Stephen Brobeck, Executive Director, Consumer Federation of America
Researchers and policymakers have focused much attention on the fact that African Americans hold less wealth than other Americans. This report summarizes the latest data on black American household wealth and financial behaviors. It reveals not only striking differences in wealth between black Americans and other Americans, but also suggests that key behavioral differences may well largely reflect these wealth differences.
The most reliable recent source of data on American household wealth remains the Federal Reserve Board's 1998 Survey of Consumer Finances. It reports the results of comprehensive interviews on household finances and attitudes for more than 4000 families. Professor Catherine Montalto of the Family Economics Department of Ohio State University analyzed the Fed data for the Consumer Federation of America. She computed net wealth statistics by subtracting household debt from assets.
Wealth Levels and Growth According to Fed data, in 1998 the net wealth of the typical black American household was $15,500. The good news is that, over the past decade, median black household wealth increased substantially -- from only $3,680 in 1989, an increase of 321 percent.
The bad news is that black wealth levels are substantially below those of all Americans. At only $15,500, the net wealth of the typical black American household was less than one-quarter that of the net wealth of the typical American household (including blacks) -- $71,700. This difference was much greater than income differences between black American households and all American households -- $27,900 vs. $40,800 in 1999.
These wealth differences also existed among affluent and non-affluent blacks and all Americans. While 42 percent of all American households had net wealth above $100,000, only 18 percent of black Americans held this much wealth. And while only 25 percent of all American households were "wealth poor" -- holding net assets under $10,000 -- 45 percent of black American households were in this category.
Financial Behaviors The Fed data also revealed significant differences in self-reported financial behaviors between black households and all households about planning horizons, spending and income, savings habits, and willingness to take financial risks. In brief, as the following table shows, black American households are much more likely than all households to:
have a shorter financial planning horizon;
spend more rather than less of their incomes;
not save and not save regularly; and
be less willing to take financial risks when saving/investing.
Relationship Between Financial Assets and Behaviors The differences in financial behaviors between black Americans and all other Americans raise the question as to whether there are not unique behaviors exhibited by black Americans that help explain their low wealth levels. One can use Fed data to begin to test this hypothesis by comparing black Americans and other Americans with similar wealth levels. When that is done, the behavioral differences between black Americans and other Americans virtually disappear.
As the following table shows, wealth alone accounts for almost all of the behavioral differences between the least affluent black Americans and other Americans. This table compares the financial behaviors of black Americans and all Americans with net wealth below $10,000. Forty-five percent of all black households are "wealth-poor" compared to only 25 percent of all American households.
One implication of this finding is that financial educators should focus particular attention on understanding the saving behavior of those with low assets. The data cited above suggest that, holding wealth constant, black and non-black American households tend to exhibit the same financial behaviors.
If financial behaviors do not appear to explain differences between black household wealth and non-black household wealth, what factors do? Income certainly explains some of the variance. So does inheritance, since fewer black households than other households report having received an inheritance, and these black inheritors report lower sums. There is also some evidence that black households transfer relatively more income to dependents such as financially needy kin.
Regardless of these findings, financial education needs to recognize important ethnic and cultural differences. Obviously, this education can be most effective if it uses language with which targeted populations are comfortable. But it also may be more effective if the education appeals to unique ethnic identities. For example, a Black American Saves initiative may well have more appeal to African Americans than does a more generalized America Saves initiative.