Wealth Inequalities

​Signe-Mary McKernan, Caroline Ratcliffe, and C. Eugene Steuerle

September 2015

Income gaps are only part of the story when it comes to economic inequalities in America. Wealth inequality is even greater. And lack of wealth creates its own set of long-lasting harms, often handicapping economic mobility and leaving families exposed to financial risks. Policies aimed at helping low-wealth families save for emergencies, a child's education, a home, and a secure retirement can improve families’ financial stability and provide a toehold into the middle class.

Wealth inequality is increasing

Americans’ average wealth (assets minus debt) has increased over the past 50 years, but it has not grown equally for all groups.

Between 1963 and 2013,

  • families near the bottom of the wealth distribution (those at the 10th percentile) went from having no wealth on average to being about $2,000 in debt,
  • those in the middle roughly doubled their wealth—mostly between 1963 and 1983,
  • families near the top (at the 90th percentile) quadrupled their wealth, and
  • those at the very top (at the 99th percentile—in other words, those who are wealthier than 99 percent of all families) saw their wealth grow sixfold.

In 1963, families near the top had six times the wealth (or, $6 for every $1) of families in the middle. By 2013, top families had 12 times the wealth of families in the middle.

Young Americans are falling behind

The Great Recession particularly hurt generations X and Y, who bore the brunt of stagnant wages, diminishing job opportunities, rising college debt, and lost home equity. Their average wealth in 2010 was below the average wealth of those in their 20s and 30s a quarter-century earlier (in 1983). These young adults may never make up enough lost ground to do better than their parents’ generation.

Today, those in Gen X and Gen Y have accumulated less wealth than their parents did over 25 years ago.

Over the same time, the standing of other groups improved. The total wealth of baby boomers and older generations (those 52 and older today) roughly doubled compared with their predecessors a quarter-century earlier.

Racial wealth disparities worsen with age

The racial wealth gap is three times larger than the racial income gap—and it’s growing. In 1963, the average wealth of white families was $117,000 higher than the average wealth of families of color. By 2013, the average wealth of white families was over $500,000 higher than the average wealth of black families ($95,000) and Hispanic families ($112,000).

In addition, wealth disparities compound over time, and the racial wealth gap grows sharply with age.

Average Family Wealth for Those Born 1943–51 as They Age

 

How did we get here?

Families of color are less likely to own homes and have significantly less in liquid retirement savings, so they more often miss out on these powerful wealth-building tools. Also, black families carry more student loan debt than white families, even though they are less likely to go to college. And white families are five times more likely than families of color to receive large financial gifts or inheritances, which can help them get ahead.

Families of color who do own homes were particularly hurt by the housing crisis. Black and Hispanic borrowers disproportionately bought homes before the crisis as prices peaked, and then were disproportionately cut out of the housing market by the tight credit environment after the crisis, when buying a home became more affordable. 

Income inequality can worsen wealth inequality because people near the bottom have less money available to save and invest. However, programs focused only on increasing incomes may not be enough to address wealth disparities.

What can be done?

The federal government spent $384 billion in tax subsidies to support asset development in 2013, but those subsidies primarily benefited higher-income families and exacerbated wealth inequality. Helping people enroll in automatic savings vehicles, as well as reforming policies like the mortgage interest tax deduction so it benefits all families, will help improve wealth inequality and promote saving opportunities for all Americans.