Exploring the Racial Wealth Gap Using the Survey of Consumer Finances

FEDS Working Paper No. 2015-076

http://dx.doi.org/10.17016/FEDS.2015.076

62 Pages Posted: 27 Sep 2015

See all articles by Jeffrey P. Thompson

Jeffrey P. Thompson

New England Public Policy Institute, Federal Reserve Bank of Boston; Federal Reserve Board of Governors

Gustavo Suarez

Board of Governors of the Federal Reserve System

Date Written: August 22, 2015

Abstract

This paper studies the racial wealth gap using data from the Federal Reserve’s Survey of Consumer Finances from 1989 to 2013. We document that the mean and median wealth (net worth) of white families has consistently been much greater than that of black and Hispanic families, and the gap between them has increased in recent years. We use reduced-form OLS regressions and non-parametric decomposition techniques to assess the contribution to the racial wealth gap of life-cycle patterns, educational attainment, inheritance, attitudes toward saving and investing, and a number of additional factors. Our analysis indicates that the wealth gap between white and Hispanic families can be almost entirely attributed to differences in observable variables. Observable factors account for most of the gap between white and black families, but a substantial unexplained portion remains. Wealth differences between black and white families are completely due to different asset holdings, while wealth differences between black and Hispanic families are mostly a result of different debt holdings. The unexplained portion of the wealth gap, for white families relative to black and Hispanic families, is greater at the top of the wealth distribution.

Keywords: Inequality, Racial Wealth Gap, Saving

JEL Classification: D31, J15, D63, D14

Suggested Citation

Thompson, Jeffrey P. and Suarez, Gustavo, Exploring the Racial Wealth Gap Using the Survey of Consumer Finances (August 22, 2015). FEDS Working Paper No. 2015-076, http://dx.doi.org/10.17016/FEDS.2015.076, Available at SSRN: https://ssrn.com/abstract=2665627 or http://dx.doi.org/10.2139/ssrn.2665627

Jeffrey P. Thompson (Contact Author)

New England Public Policy Institute, Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Federal Reserve Board of Governors ( email )

Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/jeffrey-p-thompson.htm

Gustavo Suarez

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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