In March, Urban Institute researchers writing on Urban Wire will discuss the achievements of and challenges faced by women in the United States.
As we celebrate Women’s History Month this March, we should celebrate the gains women have made in financial growth and independence. But wealth accumulation, one key component of economic well-being, isn’t the same for all women.
Using data on the four main components of wealth from the Survey of Consumer Finances, we can compare the averages for white and black women’s assets in 1989 and in 2016. In the survey, the race and ethnicity indicators are white, black, Hispanic, and other. Because the sample sizes for the Hispanic and other categories are small and inconsistent, we examine finances only for white and black women.
Both white and black women have made wealth gains in the past 25 years. But in all the survey’s wealth domains, the average white woman had higher dollar amounts in 1989 and 2016. Closing that racial wealth gap will require targeted policies that help women of color build wealth.
How components of wealth differ by race
There are many ways to build wealth or accumulate assets. The biggest component of the average black woman’s wealth is home equity. Purchasing a home can help women slowly build wealth, save money for retirement, and pass on accumulated wealth to their children.
The average value of this equity increased about 30 percent between 1989 and 2016 for both white and black women, though the average white woman had three times more equity in 2016 than the average black woman. When looking at the medians, the typical white woman’s home equity has increased since 1989, while the typical black woman still has zero dollars in home equity.
Historical bias against homeowners of color and predatory lending practices leading up to the Great Recession are well documented. In addition to being more likely to be denied a mortgage, many black homebuyers are more likely to put less money down and receive higher interest rates on their mortgages than white homeowners do, meaning accumulating wealth can be a slower process.
Another component of wealth is retirement savings. In 2016, the average white woman had $43,000 more in retirement savings than the average black woman. This is a much larger gap than in 1989 ($9,500), even though both groups are financially better off.
Saving for retirement through automatic savings is a crucial way to build wealth, but it can be difficult or impossible if work is part time, contracted, informal, temporary, or for a small business —all of which are more common for women. The median value of retirement savings for women is zero (not shown in the graph), meaning that the typical woman—black or white—has nothing saved for retirement.
The biggest disparity among the selected indicators is in nonretirement financial assets (e.g., stocks and bonds). The average white woman has almost 10 times as many of these assets as the average black woman. In contrast to retirement savings, where both the median white and black woman have nothing saved, the typical white woman has eight times more than the typical black woman in other financial assets.
Business equity is the smallest share of wealth for women. Consistently since 1989, only 5 percent of white women and 1 percent of black women have any business equity, which means business assets are concentrated among the top few women. Business equity, particularly of family-owned businesses and unlike mortgages or retirement accounts, can grow rapidly and lead to upward mobility. Even a modest amount of business equity could help women weather a financial shock like a sudden income drop, and it could expand their wealth in the future.
How policies can promote wealth building for women
We should identify ways to promote wealth building for all women, particularly for women of color. In each area of wealth accumulation, policies could help close the racial wealth gap and help all women build assets. Here are a few ideas:
- Address the inequities in the mortgage system to help black women purchase their first home. Overly tight credit has made it difficult for those with lower credit scores to get mortgages. Developing a robust measure of risk for female-only borrowers (who tend to have weaker credit characteristics than their male counterparts) would help ensure that women who can make full, timely payments aren’t being denied mortgages. Receiving assistance for down payments or shared equity housing could also help first-time or low-income women purchase a home.
- Factor in the nature of work and pay for women and all industries to help encourage retirement savings. Automatic enrollment into non-employer-sponsored individual retirement accounts could increase use of this savings vehicle.
- Expand financial coaching services to help women achieve their financial goals by working with them to increase their financial capabilities. Local policymakers could use targeted city-level approaches to address problems at the community level.
- Promote small business opportunities for single women to help them develop asset accumulation and savings. Supporting microenterprise programs can facilitate the entry of new entrepreneurs into the market and ensure that entrepreneurs of color have access to networks and capital, such as through a tax credit for venture capital entities investing in minority-owned firms.