Panel Paper: Inherited Prospects: The Importance of Financial Transfers for White and Black College Educated Households’ Wealth Trajectories

Friday, November 9, 2018
8228 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Joanna Taylor and Tatjana Meschede, Brandeis University

Background: The persistent racial wealth gap between white and households of color in the U.S. continues to grow, reaching an all-time high in 2016 (McKernan, Ratcliffe, Steuerle, Quakenbush, and Kalish 2017). A recent analysis of federal data shows that the Great Recession of 2007-2013 had a greater impact on the wealth of middle-income Blacks and Hispanics than on that of Whites (Kochhar and Cilluffo 2017) Throughout much of the discussion and analysis on the racial wealth gap, however, the assumption that higher education can at least narrow the gap has often been left unquestioned. While education is a factor in increasing incomes and wealth, recent research challenges the narrative that education is the key to reducing the racial wealth gap (Addo, Houle, and Simon 2016; Emmons and Noeth 2015).

Methods: This paper draws on data from the Panel Study of Income Dynamics (PSID) collected 1989-2015. We analyze wealth trends and family financial transfers of college-educated white (N = 2118) and Black (N= 655) household heads over 1989-2015 using cross-sectional and panel regression methods. Variables include receipt of a large gift and/or inheritance as well as remittance of financial help to those outside the household. Controls include education, age, and marital status. We also examine more specific national family financial transfers data collected in the 2013 Family Roster and Transfers Module of the PSID. Wealth measures are converted to 2015 dollars. Findings are presented using untransformed wealth data, top-coded at $10 million to control skewness and using wealth transformed using the inverse hyperbolic sine (IHS) function. All analyses were weighted using 2015 PSID survey weights adjusted for robust standard errors.

Results: Across all measures, Black college graduates have higher wealth than Blacks without college degrees. However, the wealth gap with white college graduates remains vast, and the inheritances received by white college-educated households boost their wealth in ways unavailable to their Black counterparts. Black families therefore have much less wealth to move between generations, but those that do provide transfers do so at lower levels of wealth than white households that do not. At the median, inheritance increased white wealth by nearly $150,000 (p < .001), compared to just $17,000 for Black families. Further, we find that Black college-educated households are much more likely to provide support for their parents (44.7% vs 15.5%, p < .001).

Implications: By inheriting the prospect of wealth accumulation, white Americans are able to capitalize on education, employment, and leisure choices in ways that are not available to others. Education promotes forward progress, public engagement, and personal satisfaction, and opens a pathway towards higher earnings and wealth. However, the relationship between education and higher wealth is not necessarily causal; just getting a college degree is no guarantee of financial success, particularly for Black Americans, who are often responsible for supporting their extended family and who continue to face systemic discrimination throughout the education and employment sectors.