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Minority wealth gap: Net worth gap twice that of income

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Snapshot for March 15, 2006.

Minority wealth gap: Net worth gap twice that of income

Recently released data from the Federal Reserve provide a stark reminder of the extent of racial and ethnic economic gaps in our economy, particularly regarding wealth.

The Fed’s Survey of Consumer Finances allows us to compare both income and net worth (assets minus debts) between white (non-Hispanic) and non-white families (the sample sizes are too small to break non-whites into component groups). The data in the report reveal that in 2004, minority incomes were about 56% that of whites. However, a far larger gap exists when we compare net worth: minorities’ net worth was about 27% of whites, about half the size of the income ratio (Figure A ).

Figure A. Non-white income and net worth compared to white levels, 2004

Minority net worth does appear to have improved over the past few years—the net worth gap was 24% in 2001—although the difference may not be statistically significant. Minority homeownership played an important role in this change. Between 2001-04, the rate of non-whites owning a primary residence grew more quickly than that of whites, by 3.5 percentage points compared to 1.8. At the same time, the real median value of homes grew by 31% for non-whites, versus 19% for whites (of course, the levels of both the rates of ownership and the values of homes are lower for non-whites; e.g., 51% of non-whites owned a primary residence in 2004 compared to 76% of whites).

Though the gaps in income and net worth remain stark, promoting minority homeownership appears to be an important component of improving racial differentials in net worth.

This week’s Snapshot was written by EPI economist  Jared Bernstein.

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