The Demographics of Wealth: How Birth Year, Education and Race Shape - - PowerPoint PPT Presentation

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The Demographics of Wealth: How Birth Year, Education and Race Shape - - PowerPoint PPT Presentation

Jan 26, 2024 181 likes •591 views

The Demographics of Wealth: How Birth Year, Education and Race Shape Financial Outcomes State of Wealth Equity Webinar June 30, 2020 William R. Emmons, Ana H. Kent, Lowell R. Ricketts, and Ray Boshara Center for Household Financial Stability

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The Demographics of Wealth: How Birth Year, Education and Race Shape Financial Outcomes

State of Wealth Equity Webinar June 30, 2020 William R. Emmons, Ana H. Kent, Lowell R. Ricketts, and Ray Boshara Center for Household Financial Stability Federal Reserve Bank of St. Louis

These views are our own, not necessarily those of anyone else in the Federal Reserve System.

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Center Overview

  • The Center for Household Financial Stability was launched by the Federal

Reserve Bank of St. Louis in 2013 to research and strengthen the financial health of struggling families in the U.S.

  • We especially focus on what a family saves, owns and owes—also called

family wealth or its balance sheet. Three questions guide our work: (1) What is the state of U.S. family wealth? (2) Why does wealth matter for both families and the economy? (3) What can we do to strengthen family wealth?

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I. Why study wealth?

  • II. The demographics of wealth
  • A. Age / birth year / generations
  • B. Educational attainment
  • C. Race and ethnicity
  • III. Can “structural change” overcome the power of demographics to

shape financial outcomes?

  • IV. The initial impact of COVID-19 on the wealth gap, and possible

responses

Overview of Remarks

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Why Study Wealth?

  • Wealth matters for economic security and

upward economic mobility in ways income does not; wealth reveals dimensions of financial health not otherwise apparent.

  • Holding assets is associated with distinct

social, psychological, emotional, child well- being, health, and civic outcomes.

  • The U.S. has a long history of promoting

property ownership, but many families have been and remain excluded from these policies, contributing to wealth inequality.

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The Demographics of Wealth: How Birth Year, Education and Race Shape Financial Outcomes

  • Demographics: Measurable innate or unchanging

characteristics that define members of a group.

  • Demographic characteristics we use to form groups:

− When you were born, hence, how old you are in a given year and the generation to which you belong − How much completed education you (and your parents) have − With which race or ethnicity you identify

  • Can “structural changes” overcome the power of demographics

to shape financial outcomes?

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Income and Wealth Trends: Entire U.S. Population

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48,000 53,000 88,000 97,000 50,000 100,000 150,000 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2016 $

Inflation-Adjusted Median Family Income and Net Worth

Income Net Worth

Source: Federal Reserve Board, Survey of Consumer Finances and authors’ calculations

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The Demographics of Wealth: 2018 Series

  • We explore connections

between a family’s demographics…

− Birth year and age − Education (own and parents’) − Race/ethnicity

  • … and the family’s income,

wealth and other outcomes (homeownership, marriage, health).

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BIRTH YEAR AND AGE PART 1: YOUR DECADE OF BIRTH

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The Life Cycle of Wealth for A “Typical” Family

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1 10 100 1,000 20 25 30 35 40 45 50 55 60 65 70 75 80

Predicted Median Net Worth by Age

Thousands of 2016 $, Natural Log Scale on Y-Axis

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Age

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100 40 45 50 55 60 65 70 75 80 Predicted 1930-1939

Median Net Worth, Predicted vs. Actual, by Age and Birth Cohorts

Thousands of 2016 $, Natural Log Scale on Y-Axis Age

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Family Heads Born in the 1930s Were Lucky

2007 Experience of 1930s cohort Experience of all birth cohorts

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100 40 45 50 55 60 65 70 75 80 Predicted 1940-1949

Median Net Worth, Predicted vs. Actual, by Age and Birth Cohorts

Thousands of 2016 $, Natural Log Scale on Y-Axis

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Age

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2007 Experience of 1940s cohort Experience of all birth cohorts

Family Heads Born in the 1940s Were Very Lucky

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40 30 35 40 45 50 55 60 65 70 Predicted 1950-1959

