Growing Racial Wealth Disparities Among Families with Children
Northwestern University and Sanford School of Public Policy, Duke University
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Public attention has focused mostly on racial and ethnic disparities in income, but racial and ethnic disparities in wealth – assets like home equity, savings, and retirement accounts, minus debts –are even larger. Gaps in wealth are particularly important for households with children because wealth plays a key role in children's life chances, which makes racial and ethnic gaps in wealth all the more alarming. Importantly, broadening gaps are likely to be persistent over time as wealth is passed down across generations through inheritances, contributions to college tuition, and more. Studying wealth gaps among families with children reveals not only inequalities in these families’ current situations but also suggests inequalities in how their children will fare in the future. However, studies of wealth inequality have not tended to focus specifically on differences in wealth by race and ethnicity among families with children. When we focus on this group, we find that racial and ethnic gaps in wealth are larger for families with children compared to racial wealth gaps in the general population. Our research depicts the extreme wealth fragility of black child households.
Black households with children had just one cent of wealth for every dollar of wealth for white households with children in 2016.
- Wealth plays a critical role in children’s well-being and prospects. Parental wealth operates throughout a child’s life to shape educational, employment, and family choices and opportunities. Families with more wealth can afford to buy homes in safer neighborhoods that have access to better schools. Wealthier kids also tend to achieve higher test scores and are much more likely to attend college. Children from the least wealthy families are six times less likely to graduate from college than children from the wealthiest families.
- Racial wealth gaps are larger for households with children than for households without children. Our study offers the first analysis of racial/ethnic disparities in wealth focused on child households, which are defined as households with at least one resident child under the age of 19. Households with minor children comprised about one third of U.S. households. In 2016, at the median, Black households without children had eight cents in wealth for every dollar in wealth held by non-Hispanic white households. But racial disparities among households with children are even larger: Black households with children had just one cent of wealth for every dollar of wealth for white households with children. Our data come from five waves of the Survey of Consumer Finances (SCF), the premier source of wealth data in the United States.
- For child households, racial and ethnic differences in wealth far exceed racial differences in income. In 2016, Black and Hispanic child households had median household incomes that were 47 percent and 48 percent as high, respectively, as white median incomes. For wealth, the gap is strikingly larger: Black and Hispanic households with children had only 1 and 8 percent, respectively, of median white household wealth in 2016 (see chart). And, in contrast to racial gaps in income, racial and ethnic gaps in wealth for child households have been growing over time. Relative to 2004, the black-white income gap for child households is virtually the same, whereas the wealth gap has increased nearly ten-fold.
- Educational debt and low homeownership rates contribute to the enormous racial wealth gap for families with children. Educational debt is a common type of household debt, while home ownership is often a family’s most valuable household asset. Between 2004 and 2016, home ownership rates and home equity levels for black households with children fell, while educational debt increased. Trends in home ownership and equity partly reflect discrimination in housing and mortgage markets, which allow racial residential segregation to persist and contribute to black and Hispanic families’ occupying neighborhoods that have lower housing values and higher rates of vacancy and foreclosure. From redlining—the designation of minority neighborhoods as financially risky areas, which mortgage lenders and insurance companies often used as grounds for rejecting mortgage applications—to the targeting of minority households for subprime loans and other predatory loan practices, racially biased housing policies have contributed to black and Hispanic families being less likely to own a home, having homes of lower value, and receiving less return on their home ownership investments. As for education debt, Black students take on more debt partially because their parents are less able to provide them with tuition assistance. When coupled with the fraction of Black students who attend college but do not complete it, increased education debt impedes wealth accumulation among young Black adults.
- Black-white disparities exist throughout the wealth distribution, but are very large among the least wealthy families. We examined black-white differences in wealth for families who had low amounts of wealth, average amounts of wealth, and high amounts of wealth. Racial disparities exist among poor, middle-class, and high wealth households, but were particularly large for households whose wealth places them in the bottom 25% of the wealth distribution. Among these child households, white wealth levels were $3,205 whereas Black households had wealth levels of $-5,236. Negative wealth means that these households had more debts than assets. About 14% of white child households in our sample had negative wealth, compared to 31% of Black families.
- Black households with children now have lower wealth levels than Hispanic households with children, which is a reversal of pre–Great Recession patterns. Declines in black wealth vis-à-vis Hispanic wealth were substantial during and after the Great Recession. In 2004, at the median, Black households with children had $1.56 in wealth for every $1 in wealth for Hispanic households with children; by 2016, black child households had 8 cents, an astonishing reversal. Hispanic families have regained much of the wealth that they lost during the Great Recession whereas black families have continued to see their net worth decline. By 2016, Hispanic child households had more net worth than black child households. Our data can’t indicate exactly why Hispanic child households have recouped more of their wealth, but notably, Hispanic households have taken on less education debt than Black child households, and their home equity levels are higher.
What this Means:
The stability in racial income gaps — which are large, but have not changed much — compared to the increase in Black-white wealth gaps underscores the distinctiveness of wealth inequality. It also suggests the need for policy solutions that specifically target wealth. For example, policy makers should consider targeting discrimination in housing and mortgage markets, reducing racial residential segregation, and addressing inequalities in financing higher education. Given low levels of intergenerational wealth mobility and the importance of wealth in educational attainment, the wealth fragility of today’s Black families with children will likely impede social mobility for generations to come. In addition, given the Great Recession's dramatic and unequal impact on family wealth, particular attention should be placed on the effect that the current COVID-related economic downturn could have on increasing racial wealth inequality. Policies addressing the economic impacts of the COVID crisis should not only help families recover lost income but also aid them in building or at least maintaining their wealth. Children’s wellbeing, educational attainment, and future opportunities depend on it.