is that the racial wealth gap remains even for families with the same income. For those in the top 10 percent by income (only 3.6 percent Black), the racial wealth gap is still quite large: median net worth for white families in this income group is $1,789,300 versus $343,160 for Black families. A racial gap exists in every income group except the bottom quintile (23.5 percent Black), where median net worth is zero for everyone.
All of this matters because wealth confers benefits that go beyond those that come with family income. Wealth is a safety net that keeps a life from being derailed by temporary setbacks and the loss of income. This safety net allows people to take career risks knowing that they have a buffer when success is not immediately achieved. Family wealth allows people (especially young adults who have recently entered the labor force) to access housing in safe neighborhoods with good schools, thereby enhancing the prospects of their own children. Wealth affords people opportunities to be entrepreneurs and inventors. And the income from wealth is taxed at much lower rates than income from work, which means that wealth begets more wealth.
Well-designed taxes on inheritances, reforms to capital income taxation, and even taxes on wealth could be part of the solution. Inheritance or estate taxes in particular could enhance equality of opportunity, especially if revenues were invested in programs that give low-income children a better chance at economic success.
But not all economic indicators appear promising. Household incomes have grown only modestly in this century, and household wealth has not returned to its pre-recession level. Economic inequality, whether measured through the gaps in income or wealth between richer and poorer households, continues to widen.
Other than income, the wealth of a family is a key indicator of its financial security. Wealth, or net worth, is the value of assets owned by a family, such as a home or a savings account, minus outstanding debt, such as a mortgage or student loan. Accumulated over time, wealth is a source of retirement income, protects against short-term economic shocks, and provides security and social status for future generations.
The period from the mid-1990s to the mid-2000s was beneficial for the wealth portfolios of American families overall. Housing prices more than doubled in this period, and stock values tripled.11 As a result, the median net worth of American families climbed from $94,700 in 1995 to $146,600 in 2007, a gain of 55%.12 (Figures are expressed in 2018 dollars.)
The period from 1983 to 2001 was relatively prosperous for families in all income tiers, but one of rising inequality. The median wealth of middle-income families increased from $102,000 in 1983 to $144,600 in 2001, a gain of 42%. The net worth of lower-income families increased from $12,3oo in 1983 to $20,600 in 2001, up 67%. Even so, the gains for both lower- and middle-income families were outdistanced by upper-income families, whose median wealth increased by 85% over the same period, from $344,100 in 1983 to $636,000 in 2001. (Figures are expressed in 2018 dollars.)
The wealth gap between upper-income and lower- and middle-income families has grown wider this century. Upper-income families were the only income tier able to build on their wealth from 2001 to 2016, adding 33% at the median. On the other hand, middle-income families saw their median net worth shrink by 20% and lower-income families experienced a loss of 45%. As of 2016, upper-income families had 7.4 times as much wealth as middle-income families and 75 times as much wealth as lower-income families. These ratios are up from 3.4 and 28 in 1983, respectively.
The reason for this is that middle-income families are more dependent on home equity as a source of wealth than upper-income families, and the bursting of the housing bubble in 2006 had more of an impact on their net worth. Upper-income families, who derive a larger share of their wealth from financial market assets and business equity, were in a better position to benefit from a relatively quick recovery in the stock market once the recession ended.
As with the distribution of aggregate income, the share of U.S. aggregate wealth held by upper-income families is on the rise. From 1983 to 2016, the share of aggregate wealth going to upper-income families increased from 60% to 79%. Meanwhile, the share held by middle-income families has been cut nearly in half, falling from 32% to 17%. Lower-income families had only 4% of aggregate wealth in 2016, down from 7% in 1983.
This was nearly double the 45% increase in the wealth of the top 20% of families overall, a group that includes the richest 5%. Meanwhile, the net worth of families in the second quintile, one tier above the poorest 20%, increased by only 16%, from $27,700 in 1998 to $32,100 in 2007. (Figures are expressed in 2018 dollars.)
New data from the 2019 Survey of Consumer Finances (SCF) show that long-standing and substantial wealth disparities between families in different racial and ethnic groups were little changed since the last survey in 2016; the typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.
This FEDS Note explores patterns in wealth holding by race and ethnicity, as well as some key issues related to the accumulation of wealth, using new data from the 2019 Survey of Consumer Finances (SCF). We first analyze total wealth among families classified, according to their self-identification during the interview, as White non-Hispanic, Black or African American non-Hispanic, Hispanic or Latino, and other or multiple race (we will henceforth refer to these groups as White, Black, Hispanic, and other, respectively).2 Wealth is defined as the difference between families' gross assets and their liabilities.3 We will describe patterns at the median (the typical household within each group) and at the mean (the average among households in each group).
The SCF data provide a snapshot of families' wealth at a point in time. This point-in-time observation is a result of many complex societal, governmental, and individual factors that play out over the life cycle and even across generations. Among other factors, inter-generational transfers, homeownership opportunities, access to tax-sheltered savings plans, and individuals' savings and investment decisions contribute to wealth accumulation and families' financial security.4 In the remainder of this note, we use the SCF to shed light on how these factors differ by race and ethnicity and how patterns in wealth-holding have changed since the Great Recession.5 Before we move on, we note that families were primarily interviewed for the 2019 SCF before the onset of the COVID-19 pandemic and associated changes to the economy.6 Therefore, we urge readers to exercise caution in making any inferences based on the patterns described in this Note about how US families are faring in 2020.
The patterns for the 2016-2019 period follow variation across groups in experiences in the Great Recession (2007 to 2010), the immediate aftermath (2010 to 2013), and the continued economic expansion (2013-2019). Median wealth fell about 30 percent for all groups during the Great Recession. However, Black and Hispanic families' wealth continued to fall an additional 20 percent from 2010 to 2013, while White families' wealth was essentially unchanged, and other families' wealth fell a more modest 10 percent. After 2013, median wealth rose for all groups, with faster growth for Black, Hispanic, and other families.
Despite growth over the last two surveys, the typical White family and the typical Black family have yet to recover to their pre-Great Recession levels of wealth. Over the entire 2007-2019 period, wealth fell by 11 percent for the typical White family and by 7 percent for the typical Black family. Only the typical Hispanic family has seen an increase in wealth relative to before the Great Recession, rising by about 39 percent, while the typical other family's wealth is about unchanged since before the Great Recession.
While these cumulative changes in wealth from 2007-2019 may seem striking, there are two important issues related to the interpretation of changes over time in the SCF from Figure 2, particularly over the full time period.
Second, the types and number of families that make up each race or ethnicity group change over time as the underlying population of US families changes. Among other factors, population aging, changes to immigration flows, and the evolution of self-identification patterns alter the composition of each race or ethnicity group between surveys. For example, in the 2016 survey, the other or multiple race group was composed of 50 percent reporting more than one racial identification and 30 percent reporting Asian, whereas in 2019 these figures changed to 69 percent and 23 percent, respectively. Therefore, appropriately interpreting changes in a group's wealth, especially over longer time periods, requires acknowledging compositional shifts within each group. In particular, the robust growth in Hispanic wealth over the last two surveys and the marked slowdown of growth for other families in 2019 are at least partially attributable to compositional shifts in the types of families that make up these groups.
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