Median Net Worth, Predicted vs. Actual, by Age and Birth Cohorts

Thousands of 2016 $, Natural Log Scale on Y-Axis

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Age

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Still Lucky if Born in the 1950s

2007 Experience of 1950s cohort Experience of all birth cohorts

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5 50 20 25 30 35 40 45 50 55 60 Predicted 1960-1969

Median Net Worth, Predicted vs. Actual, by Age and Birth Cohorts

Thousands of 2016 $, Natural Log Scale on Y-Axis

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Age

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Not So Lucky if Family Head Born in the 1960s

2007 Experience of 1960s cohort Experience of all birth cohorts

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5 50 20 25 30 35 40 45 50 Predicted 1970-1979

Median Net Worth, Predicted vs. Actual, by Age and Birth Cohorts

Thousands of 2016 $, Natural Log Scale on Y-Axis

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Age

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Family Heads Born in 1970s Are Very Unlucky

2007 Experience of 1970s cohort Experience of all birth cohorts

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5 50 20 25 30 35 40 Predicted 1980-1989

Median Net Worth, Predicted vs. Actual, by Age and Birth Cohorts

Thousands of 2016 $, Natural Log Scale on Y-Axis

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Age

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Family Heads Born in 1980s: A Lost Generation?

2007 Experience of 1980s cohort Experience of all birth cohorts

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Born After 1960? Your Generation Is Behind

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5 61 56 33 4 20 1 13

  • 4
  • 29
  • 35
  • 25

17 4 4

  • 11
  • 18
  • 34
  • 40
  • 20

20 40 60 80 1930s 1940s 1950s 1960s 1970s 1980s 2007 2010 2016

Deviation of Birth Cohort Median Wealth from Predicted Value

Percentage Points Birth Cohort

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

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BIRTH YEAR AND AGE PART 2: YOUR AGE

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Population Shares in 1989 Young 38% Middle-aged 36% Old 26% Population Shares in 2016 Young 28% Middle-aged 41% Old 31%

Old Families (31%) Now Own 48% of All Wealth

1) Young (<40) 3) Old (62+) 2) Middle-aged (40-61)

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Wealth Has Shifted from Young to Old

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  • 50
  • 30
  • 10

10 30 50 70 90 25 30 35 40 45 50 55 60 65 70 75 80

Change Between 1989 and 2016 in Predicted Wealth

Percentage Difference

Sources: Federal Reserve Board's Survey of Consumer Finances and authors' calculations.

Age

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EDUCATIONAL ATTAINMENT

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Less Than A 4-Year College Degree At Least A 4-Year College Degree

63% of Income Goes to College Grads (34% of Families), Up from 45% (23%)

Population Shares in 1989 GED or no HS Diploma 24% HS Diploma 53% 4-Year College Degree 14% Post-Graduate Degree 9% Population Shares in 2016 GED or no HS Diploma 16% HS Diploma 50% 4-Year College Degree 21% Post-Graduate Degree 13%

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Less Than A 4-Year College Degree At Least A 4-Year College Degree Population Shares in 1989 Less Than A 4-Year College Degree 77% At Least A 4-Year College Degree 23% Population Shares in 2016 Less Than A 4-Year College Degree 66% At Least A 4-Year College Degree 34%

College Grads (34%) Now Own 74% of Wealth

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Kids Track Parents’ Education; Wealth Follows

23 More-educated parents More-educated children

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RACE AND ETHNICITY

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  • We track four groups based on the primary racial or ethnic self-

identification of each survey respondent:

− White − Black or African-American − Hispanic − Other or multiple races (Asian, American Indian, Alaskan Native, Native Hawaiian, Pacific Islander, other race, identifies with more than one race)

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Race and Ethnicity of the Family Head

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ROC Local 20 40 60 80 100 120 140 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Black Hispanic, Any Race Other Races

Source: Federal Reserve Board's Survey of Consumer Finances.

