Income is like a stream. It flows by. You can collect what you need from it at any one moment, but, if it runs dry, you’ll be left thirsty. Wealth on the other hand is like diverting that stream into a reservoir. If the stream runs dry, you’ll still have plenty to drink. If your water needs increase, you have that back-up resource without needing to worry about conditions in the moment.

But access to wealth means so much more than security against hard times. Wealth determines where you live, the quality of schools your children attend, whether banks will offer you a loan to buy a house or open a business, whether you’ll have comfortable care as you age, and how much you can give to the next generation.

Both in Massachusetts and in the nation as a whole, there’s been growing recognition of troubling wealth disparities based on race, ethnicity, income and education. To provide a baseline overview of these dynamics, this chartbook walks through a selection of the best existing data on racial wealth inequity , organized into the following two sections:

• PART 1: National Data on Wealth, which provides topline data on wealth inequity at the national level from the Survey of Consumer Finances.

• PART 2: The Best (Albeit Limited) Local Data on Wealth, which provides detail on new efforts to create local estimates as well as some data on components of wealth from the American Community Survey.

   

PART 1: NATIONAL DATA ON WEALTH

Researchers measure wealth as the total amount of assets you and your household own (e.g., retirement accounts, homes, cars, stocks and bonds) minus the total amount you owe (e.g., student loans, credit card debt, outstanding balances on mortgages). What’s more, assets are fluid. They grow and shrink based on any number of factors over time. Due to this complexity, estimating household wealth requires far more effort than simple survey questions on things like income.

The most detailed national data on wealth come from the Survey of Consumer Finances (SCF), which is administered every three years by the Federal Reserve Board. The SCF is a large undertaking that can take more than 1.5 hours to administer per respondent, and it often involves follow-up inquiries to correct for internal inconsistencies. But there are real limitations. For instance, while researchers can disaggregate wealth for White, Black, and Latino households, it does not have a large enough sample to report reliable estimates for smaller racial groups like Asian Americans, Native Americans, or Pacific Islanders, who often get lumped into an “Other” category. Additionally, sample sizes are only large enough to report estimates at the national level, meaning that we cannot produce estimates for Boston or even the state of Massachusetts. With that as backdrop, the graphs here in Part 1 of the chartbook analyze what current SCF data reveal about racial wealth inequity in the United States.

Over the last 20 years, wealth in the United States has become even more concentrated among a small number of households.

In 1992, the median net wealth of households in the United States was approximately $88,000, meaning that half of households had less than that amount and half had more. At $4.15 million, the net wealth of the top 1 percent of households was roughly 50 times higher than the median. By 2019, median wealth had grown to about $122,000, but the wealth of the top 1 percent had catapulted to $11.1 million, about 90 times higher than median wealth.¹ (Unfortunately, the most recent round of SCF data was collected in 2019, meaning that the pandemic’s impact on the most economically vulnerable in the U.S. is not represented. Data in this chartbook will be updated later this year when 2022 SCF data become available.)

You’ll notice in the above chart (Figure 1) that no households below the median are represented. That is because, given the wide disparity between the percentiles they would look like straight lines near the zero line. Figure 2 provides a more detailed view of what wealth looks like at and below the median.

Households with the least wealth are actually worse off than they were more than 25 years ago, with household wealth at the 25th percentile dropping from $13,150 to $12,436 and household wealth at the 10th percentile dropping from $0 to -$456, meaning that these households’ debts were higher than their assets.

Racial wealth disparities have grown since 1992.

In the United States, economic inequity is inextricably connected to growing racial inequity, and this graph on median wealth by race shows that over the same period when overall wealth inequity grew, wealth inequity by race also grew. By 2019, White wealth was almost nine times as high as Black wealth and five times as high as Latino wealth. ²(Because the SCF unfortunately does not have sufficient sample sizes for Asian Americans and Native Americans, these analyses of SCF data by race focus only on wealth levels for Black, White, and Latino households.³ For estimates of Asian American wealth see Thompson, 2022.)

For centuries, policies have been created to ensure that people of color, especially Black and Indigenous people, were and are excluded from wealth-building activities. When wealth was created in communities of color, far too often it was destroyed. A sizeable amount of land owned by Black, Indigenous, and Latino landowners at the turn of the 20th century was expropriated through violence, predatory lending, and outright discrimination from the USDA and other agencies over the next century. White citizens killed their successful Black neighbors in horrors like the Tulsa Massacre; later “urban renewal” policies undermined Black and Latino communities in cities across the United States.

Throughout the 20th century, homeownership was one of the most accessible ways for a family to build wealth and create a level of economic stability for themselves. In this realm wealth-suppressing policies were rife. Redlining kept Black and Latino households out of the most prosperous neighborhoods and restricted their ability to fund improvements to the houses they did own. Black World War II veterans received unequal benefits for their service compared to White veterans through the GI Bill, one of the major drivers of wealth accumulation in the last 80 years.

