Board of Governors of the Federal Reserve System

October 18, 2023

Greater Wealth, Greater Uncertainty: Changes in Racial Inequality in the Survey of Consumer Finances

Aditya Aladangady, Andrew C. Chang, and Jacob Krimmel with assistance from Eva Ma¹

We document racial disparities in financial well-being in the 2022 Survey of Consumer Finances. The typical White family had about six times as much wealth as the typical Black family, and five times as much as the typical Hispanic family. These wealth ratios narrowed since 2019, as non-White home, stock, and business ownership all increased relatively more than for White families. However, differences in incomes widened slightly, as Black and Hispanic families' real wages stagnated. While we find most families of all races and ethnicities had sufficient income to cover their required payments, non-White families in particular have become more uncertain and pessimistic about their financial futures.

Wealth by Race in 2022

This note explores patterns in families' wealth, income, and financial well-being across race and ethnicity using new data from the 2022 Survey of Consumer Finances (SCF).² We first document continued large and persistent differences in wealth across race and ethnicity, with particular attention to how such differences changed between the 2019 and 2022 surveys. We then turn to analyzing other metrics of financial well-being, including income, ability to meet payments on recurring monthly expenses, and families' expectations and attitudes about their financial situations.

Figure 1 shows large disparities in real wealth—the difference between assets and liabilities—across families of different races in 2022.^3,4 Median wealth (the amount held by a typical family, shown in the top panel) among White families was $285,000 in 2022. By comparison, the typical Asian family—who we can split out for the first time in 2022 because of an oversample of certain non-White groups—held $536,000, nearly twice that of the typical White family.⁵ Meanwhile, the wealth of the typical Black family ($44,900) was only about 15 percent of the typical White family. The typical Hispanic family similarly held only about 20 percent of the wealth of the typical White family (about $61,600). The remaining families—a diverse group that includes those identifying as American Indian, Alaska Native, Native Hawaiian, Pacific Islander, other race, and all respondents reporting more than one racial identification—had median wealth similar to the typical Black or Hispanic family, rather than the typical White or Asian family. Notably, mean wealth (the average within each group, shown in the bottom panel; note the different vertical axis scale) was much higher than medians, particularly for White and Asian families. This reflects the fact that mean wealth is influenced significantly by a small number of very rich families, which tend to be comprised disproportionately of White and Asian families.

Figure 1. White and Asian Families Had the Most Wealth

The 2022 SCF provides a look at families' finances at one point in time. We now turn to how families' finances have changed over recent history and factors that contributed to these changes, with particular focus on how things have evolved since the previous survey in 2019.

An Update on Racial Wealth Gaps

To look at how families' finances have changed over time, for the remainder of this note we define an "other" race category that combines Asian families (about 30 percent of "other") with all remaining families (about 70 percent).

As shown in Figure 2, present-day racial wealth gaps—the difference in wealth between two groups—stem from sizable and persistent differences in wealth.⁶ Between 2019 and 2022, wealth for the typical Black family rose 61 percent and for the typical Hispanic family it rose 47 percent, continuing substantial gains for both groups since the 2013 SCF, while the typical White family saw a 31 percent increase. However, despite faster growth in wealth for the typical Black and Hispanic family, the absolute dollar-value differences in wealth between the typical White and the typical Black and Hispanic family grew in 2022 because the typical Black and Hispanic family had less wealth in 2019. Both the White-Black and the White-Hispanic median wealth gaps increased by around $50,000 between 2019 and 2022, with each gap reaching over $220,000 in 2022. Other race families—a combination of relatively wealthy Asian families and the remaining race groups whose wealth is similar to Black and Hispanic families (as shown in Figure 1)—have mean and median wealth levels between those of White families and Black and Hispanic families. Other families also saw faster growth in median wealth than White families; however, the White-other wealth gap increased as well. Because means are more sensitive to extreme values than medians, mean gaps in wealth increased by more than median gaps for all races and ethnicities.

Figure 2. Wealth Gaps Persisted and Widened Slightly in 2022, Despite Faster Growth in Wealth for Black and Hispanic Families

Another way to measure racial wealth inequality is to compute the ratio of a typical non-White family's wealth to that of a typical White family (Derenoncourt, Kim, Kuhn, and Schularick, forthcoming). Despite strong growth in wealth for non-White families over the past two surveys, we remain far from racial equality, reflecting the large differences in wealth that have persisted for decades. Taking a slightly longer-run view, since the Great Recession the typical Black and Hispanic family has had between about $10 to $15 of wealth for every $100 held by the typical White family (Figure 3). This ratio has closed only modestly in the past two surveys. The typical Black family went from having about $9 in wealth for every $100 held by the typical White family in 2013 to around $16 in 2022; the typical Hispanic family went from having about $10 in wealth for every $100 held by the typical White family in 2013 to around $22 in 2022. The typical other family has hovered between about $30 to $40 for every $100 held by the typical White family. This ratio has closed somewhat more substantially over the past three surveys, but the typical other race family continues to have less than half the wealth of the typical White family.

Figure 3. The Ratios of Wealth Between White and non-White Families Remained Unequal

Which Assets Contributed to Wealth Growth by Race and Ethnicity?

In this section, we take a closer look at what contributed to changes in wealth by race and ethnicity between 2019 and 2022.

On net, asset values—from houses to stocks—rose dramatically amid the monumental economic changes wrought by COVID-19.⁷ However, the large and persistent differences in asset ownership across race and ethnicity may dramatically change how asset price increases affect families' financial situations.

