With ongoing inflation and spikes in gas prices expected this winter, American households continue to face residual economic shocks from the COVID-19 pandemic. For local leaders worried about their residents’ financial health, the question is, “Can households endure this continued financial hardship?”
Local-level data about household savings and wealth are generally sparse. Our new Financial Health and Wealth Dashboard hopes to bridge that gap to help local leaders identify who’s most at risk and recommend strategies.
The dashboard uses a new machine learning approach to provide new savings and wealth data for all local PUMAs (Public Use Microdata Areas, which contain no fewer than 100,000 people) across the United States. Coupled with local credit, debt, and assets data, these new insights illuminate the geographic and racial disparities in financial health and wealth.
Using the dashboard we looked at the financial health of residents in Washington, DC; a city with a history of discriminatory policies that have created structural wealth-building barriers for Black families. We found DC residents experience vastly different realities when it comes to financial health, with large geographic, racial, and ethnic disparities in the stability of household's daily finances, the resources to weather economic shocks, and the opportunities to pursue upward mobility. With the dashboard’s data and suite of evidence-based strategies, local DC leaders can better target solutions to support residents most susceptible to economic shocks.
Residents east of the Anacostia River are twice as likely to have delinquent debt
Financial burdens, such as delinquent debt, are signs of financial distress that can affect a household’s ability to meet basic needs. Delinquent debt also affects credit health, which is vital to families’ abilities to weather financial shocks, access capital, and invest in wealth-building opportunities.
In the DC area, we find a large gap in the share of residents who hold debt by race and ethnicity and geography. Among those living in the PUMA east of the Anacostia River (made up of most of Wards 7 and 8), 50 percent of residents have delinquent debt, making them twice as likely other DC residents to face this financial burden. Similar to national trends, delinquent debt in DC disproportionately affects communities of color. Black residents are nearly four times more likely than white residents to have delinquent debt.
Delinquent Debt Limits the Ability of Residents East of the Anacostia River to Manage Daily Finances
If daily expenses increase with inflation, the ability to manage daily finances will become more difficult for households with debt. Local leaders can help residents by eliminating harmful debts, such as municipal fines and fees. Solutions can also be targeted to areas with high debt through improved access to banking, debt forgiveness programs, and cash transfers.
Communities of color and households east of the river are more vulnerable to unexpected economic shocks
Emergency savings offer families a cushion against economic disruptions, such as a job loss, health emergencies, natural disasters, and price increases. Without savings, residents are at greater risk for eviction, more likely to fall into spirals of debt, and less able to invest in wealth-building opportunities. We estimate only 42 percent of DC households east of the river have at least $2,000 in emergency savings, compared with the 70–89 percent of households with emergency savings in the rest of the city.
Residents East of the Anacostia River Have Less Savings to Weather Economic Shocks
Disaggregating the data by race shows white households are two times more likely than Black households to have at least $2,000 in savings. Local leaders can address these inequities by protecting households from economic crisis through eviction diversion programs and access to safety net programs. Leaders can also increase economic resiliency and encourage savings through child savings accounts, expansion of the earned income tax credit, and matched savings programs, like DC Opportunity Accounts.
Households east of the river are less able to pursue upward mobility
Net worth, which is calculated as total assets minus total debt, can indicate a household’s ability to build wealth. When we examine wealth gaps at the local level, Black households in DC have significantly less wealth than white households. As a result, Black residents have less opportunity to invest in themselves and their communities and are less able to transfer wealth to future generations.
Net worth also varies drastically by geography. With an estimated median net worth of more than $620,000, residents in the northwest region of the city (Ward 3 and parts of Wards 2 and 4) have 65 times the net worth of residents east of the river (most of Wards 7 and 8). In Southeast DC, the median net worth is less than $9,500, limiting the ability of households to invest in education, entrepreneurship, homeownership, and other wealth-building opportunities.
Residents East of the Anacostia River Have Less Opportunity to Build Generational Wealth
To address structural barriers to upward mobility, local leaders can increase workforce investments, support small business growth, and encourage community wealth-building strategies such as community land trusts. Currently, DC leaders are also leveraging place-based and race-conscious solutions such as a baby bonds program and the Black Homeownership Strike Force to address the decades of racially discriminatory policies that have contributed to the city’s racial wealth gap.
To address wealth gaps, local leaders need to understand financial health trends in their communities
As the DC area demonstrates, residents’ financial health can vary largely by geography and by race. But DC isn’t unique. Structural racism embedded these same trends across the US, with communities of color consistently holding less wealth than white communities. This lack of wealth decreases the ability of individuals and communities to manage daily finances, weather economic shocks, and pursue opportunities for upward mobility.
Local leaders interested in learning about their communities’ financial health can use the dashboard to see who’s at greatest risk of continued financial hardship and identify strategic solutions. With this information, leaders can pursue solutions tailored to their community to tackle the multiple facets of financial well-being and the structural barriers that created—and continue to reinforce—racial wealth inequities.