Federal Reserve Official: Race, Age Are Keys To Wealth

May 14--Race, more than education, is a major factor in determining whether a person will be able to accumulate wealth over the course of their lifetime, an official with the Federal Reserve Bank in St. Louis told an Owensboro audience Wednesday.

Race is such a major factor that it can block the benefits of higher education for African-Americans. William Emmons, a senior economic adviser for the Federal Reserve Bank's Center for Household Financial Stability, cited statistics that show the average African-American with a college degree made far less than whites or Asian-Americans with college degrees in 2013.

Hispanics with college degrees did marginally better, while Asian-American college graduates have been steadily closing the income gap between themselves and whites since 2010.

"There is something, or a set of things, standing between black and Hispanic families and wealth accumulation," Emmons told the audience at the Holiday Inn Riverfront. While there are several factors at play, "the legacy of race and the legacy of discrimination shows up in these numbers," he said.

Fed Bank officials came to the city to discuss the findings of a 25-year study on how race, age and education affect wealth accumulation. The study was conducted using information compiled from interviews with 40,000 families between 1989 and 2013.

In the years the study was conducted, little has changed among who holds wealth in America; white families still have the most wealth, which the study defined as assets minus liabilities. Asian-Americans ranked second, Hispanic families were a very distant third, and black families ranked last in terms of wealth.

The differences in wealth were stark, according to Fed Bank statistics. In 2013, the median wealth for a white family was $130,102, while the median wealth for a black family was $11,184.

Not having wealth means a person not only struggles financially but lives precariously close to financial disaster. Emmons said families that lack wealth can't help other family members in need and can't afford to provide educational opportunities for their children.

Wealth also "allows you to participate in the political process," so those without wealth are disenfranchised, he said.

"This really does matter for the Fed and our goal to have a strong economy," Emmons said. "The economy is nothing more than the sum of individuals and families. The economy will be stronger if families are stronger."

People with post-graduate or professional degrees have seen the greatest increases in wealth over the life of the study. Much of the gains in wealth by people with just two- or four-year degrees was lost after the financial crash and the great recession, although wealth among that group increased slightly between 2010 and 2013. The median wealth of people with two- and four-year college degrees was far below those with postgraduate and professional degrees.

Meanwhile, people with high school diplomas and people without high school diplomas have far less wealth than people with college degrees, Fed researchers found; for every $100 in wealth a college graduate has, a person with a high school diploma has $5.30 and a high school dropout has $1.30, the study found.

"Wealth accumulation is almost entirely in college (educated) families," Emmons said."... Families without college degrees basically have not accumulated wealth."

But there might be reasons people with postgraduate and professional degrees have more wealth that have nothing to do with their educations, Emmons said.

"It turns out people with postgraduate degrees are more likely to receive an inheritance," he said. Also, people are likely to marry someone from the same education level, so a family with two postgraduate earners will make more than a family of high school graduates.

"Getting an education (alone) does not cause all of these good things," Emmons said.

Older families accumulate more wealth than younger ones, because they have more experience in financial planning,

"We found young people, even very educated young people, are not good at making financial decisions," Emmons said. Young people, who are the most vulnerable in the job market, have the worst financial health, he said.

Also the "Greatest Generation" and the "baby boom" generation won the "birth lottery," by benefiting from post-World War II prosperity, Emmons said. "Generation X," the group born between 1970 and the mid-1980s, did not fare as well, he said.

"If you're a Generation X, you lost," he said. "... The crash of the housing market hit those people the hardest.

"People in their 40s had 50 percent less wealth (in 2013) than people in that age group in 1989," Emmons said. Meanwhile, "people in their 80s have 50 percent more wealth (in 2013) than people in their 80s in 1989."

Emmons said it was not the Fed's place to offer solutions, but American society is set up to benefit the oldest members of society, who, generally, are already doing better than younger Americans.

"I would say the playing field is not level for all families for building wealth," he said.

During a panel discussion following Emmons' presentation, Sylvia Coleman, executive director of the Owensboro Human Relations Commission, said, "It concerns me deeply, the wealth divide we face in this country daily.

"In most countries, education is a great equalizer," she said. "...There are a lot of developing countries that are doing a whole lot better than some of our neighbors and friends.

"I'm puzzled how educational attainment works very well for one group" in America, Coleman said.

Brandon Harley, service regional administrator associate with the state Department of Community Based Services, said workers in the division of protection and permanency "see such multigenerational poverty." While some in the audience suggested the schools should do more to teach financial literacy, he said children will model the financial planning they see at home.

"We can talk to kids day in and day our about budgeting," Harley said. "After they've gone home from school ... they're getting their education watching mom or dad (or other relatives) blowing their money.

"A lot of times, when you talk about how wealth is distributed, that decision is made in the homes," he said.

James Mayse, (270) 691-7303, [email protected], Twitter: JamesMayse

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