(September 2010) Net worth—the difference between total savings and assets, and the amount of debt owed—is an important metric to assess a family's economic well-being. Recent data show a large and growing racial gap in the financial net worth of families and households in the United States, even though the racial disparities in income have not increased since the 1980s.1


Net Worth of Households by Race/Ethnicity, 2004

 

Note: Net worth includes cash accounts plus savings, shares of stocks or mutual funds, bonds, automobiles, real estate, or other investments.
Source: U.S. Census Bureau, Survey of Income and Program Participation, accessed at www.census.gov/hhes/www/wealth/2004/wlth04-2.html, on Aug. 25, 2010.


A recent report on a national survey of family income dynamics revealed that the wealth gap between black and white American families quadrupled between 1984 and 2007, from $20,000 to $95,000 (not including the value of the family home).2 In 2007 dollars, the net worth of African American families only rose from about $2,500 to $5,000 over the 23-year period, remaining well below the cost of a new car. Researchers found that even high-income African American families had a net worth of just $18,000, and one-quarter of all African American families had no financial cushion at all. In contrast, the average net worth of white families rose from about $22,000 to $100,000 between 1984 and 2007.

A different survey of wealth recently released by the U.S. Census Bureau also shows a large wealth disparity among whites, Asians, blacks, and Hispanics, especially when including home values (see figure).3 African Americans and Hispanics are much less likely to own a home than are non-Hispanic whites and Asians, often reflecting the greater difficulty in getting mortgages, as well as having lower incomes and less job security.4 While car ownership is widespread, blacks and Hispanics are much less likely to own stocks or mutual fund shares, or to have a financial stake in a business (see table).

Why Wealth Matters

While family or household income supports day-to-day living expenses, savings and other assets provide a safety net for unexpected expenses and a reserve for special purchases, college tuition, or retirement. Families without this cushion are vulnerable to financial hardship if a family member requires expensive medical care or loses a job. Another major advantage of net worth—even modest amounts—is transfer to the next generation, enabling children to pay off loans, for example, or afford the down payment on a house. One reason that today's African Americans and Hispanics have less net wealth is that they were less likely to inherit assets. The continuing wealth gap perpetuates the financial disadvantage of African Americans and Hispanics.

Effects of Recession

These data do not capture the wealth effects of the recent recession, which led to a wave of home foreclosures, wiping out a major source of wealth accumulation for millions of families. While the majority of homeowners kept their property, home values have fallen throughout the United States, eroding net worth.


Percent Owning Selected Financial Assets by Race and Ethnicity, 2004

Racial/Ethnic Group Households (Millions) Savings Accounts* Stocks and Mutual Fund Shares Own Business or Profession Motor Vehicles Own Home
White non-Hispanic 81.3 72 32 13 89 74
Black 13.9 46 9 6 70 46
Asian 3.2 72 31 13 83 56
Hispanic 12.2 45 9 7 78 49

*Interest-earning assets at financial institutions.
Source: U.S. Census Bureau, Survey of Income and Program Participation, accessed at www.census.gov/hhes/www/wealth/2004/wlth04-2.html, on Aug. 25, 2010.


Home foreclosures have hit African Americans and Hispanics especially hard, in part because they were more likely than whites to have high-cost or subprime mortgages.5 High unemployment among minorities has prevented many from qualifying for refinancing or loan modifications that would have allowed them to keep their homes.

In addition, many families affected by job losses have drained their savings and retirement funds to cover living costs. According to available data, even when the housing and job markets recover from the recession, there will continue to be a large wealth gap among U.S. racial and ethnic groups.


Mary Mederios Kent is senior demographic writer at the Population Reference Bureau.


References

  1. Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, "Income, Poverty, and Health Insurance Coverage in the United States: 2008," Current Population Reports P60-236 (RV) (2009); and Thomas M. Shapiro, Tatjana Meschede, and Laura Sullivan,The Racial Wealth Gap Increases Fourfold (Boston: Institute on Assets and Social Policy at Brandeis University, 2010).
  2. Shapiro, Meschede, and Sullivan,The Racial Wealth Gap Increases Fourfold.
  3. DeNavas-Walt, Proctor, and Smith, "Income, Poverty, and Health Insurance Coverage in the United States: 2008."
  4. Linda A. Jacobsen and Mark Mather,"U.S. Economic and Social Trends Since 2000," Population Bulletin 65, no. 1 (2010), accessed on Aug 25, 2010.
  5. Jacobsen and Mather, "U.S. Economic and Social Trends Since 2000."