In an earlier version of this post, the numbers in the visual were correct, but the numbers referenced in the text were outdated. We’ve revised the text and describe the changes at the end of this post (corrected 2/1/2022).
Chicago typifies wealth inequity, with many households in northeast Cook County holding nearly $1 million dollars in wealth, while just a few miles away, a quarter of households have negative wealth of $1,500 or less. We estimate a typical household’s wealth in the richest area of Chicago and Cook County is 206 times higher than a typical household’s wealth in the poorest area.
Although this wealth inequity pattern in Chicago has been well documented, wealth information for each local region has not been made widely available. With new Urban research, we can provide more insights on how wealth differs across subregions in Chicago. In our future work, we will visualize local-level wealth differences within every US city and county.
Where households experience the greatest wealth inequity in Chicago and Cook County
In Chicago, as in many US metropolitan areas, limited opportunities and structural barriers disproportionally impede households of color from building wealth. Looking at the racial composition and wealth for different areas in Chicago and Cook County, areas with low wealth tend to have more households of color. Policies such as redlining systemically excluded Black Chicagoans from moving and investing in higher-opportunity neighborhoods, which, in turn, created wealth gaps that compounded over time and across generations.
Below, we display two wealth metrics—net worth and emergency savings—to show the extent of the wealth gap within Chicago and Cook County. Data on net worth, which is calculated as total assets minus total debt, can provide an overview of households’ economic well-being and their ability to pursue new opportunities, and emergency savings data can indicate households’ resilience and ability to bounce back from financial shocks.
To create our local-level wealth estimates, we drew from 2019 American Community Survey data and 2018 Survey of Income and Program Participation data. We used machine learning to estimate household-level savings and wealth for each local region in Chicago and Cook County. From our analysis, we find that areas with low net worth are concentrated in the South and West Sides of Chicago, both predominately Black and Hispanic neighborhoods. (We use Hispanic throughout this blog post to match the original data source.)
Southern areas of Chicago, including South Shore, Hyde Park, Woodlawn, Grand Boulevard, and Douglas, have the city’s lowest median net worth ($4,439). And in some western areas, including Humboldt Park; North and South Lawndale; and East and West Garfield Park, median net worth isn’t much higher ($4,452). In all these neighborhoods, the median net worth falls well below the national median of $97,680.
For households in areas with low net worth, it’s less likely they have sufficient emergency saving to buffer against unforeseen events, like a broken water heater or unemployment. Only about 33 percent of households in Humboldt Park, North and South Lawndale, and East and West Garfield Park have $2,000 to cover unexpected expenses, whereas 91 percent of households in northeast Cook County do.
By understanding these household wealth measures at the local level, policymakers can more clearly see residents’ financial health and learn where to target solutions.
How policymakers can help Chicagoans accumulate liquid wealth
Common barriers to building wealth are income gaps and cost of living. By improving the quality of jobs in Chicago and expanding the state earned income tax credit and child tax credit, policymakers can help close income gaps. And policies that reduce the cost of living and lessen large expenditures, such as housing, child care, and health care, make it easier for households to pay down debts or invest leftover money. But improving incomes and limiting the cost of living will not narrow wealth gaps on their own.
To help households accumulate liquid wealth, state and local leaders could consider policies that cover unexpected expenses and provide lifetime income streams. Nationally, white families were about twice as likely to own stocks as Black families and Hispanic families in 2016. The same study found that the largest source of investments were retirement accounts like 401(k)s, but many Black and Hispanic Chicagoans have never had the opportunity to save for retirement through their work.
Combining emergency savings with retirement savings could help households preserve liquidity and enjoy returns on their capital. Sidecar accounts in employer-based retirement plans and state-based retirement programs for private-sector workers in California, Illinois, and Oregon combine emergency and retirement savings. In addition, employers usually provide matched savings in their retirement plans. Policymakers could also explore providing matched savings in state-based retirement savings programs and lowering fees on investments to improve returns.
Computer simulations suggest baby bonds could play an important role in closing wealth gaps, but real-world evidence is limited. Baby bonds are an economic birthright to capital and consist of accounts given to children at birth, which are invested in a public trust and returned to them as young adults to be used in wealth-building investments. Opening local bank branches (PDF), eliminating racial inequities in credit access, and tailoring financial technology to communities can also help expand access to financial services and improve financial health to build toward wealth creation.
Unfortunately, Illinois has the lowest credit rating of any state, a declining population, and significant unfunded pension obligations. With Chicago’s significant inequity and Illinois’s poor finances, closing wealth gaps will require policies at the national, state, and local levels, commitment from nonprofits, and changes from the private sector.
Correction: In an earlier version of this post, the numbers in the visual were correct, but the numbers referenced in the text were outdated. We revised the text on Feb. 1, 2022, to show that the richest areas of Cook County have wealth 206 times that of the poorest areas (not 313 times), that southern areas of Chicago have a median net worth of $4,439 (not $2,750), that western areas of Chicago have a median net worth of $4,452 (not $3,400), and that 91 percent of households in northeast Cook County have more than $2,000 in emergency savings (not 90 percent). We have also clarified that 33 percent of households in Humboldt Park, North and South Lawndale, and East and West Garfield Park have more than $2,000 in emergency savings (not between 30 and 40 percent of households on the South and West Sides of Chicago). (corrected 2/1/2022). In addition, an earlier version of this post included the wrong graphic because of a website migration error (corrected 4/27/2022).