Wealth Accumulation by Race Over the Life Cycle

While the income inequality among different racial and ethnic groups is significant, it is nothing compared to wealth inequality. In 2010, whites had six times more average wealth than blacks and Hispanics ($632,000 versus $103,000). The income gap, by comparison, was twofold ($89,000 versus $46,000).

In a recent study, several colleagues and I examine in more depth how these ratios are affected by wealth accumulation over a person’s lifetime. Early in wealth-building years (when adults are in their 30s), white families have 3.5 to 4 times the wealth of families of color. As adults age these initial racial differences grow both absolutely and relatively. Whites in the cohort we examined started with about three and a half times more wealth than blacks in their 30s but had seven times more wealth in their 60s. Compared with Hispanics, whites had four times more wealth in their 30s but nearly five times more wealth three decades later.

Or consider how ratios would vary if each family saved the same share of its income and earned the same rate of return on those savings. Ignoring inheritances, the wealth gap should resemble the income gap, not be three times as large.

While the Great Recession didn’t cause the wealth disparities between whites and minorities, it did exacerbate them. The 2007–09 economic slowdown brought about sharp declines in the wealth of white, black, and Hispanic families alike, but Hispanics experienced the largest decline. Lower net equity in homes accounts for much of Hispanics’ wealth loss, while retirement accounts are where blacks were hit hardest.

Something is definitely going on. Whatever other conclusions one may draw, I think our tax and social policies are doing a pretty poor job of helping individuals attain the types of protections that private wealth-holding offers. In fact, wealth disparities among races have expanded over the past 27 years, which should have liberals and conservatives alike questioning the unintended consequences of their policy victories, or at least their policy focus, over that period.

For more analysis of the wealth gap between whites and minorities, read the brief Less Than Equal: Racial Disparities in Wealth Accumulation or watch The Racial Wealth Gap in America. This work has been cited in the New York Times.


One Comment on “Wealth Accumulation by Race Over the Life Cycle”

  1. I am as interested in variability within races. That tells more of the story.


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