Wealth inequality in the United States still has a strong racial dimension. That’s according to an analysis from the Urban Institute released Wednesday.
Wealth inequality grew between 1963 and 2013, according to Urban’s analysis of three different consumer finance surveys. Yes, average wealth has increased over the past 50 years, but not at the same rate for everyone. The bottom 10th percentile has fared the worst: actually, its average wealth declined. But the middle of the wealth distribution — those with about $40,000 in assets in 1963 — has seen its wealth double. The top 90th percentile has seen its wealth quadruple, and the really rich — the top 99th percentile — has seen its wealth increase sixfold.
So while the mid-wealth families saw their wealth increase by the highest percentage, the families near the top of the wealth distribution obviously had a lot more to start with. They’re now more better off than middle-wealth families than they were in 1963. In other words, wealth inequality is greater.
You may have read David Leonhardt’s Upshot article in the New York Times Tuesday explaining that “Inequality has actually not risen since the financial crisis.” Leonhardt highlights the research of George Washington University’s Stephen Rose, who’s shown that while income inequality is high by historical standards, it is not higher than it was before the financial crisis began — because of two factors: one, the rich suffered a big hit from the crisis, and two, government transfers have helped maintain the status quo for middle and lower-income Americans.
Income inequality is not the same as wealth inequality; although, as the Urban Institute points out, the former is an important contributor to the latter. Income is what you make; wealth is what families fall back on when the going gets tough. According to Urban’s calculations (using Current Population Survey data), average income for all three wealth distributions declined starting in 2006. While average incomes among the top 90th percentile took a hit during the financial crisis, they still far exceeded incomes in the bottom 10th percentile and 50th percentile, and the gap in 2013 outstretched the gap in 1963.
Now let’s talk about race. In 2013, the average wealth (remember, that could include the value of a home) of African-American families was $95,000. For Hispanics — $112,000. The average wealth of white families was $500,000 greater than it was for African-American or Hispanic families. In 1963, average white family wealth exceeded that of African-American and Hispanic families by only $117,000 (in 2013 dollars).
As the Urban Institute points out, the wealth gap between races increases with age. That makes sense if you consider that most of us make more as we get older and advance in our careers. But if white Americans start out making more at better paying jobs than blacks and Hispanics, they’re going to end up with a lot more when they near retirement age.
But it’s not just income gaps that explain the racial wealth gap. African Americans and Hispanics own homes at lower rates than whites do — even when income-level is controlled. That explains a lot about lack of accumulated wealth. And again, even at the same income levels, Hispanics and African Americans have less in liquid retirement savings than whites do.
Another reason why African-Americans have less wealth than whites is student loan debt. Since the mid-2000s, they’ve had more of it. The fact that 42 percent of African-American Americans between the ages of 25 and 55 had student loan debt in 2013 (compared to 28 percent of whites) reflects a vicious cycle: families’ lower wealth compels students to take on debt, but that debt then hurts their overall wealth well into adulthood.
The New York Fed reported Tuesday that delinquency rates on student loans have actually increased, defying the overall trend of delinquency rates falling for other types of loans. “Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households,” said Donghoon Lee, research officer at the New York Fed.
While Professor Rose’s research about income inequality not actually having grown since the crisis tells an important tale about government transfers — namely that they work — the Urban Institute analysis suggests that government efforts to promote asset-building by low-income families do not. According to the Urban Institute, many subsidies disproportionately benefit the middle or upper classes, while some of it what it calls “safety-net programs” may even discourage the poor from saving if, for example, having assets disqualifies them from receiving benefits.