Limited access to homeownership is one reason why we have such large racial wealth gaps. Beyond the actual value of the real estate held, homeownership is important as a financial vehicle that can unlock other forms of wealth. The equity that a person builds through paying off their mortgage and making home improvements, and the added returns that come from market momentum, can be used to invest in education or business ownership, weather financial shocks, and create a better future for their family. Today, there are large racial homeownership gaps nationwide, and they’re somewhat larger in Greater Boston. On top of the disparities in who owns a home, we also see racial gaps in the value of home equity among those who do. Please see the subsection on homeownership in the local data section of this Chartbook for more detail.

While income gaps remain roughly level, racial wealth divides are large and growing.

Racial and ethnic wealth disparities are much higher than income disparities. The median White household earns about 1.7 times more than the median Black household but has about nine times the wealth. As Figures 4 and 5 show, while the income divide has narrowed a bit since 1992, the wealth divide has grown.

The wealth divide between White and Latino households is also higher than the income divide, though more progress has been made toward wealth equity in the last two decades (Figures 6 and 7). Despite gains in Latino wealth since 2013, White households still have five times the wealth of Latino households.

Wealth gaps exist across, and within, racial groups.

Imagine if you were to ask every household in the US to line up from the lowest income to the highest income and then split them into four equal groups (or quartiles). Figure 8 shows the median wealth of each of these income quartiles by race.

As we know, income is highly correlated with wealth. In every racial group in Figure 8, the highest 25 percent of earners have significantly more wealth than earners in the other quartiles. The 4th quartile of White earners has 3 times the wealth of the 3rd, the 4th quartile of Black earners has 4.4 times the wealth of the 3rd, and the 4th quartile of Latino households has 3.95 the wealth of the 3rd quartile. More disturbing, though, are the gaps between White, Black, and Latino households. The highest-earning White households have about twice the wealth of the highest-earning Black households and about three times the wealth of the highest-earning Latino household. In fact, White households in the 2nd quartile have a higher median wealth than Black and Latino households in the 3rd quartile. This illustrates that higher incomes do not necessarily translate into higher wealth for Black and Latino households.

Education offers unequal payoffs for Black and Latino households.

When policymakers look to reduce racial wealth inequity in their communities, education is often one of the first policy pathways offered up. After all, higher education offers opportunities unavailable to those with a high school diploma, GED, or professional certification. A degree in a high-demand field, like tech or engineering, can lead to even bigger payoffs for a household. In fact, we do find that those who get college degrees have much higher wealth than those who don’t, and the gap between wealth for those with a college degree and those without has grown in recent decades, as demonstrated by a recent Congressional Budget Office report analyzing the same data from the SCF.

The payoff from higher levels of education, however, is markedly unequal when broken out by race. White college graduates have a median wealth of about $389,000, while Black and Latino college graduates have just $74,000 and $110,000 respectively.

The net wealth of white college graduates in 2019 was about 5.6 times greater than the wealth of Black college graduates and about 3.5 larger than the wealth of Latino college graduates. What’s more, Black and Latino college graduates had less wealth than White households with a high school diploma. Black college graduates have little more wealth than White households with no high school diploma (about $4,200). In Not Only Unequal Paychecks, IERE researchers found that large wealth gaps between Black and White workers exist within high-demand fields, especially STEM and finance, showing that this trend is not necessarily driven by degree program choice.

Money moves differently between generations in White, Black, and Latino Communities.

So then, why do we see wealth accumulate differently in Black, White, and Latino households, even where there are similar income and education levels? One likely factor is the fact that Black and Latino families often utilize their financial resources to support their parents (likely due to financial precarity of the older generation), while White families often receive financial support from their parents.

At every income level Black and Latino households provide more support to and receive less financial support from their parents. Black households with the highest incomes provide more financial support to their parents than any other group. Financial transfer trends are particularly striking among Latino households. They receive less financial support at every income level, but the lowest income Latino households provide financial support to their parents at very high rates.

While the vast majority of all Americans never receive an inheritance, White households are far more likely to receive one than Black and Latino households, and the inheritances they receive tend to be larger.

Inheritances are a significant vehicle of wealth transfer from older to younger generations. When someone passes away, an estate is established to ensure that any money that the deceased owed is paid, and the remaining money is disbursed as instructed via the will. Often after settling end of life costs, medical debt, and the cost of elder care, there is nothing left to pass on to the next generation. In fact, over 70 percent of families received no large gifts or inheritances in any single year of the 20-year period we’re examining, meaning that for the vast majority of families in the United States, “leaving something of value behind for your kids and grandkids” is more myth than reality. Among the minority of American households that do receive inheritances, most are White, and their value relative to their Black and Latino peers have grown significantly since 2001.

