Minorities, Americans without college degrees showed greatest gains in wealth

By Heather Long and Tracy Jan, The Washington Post

WASHINGTON – Americans who were left behind as the country pulled out of the Great Recession – African-Americans, Hispanics and people without college degrees – saw large gains in net worth over the last three years, the Federal Reserved reported Wednesday.

But the improvements did not make up for deepening economic inequality: the share of America’s income held by the top 1 percent of households reached 24 percent in 2016, a record high, and the median net worth of white households, at $171,000, was nearly 10 times larger than for black households.

The findings suggest that while a robust economy benefits all economic groups, the wealthiest and most educated are in a position to benefit even more, because they begin with such a significant advantage.

“The gap between the haves and have nots has closed a bit in recent years, but it still remains a gulf,” said Mark Zandi, chief economist at Moody’s Analytics.

Even so, the gains of the last three years marked a dramatic shift from the period between 2010 and 2013, when wealth fell for all racial and ethnic groups except whites.

Every slice of America – young, old, rich, poor, black, white – saw their incomes grow and the value of stocks, homes and other assets climb over the last three years.

Median income is up for most AmericansEconomists said the Fed report was an encouraging sign that the recovery from the devastating Great Recession and financial crisis of 2008 is picking up steam as more people are able to get jobs, pay off debt and invest more.

For the first time since the crisis, a majority of Americans now have some money in the stock market, the Fed reported. The tally includes all investments in stock at all, whether through a pension or 401k retirement plan or a brokerage

“We’re glad the recovery is spreading to a lot of households,” Fed economists said.

Household wealth for African-American and Hispanic families and Americans without college degrees or even high school diplomas rose the fastest of all groups from 2013 to 2016, according to the Fed’s Survey of Consumer Finances, which surveys over 6,000 households about their pay, debt and other finances.

Black households went from $13,600 in net worth in 2013 to $17,600 in 2016, a gain of almost 30 percent. Hispanic households went from $14,200 to $20,700 over the same time frame, a 46 percent increase, the Fed reported.

Net worth includes all the assets a family has: Homes, vehicles, savings accounts, retirement funds and other stock and bond funds.

The widespread gains were driven largely by people getting back to work. The unemployment rate has fallen substantially in recent years from 7.5 percent to 5 percent last year.

As more and more minorities found jobs, these families were able to save money and pay off debt. Many states have also hiked the minimum wage in recent years, giving a boost to low-skilled workers in fast food and retail.

“The 2014 mid-term elections ushered in a whole new era of higher minimum wages at the state and local level. Many of the increases kicked in starting in 2015,” said economist Diane Swonk, founder of DS Economics.

The construction sector has also been adding employees at a rapid rate in the past several years, said Ken Simpson, chief economist at Associated General Contractors of America.

“Many of these construction jobs are held by workers with a high school education,” Simpson said, and the wages are generally higher in construction that sectors like retail.

But despite the larger percentage gains, the median net worth of African-American and Latino families remained below $21,000. Nearly one in five black families remained stuck in zero or negative net worth — twice the rate of white families.

White families still have nearly 10 times the amount of wealth of African-American households. The median net worth of a white family last year was $171,000 the Fed said, a gain of 17 percent from 2013.

“White households had a head start in rebuilding wealth relative to black and Hispanic households,” said Valerie Wilson, director of the Economic Policy Institute’s program on race, ethnicity, and the economy. “Black and Hispanic households see larger percentage gains simply because they were starting from a lower level.”

Among the factors that contribute to disparities in net worth: home ownership rates, retirement savings and student debt.

More than 70 percent of white families own their homes, compared to less than half of black and Hispanic families. Among homeowners, white families hold higher levels of equity in their homes.

Sixty percent of white families reported having retirement savings, double the rate of black and Hispanic families. White families are also twice as likely to own a business.

And black families were the most burdened by education loans, with 31 percent reporting having such debt, compared to about 20 percent of Hispanics and whites.

Fed economists offer other potential reasons for the racial wealth gap: white households are older, more highly educated, more likely to have received an inheritance, and are less likely to be a single parent than their black and Hispanic counterparts.

But even among families headed by someone with a college degree, median net worth for white families is substantially higher at $397,100 — compared to well below $100,000 for black and Hispanic families.

“In dollar terms, blacks and Hispanics are continuing to fall further behind,” said Caroline Ratcliffe, a senior fellow at the Urban Institute who focuses on asset and wealth building.

Many black and Hispanic families were stripped of their wealth in the aftermath of the housing crisis, when they were disproportionately preyed upon by subprime lenders and lost their homes, she said. Non-white families were also more likely to withdraw money from their retirement savings during the recession.

“They were pulling money out while more affluent people could continue putting their money into the stock market when the value was low so they won on the upside,” Ratcliffe said.

Tax policies also are tilted to benefit wealthy, mostly white Americans, further helping them build their assets, she said. The tax code allows homeowners to deduct their mortgage interest and gives preferential treatment for retirement savings.

About 70 percent of the mortgage interest tax deductions and employer-sponsored retirement savings accounts funded by pre-tax dollars goes to the top 20 percent of taxpayers, Ratcliffe said.

“There is a tendency to think that people who have lower wealth can be cured by individual behavioral changes such as spending more wisely, but that’s not what is driving this wealth gap,” said Kilolo Kijakazi, an Urban Institute fellow whose research focuses on the racial wealth gap. “It really requires getting at the underlying problems that contributed to the huge gap in the first place. And that’s about structural barriers, policies, institutional practices and programs that created this huge divide in the first place.”

It’s a similar story for the wealth gap between those with college degrees and those without. The median net worth of people with just a high school diploma jumped almost a quarter to $67,100, a sizable gain.

But people with college degrees have a median net worth of $292,100, over four times as much as those without bachelor’s degrees.

The wealthiest and best educated families continued to pull away from everyone else.

“Shares of income and wealth held by affluent families have reached historically high levels,” wrote the Fed in its report.

The report showed growing income inequality over the last three decades. In 1989, the top 1 percent only held 17 percent of the nation’s income. The bull market on Wall Street and surging prices for mansions around the world helped the super rich accumulate more wealth.

As the mega wealthy have seen their share of the total pie climb, the bottom 90 percent have lost ground. Last year, the bottom 90 percent took home less than half of America’s total income for the first time since the Fed began calculating this statistic in the 1980s. In 1992, the bottom 90 percent captured over 60 percent of the income. It’s been a steady decline since.

Economists said the large financial gains made by blacks and Hispanics were largely explained by the fact that the two groups have far less money to begin with, compared to whites, and so any increase as a result of the nation’s economic recovery would appear to be disproportionately large.

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