Survey Year

Median Real Income, Relative to Non-Hispanic White Families

Percent

Black & Hispanic Income Gaps Remain Large

White level

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152 75 11 9 167 103 22 17

Little Progress Closing Black & Hispanic Wealth Gaps

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Other Hispanic White Black Population Shares in 1989 White 75% Hispanic 8% Black 13% Other 5% Population Shares in 2016 White 68% Hispanic 11% Black 16% Other 5%

Whites (68%) Receive 80% of All Income

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Population Shares in 1989 White 75% Hispanic 8% Black 13% Other 5% Population Shares in 2016 White 68% Hispanic 11% Black 16% Other 5%

Whites (68%) Own 89% of All Wealth

Other Hispanic White Black

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White College Grads (26%) Own 2/3 of the Wealth

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CAN “STRUCTURAL CHANGES” OVERCOME

THE POWER OF DEMOGRAPHICS TO SHAPE

FINANCIAL OUTCOMES?

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Can “Structural Changes” Overcome Demographics?

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  • Age-based and generational inequities: Policy changes like

Social Security, the GI Bill, Medicare, cheap public higher education, housing subsidies and tax cuts benefited currently

  • ld generations at the expense of others, so new policies could,

in principle, rectify the balance for younger generations.

  • Educational inequities: Local control and funding of primary

and secondary education, “meritocratic” college admissions and the rising cost of higher education perpetuate educational disparities across generations; change is possible but would not be popular.

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Can “Structural Changes” Overcome Demographics?

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  • Inequities related to race and ethnicity:

− Race- and ethnicity-based exploitation, discrimination and exclusion were practiced for centuries. − Elements of structural and systemic racism persist today. − White privilege is part of structural racism. − Psychological, social, emotional, educational, health, economic and financial damage inflicted on generations of black and brown Americans will not magically disappear in the current generation. − Only large-scale, long-lasting, privilege-reducing change matters. − Is there sufficient political will—?

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In Sum: The Demographics of Wealth

  • Demographic characteristics are powerful predictors of economic,

financial and other outcomes (homeownership, marriage, health).

  • The 2008 financial crisis amplified the long-term financial benefits of

certain groups; will the 2020 COVID crisis do the same?

− Being born before 1960 − Having more education and having better-educated parents − Being a member of an historically advantaged race or ethnicity

  • Can “structural changes” overcome the power of demographics to shape

financial outcomes?

− Some inequities will be easier to address than others − Would require greater political will than currently visible

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INITIAL IMPACT OF COVID-19 ON THE WEALTH GAP, AND POSSIBLE RESPONSES

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Wealth Inequality After COVID:

Quarterly (Q4:2019Q1:2020) Decline Largest Among Wealthiest, Though Their Wealth Has Steadily Risen Over Time 36 COVID

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Wealth Losses After COVID:

Wealth Gap Narrows in Q1:2020, Though it is Early and Actual Levels Remain Quite Low

Calculations by Ana Kent of Distributional Financial Accounts of the Board of Governors: https://www.federalreserve.gov/releases/efa/efa-distributional-financial-accounts.htm

Average Net Worth December 31, 2019 March 31, 2020 Change Top 10% $5,635,991 $5,191,327

  • $444, 664

(-7.9%) Bottom 50% $22,766 $21,673

  • 1,093

(-4.8%) Gap 248X 240X

  • 3.1%

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Four Observations on Initial Impact of COVID-19 on the Wealth Gap

  • 1. Due primarily to fluctuations in the stock market, the overall wealth gap

has narrowed since COVID-19—though it is still early and, longer term, the gap has increased significantly.

  • 2. Racial, generational and educational wealth gaps have persisted or have

grown over the last few decades. This partially reflects the limited exposure of non-white, less-educated, and younger Americans to the stock market.

  • 3. However, we should be more concerned about actual levels of wealth

among struggling Americans, and less concerned about the gaps.

  • 4. Health and labor market trends since COVID-19 suggest that the wealth
  • f struggling Americans may be even further reduced—regardless of

whether the overall wealth gap grows or narrows.

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Responses

Near Term

  • Extend safety net protections
  • Consider student debt relief
  • Promote emergency savings

and liquidity:

  • Which Families Are Most Vulnerable

to an Income Shock such as COVID- 19?

  • Cash on Hand Is Critical for Avoiding

Hardship

  • Five Lessons About Financial Well-

Being

Longer Term

  • Promote both better financial

choices (behavior change) and, especially, having better financial choices to make (institutional change)

  • Promote racial economic equity
  • Post-COVID, think big: “Rebuild,

Insure, and Reimagine Family Wealth”

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