When we look at the share of folks who have ever received a positive inheritance or gift, we see a large and growing gap over the last 20 years.⁴ In 2019 approximately 30 percent of White households received an inheritance, while just 10 percent of Black and 8 percent of Latino households received an inheritance. This represents a 9 percentage point jump for White households since 2001 and only 2 point increase for Black and 5 point increase for Latino households.

The median value of inheritances has been rising consistently for all households in the last two decades. While White households inherited significantly more money than Black or Latino households in 2001, the disparity has narrowed by 2019. These numbers should be interpreted with caution since the Black and Latino households are relatively small in the SCF sample and of those, only a small fraction (less than 10 percent in general) received any inheritance. Taken as a whole, the national data show that only a small percentage of families are able to pass wealth to the next generation. On average, the families who receive inheritances are more likely to be White, and White households inherit more money than Black and Latino households, although for the approximately 10 percent of Black and Latino families that inherit, the gap in median inheritance value is narrowing. Over just a few generations, these disparities can compound, leading to troublingly unequal and racialized wealth accumulation.

PART 2: THE BEST (ALBEIT LIMITED) LOCAL DATA ON WEALTH

Analysis of wealth disparities in the previous section uses the Survey of Consumer Finances (SCF) but, again, its sample size is only large enough to report estimates at the national level, meaning that we cannot produce estimates for Boston or even the state of Massachusetts.

The Survey on Income and Program Participation (SIPP) is another national survey that includes information on wealth. The SIPP is designed to understand how lower-income households interact with federal welfare programs, so its data on wealth is less detailed than the SCF. Sample sizes for the SIPP are sometimes large enough for reporting at the state level, but only for the most populous states. In Massachusetts, we can generate state-level wealth estimates, but without disaggregation for any racial groups other than White.

The Panel Study of Income Dynamics (PSID) is a third national survey on wealth that can be quite useful in some circumstances, but like the SIPP and SCF, the PSID is not able to generate useful local wealth estimates. The PSID is unique in that it’s a longitudinal study following specific families over time, tracking their changes in wealth, income and other use of financial resources. It also provides insights into how wealth changes across generations. Like the SIPP, however, the PSID’s data on wealth is less detailed than the SCF, limiting insight on how households at the very top of the income distribution accrue their wealth.

With the best national surveys on wealth being limited in their use at the local level, a couple of novel research efforts have attempted to fill the void. Likely the best known in our region is data provided by the 2015 The Color of Wealth in Boston report, and the second is the Urban Institute’s new Financial Health and Wealth Dashboard. We present local findings from these in the next two charts and discuss their limitations.

The Color of Wealth in Boston found significant wealth disparities in 2015.

In 2015 the Federal Reserve Bank of Boston commissioned a novel small survey of wealth in Greater Boston, analyzed in The Color of Wealth in Boston, that has since garnered significant public attention. Due to the high cost associated with administering a survey on wealth, researchers surveyed a relatively small sample of families regionwide to estimate net wealth by race (see the number of observations per group in the table below). It generated estimates of a Black/White racial wealth gap far wider than national estimates from the Survey of Consumer Finances, suggesting that U.S.-born Black households in Greater Boston had a net wealth of just $8, as compared to $248,000 for White households. We know this is a rough estimate due to the small sample size. But if the estimate were $8,000 of wealth for Black families, or even $80,000, this would still represent a significant racial disparity (versus a point estimate of $248,000 for White households) that merits the same level of urgency for remedy.

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The study included not just estimates for some racial groups (unfortunately, it did not report Asian American estimates, due to the small number of Asian respondents), but also estimates for a few subgroups, including Caribbean Black (median net wealth of $12,000), Puerto Rican ($3,020), and Dominican ($0). Additionally, authors presented data on several key components of wealth, and we include two of these as examples in the table above, one for median non-housing debt and one for the share of households owning an Individual Retirement Account or private annuity.

Importantly, a new effort is under way at the Federal Reserve Bank of Boston, with support from local philanthropy, to build on this landmark 2015 survey. It will have a much larger sample size, which will enable some geographic breakdowns across Massachusetts and allow for greater nuance in exploring a greater number of racial and ethnic categories.

New estimates from the Urban Institute also reveal significant local wealth gaps.

More recently, in October of 2022, the Urban Institute released its Financial Health and Wealth Dashboard, which includes a range of local data on financial wealth, including novel wealth estimates. They provide median wealth estimates for all residents at the Public Use Microdata Area (PUMA) level, which are Census-defined geographies of about 100,000 residents. But for states and some larger cities, including Boston, they present median wealth estimates that are broken down by race, as shown in the graph below.

