America's Racial Wealth Gap

An interesting feature by the Urban Institute summarizes the growing wealth inequality in the United States in nine charts which show how the wealth gap has varied by race and age.  In this posting, I'll pick four charts that succinctly explain how wealth varies with race and the reasons behind this variation.  The data for the study is sourced from the Current Population Survey.

We all know that income is money that comes into a family or household and that wealth is the accumulation of financial assets, including savings and real estate minus the debt owed.   In general, the lower the income, the less that people have saved and invested.  Families in the top 10 percent of earners have seen their family income rise by 70.3 percent from $93,390 in 1963 to $159,002 in 2013 (in 2013 dollars).  Families in the 50th percentile have seen their family income rise by 23.6 percent from $46,098 in 1963 to $56,971 in 2013 and families in the bottom 10 percent have seen their family income drop by 0.01 percent from $13,024 in 1963 to $12,951 in 2013.  Here is a chart showing how family income has varied over time for the top, middle and bottom earners:

It is quite obvious that family income growth has completely stalled over the past fifty years for all but the top earners.

Now, let's look at family wealth and how it varies with race and ethnicity.  Here is a chart that shows how family wealth varies over time for white families, African American families, Hispanic families and other non-white families in 2013 dollars:

In 1963, white family wealth was $117,329 higher than the wealth of non-white families.  By 2013, white family wealth was $582,307 higher that the wealth of African American families and $565,430 higher than Hispanic families.

Since a majority of wealth for many American families is connected to home ownership, let's look at how home ownership rates vary for white, African American and Hispanic families as shown on this chart since 1983:

Over the past three decades, home ownership rates for white families has averaged 69.5 percent compared to 39.9 percent for African American families and 44.1 percent for Hispanic families.  oVer the three decade period, home ownership rates for white families has risen by 1.8 percentage points, fallen by 2.5 percentage points for African American families and risen by 4.2 percentage points for Hispanic families.

Lastly, let's look at what the future may hold.  Here is a chart that shows how much average white, African American and Hispanic families have in liquid retirement savings (i.e. 401(k), 403(b) and IRAs and how that amount has changed since 1989:

In 2013, on average, white families had $130,472 in liquid retirement savings compared to $19,049 for African American families and $12,329 for Hispanic families, meaning that white families had saved 6.8 times more for retirement than African American families and 10.6 times more than Hispanic families.  One of the main reasons that this gap exists is because African American and Hispanic families are less likely to have access to retirement savings vehicles and are also less likely to participate in employer retirement savings plans.  As well, lower income families are more likely to invest in lower risk investments, meaning that their lower returns result in lower overall liquid asset balances. 

It is interesting to see that, not only has the wealth gap between the richest Americans and the rest of us grown over the past decades but that the racial wealth gap has grown as well, putting both African American and Hispanic families even further behind economically than their white counterparts.