They generate these novel wealth estimates by matching SIPP demographic characteristics—such as age, educational attainment, and race/ethnicity—to demographic characteristics in the American Community Survey. This allows Urban to use the SIPP’s wealth estimates at the state and local levels available in the ACS. Nevertheless, this means that while useful in broad strokes, these novel estimates rely on a range of assumptions that cannot perfectly reflect actual wealth disparities.

According to these estimates, White households in Boston have roughly 36 times the wealth of Latino households, around 20 times the wealth of Black households, and 7 times the wealth of Asian American and Pacific Islander (AAPI) households. These gaps are similar when looking statewide, with the exception of AAPI wealth, which grows significantly to about half of White wealth.

Each of the different national and local surveys on wealth involves different approaches and covers different geographies, so making simple apples-to-apples comparisons is quite difficult. In broad strokes, however, a few themes emerge when comparing estimates from these two local data sources with national ones from the Survey of Consumer Finances:

• Racial wealth gaps appear even larger at the local level than they are nationwide.
• Much of the larger gap comes from White wealth appearing significantly higher at the local level. Nationally, median White wealth is $181,000 as of 2019 according to the SCF, compared to $247,500 as of 2015 for Greater Boston, according to Color of Wealth estimates, or $360,000, according to Urban Institute estimates for Massachusetts. Additionally, AAPI wealth is higher in Massachusetts, according to the Urban Institute estimates, than White wealth is nationally, according to the SCF.
• Median Black wealth appears similar when comparing national SCF data ($20,100) to state-level estimates from the Urban Institute ($20,000).
• At $36,000, median Latino wealth appears higher at the national level than it is under any of the local data sources.

Greater Boston has large racial gaps in homeownership, which is a central component of household wealth.

While we don’t have great local data on total wealth, we can turn to other surveys to analyze disparities for a few specific components of wealth. Perhaps most useful among these is the Census Bureau’s annual American Community Survey (ACS), which provides a range of useful socioeconomic data that can be disaggregated to different age, income, and geographic groups.

The graph above uses ACS data on homeownership, looking just at families where the head of household is at least 35 years old. Homeownership is among the largest components of wealth for families in the bottom half of the income distribution, and, troublingly, we see that Greater Boston has large racial homeownership gaps, with White households almost twice as likely to own a home as Black and Latino households. Asian homeownership lags White homeownership a bit, but the largest gaps by far are for Black and Latino households. Further, racial gaps persist even when controlling for income. Gaps are smaller for families over 120 percent of area median income but they’re significant for the three low- and moderate-income clusters on the left of the graph.

The American Community Survey doesn’t have good data on the typical value of real estate owned by race, but it’s clear from national data that not only are there homeownership gaps, there are also large gaps in the actual value of accrued home equity among homeowners. At the national level, for instance, median home equity was $128,000 for White households in 2019, $92,000 for Latino households, and $66,740 for Black households, according to the Survey of Consumer Finances.

Greater Boston also has large racial gaps in business ownership.

Another important component of wealth, for which we have some local data, is business ownership, coming from the Annual Business Survey. A small fraction of the population, regardless of race, owns a business. But for those who do, it can be one helpful vehicle for accumulating wealth over time.

For this analysis we focus on businesses with at least one employee, so that small sole proprietorships do not skew results. And once again we see large racial gaps, with Black business owners making up just 1.9 percent of all businesses with one or more employees in Greater Boston, well below the overall Black share of the population. And there is a similar gap for Latino-owned businesses. This is in stark contrast to White and Asian business owners, who have equal or greater rates of business ownership compared to their population share.

Footnotes

1. Point estimates and standard errors of percentiles and the mean of net worth are obtained by the Stata program scfses. scfses incorporates weights (corresponding to a SCF variable X42001) and accounts for both imputation variability and sampling variability.

2. Note that this graph focuses on median wealth, not average. Focusing on median wealth has the benefit of not letting large outliers skew the data. But as we saw in the previous graphs, part of the trend has been increasing amounts of wealth going to those at the very top of the income distribution. Therefore, racial wealth gaps like those shown above would be even larger if we looked at average wealth by race.

3. Race/ethnicity groups are based on a variable, race, in the public SCF dataset where White (including Middle Eastern/Arab with White), Caucasian; Black/African American; and Hispanic/Latino categories are identified for reference persons. In the SCF, reference persons who identify as Asian, American Indian/Alaska Native, Native Hawaiian/Pacific Islander, or Multi-racial are combined in a category called “Other,” which we don’t include in the analyses.

4. Based on qualitative data, from IERE surveys, gits tend to be underreported in national administrative data.