Figure 4 decomposes the growth in mean wealth between 2019 and 2022 for each race and ethnicity into contributions from different assets.⁸ The stacked bars indicate how much total wealth growth was increased (bars above zero) or decreased (bars below zero) by each asset, with total wealth growth for each race noted by the dots. Most notable is the increase in net housing wealth (yellow)—the market value of a family's home minus any outstanding loans secured by the home—among all groups, but particularly for Black and Hispanic families. In part, the larger increase for Black and Hispanic families reflects the fact that these families tend to have higher leverage ratios, which amplifies the effect of rising prices on wealth, though it also reflects an increase in homeownership rates among these families—a fact we will return to momentarily. Net business equity (orange) also rose, particularly among non-Hispanic families. Stock wealth (green) also contributed significantly for White and other race families, although low initial holding led to only modest wealth changes due to stock price increases for Black and Hispanic families.⁹

Figure 4. Increases in Net Housing Wealth Drove Wealth Growth, Especially for Black and Hispanic Families

The three panels of Figure 5 show the fraction of families of each race and ethnicity that own a home, stock, or a business.¹⁰ Over recent history, White families have owned all three of these assets at higher rates than non-White families. But from 2019 to 2022 the ownership rates between White and non-White families converged somewhat.

Beginning with the left panel of Figure 5, homeownership rates among non-White families increased between 2019 and 2022, closing some of the large gaps that previously existed. Even so, only about 45 percent of Black families and half of Hispanic families owned their home. Stock market participation (center panel) increased rather sharply across all races, though particularly for Black families. This increase continued an upward trend in stock ownership since 2010 across each race and ethnicity at nearly every usual income level.¹¹ The gaps in business ownership (right panel) closed even more significantly, as ownership rates among White and other race families remained roughly flat while Black and Hispanic business ownership grew markedly over this period. Our findings complement recent studies that document a surge in new business formations.¹²

Figure 5. Ownership Rates for Homes, Stock, and Businesses Increased for non-White Families Between 2019 and 2022

Amid rising house prices, home equity for homeowners moved up sharply for families of all races and ethnicities, as shown in the left panel of Figure 6. While more non-White families became stock or business owners, the value of these assets among new owners is often modest, bringing down the value of stocks or businesses for the typical family that owned these assets, as shown in the other panels. Nonetheless, the increases in participation signal a shift toward wealth-building assets that may facilitate Black and Hispanic families better keeping pace with White families when asset prices rise.

Figure 6. Net Home Value for the Typical Family that Owned Their Home Increased

Sources of Income Growth Were Different across Race and Ethnicity

Between the 2019 and 2022 surveys, families' incomes did not grow nearly as robustly as their wealth. Adjusted for inflation, incomes for the typical family across race and ethnicity were roughly stagnant (Table 1, left panel).¹³ Income increased 1 percent for the typical White family and 6 percent for the typical other race family; the typical Black and Hispanic family's income fell by 2 and 1 percent, respectively. All races and ethnicities saw their mean incomes improve, but the gain was largest for White families (Table 1, right panel).

Table 1: Median and Mean Income, by Race and Ethnicity

Diving a bit deeper, families of different races and ethnicities experienced very different types of income growth (Figure 7).¹⁴ On average, wage and salary income (light blue) was almost flat for Black and Hispanic families, while it grew considerably for White and other families. However, Black and Hispanic families saw a larger increase in income due to non-retirement government transfer programs (yellow), such as unemployment insurance (UI) or food stamps (SNAP). Compared to wage income, these sources are likely to be less available in the future given the unprecedented pandemic-era fiscal support that has already ended or will end.¹⁵ Notably, investment income (including interest, dividends, and capital gains, shown in orange) was a significant contributor to growth for White families, but far less for non-White families who hold far fewer of these assets. While some investment income is likely to be relatively transitory, families who benefit from investment income are likely to be wealthier.

Overall, Figure 7 suggests average incomes generally rose, albeit more for White families. Notably, persistent components of income, such as real wages and salaries, disproportionately grew for White and other families. Wages and salaries were about unchanged for Black and Hispanic families, who instead benefited more from government support, including extraordinary pandemic-era programs that have likely ended.

Figure 7. Wages and Salaries Drove Income Growth for White and Other Families, while Non-Retirement Government Programs Supported Growth for Black and Hispanic Families

Families Were Able to Meet Required Payments. But Families, Especially Non-White Families, Reported More Economic Uncertainty

Given the unusual composition of income growth in the past three years, and the dissonance between rising wealth and wage growth between races and ethnicities, a natural question is how families, broadly speaking, are faring financially. Are families able to use their income to meet required payments? How do families perceive their current financial situation? And what do they expect for their financial futures? The SCF is well-positioned to answer these questions compared with other surveys, as it asks families both about their actual current financial health—such as debt payments, income, and wealth—along with their perceptions and expectations of their current and future financial health.¹⁶

We begin by looking at a measure of whether families could cover debt and housing expenses with their income. In particular, we use the SCF to construct the share of pre-tax income families used to make required payments on loans, rent, and other fees, which we refer to as the "required payment to income ratio" or RPIR.¹⁷ The RPIR gives us both a sense of whether families were able to use their income to meet these required payments, and how much income they had left to spend in a more discretionary fashion or to save in order to build wealth. Figure 8 shows the RPIR for the typical family has continued to tick down for all races and ethnicities even as rents have risen.¹⁸ The decline is similar across race and ethnicity, although it's a bit sharper for the typical other family. Altogether, the fall in RPIR suggests a modest improvement in families' abilities to meet their financial obligations without depleting their liquid savings, and more financial stability in the household sector than we saw in the 2008 recession.¹⁹

Figure 8. Required Payment Burdens Fell for the Typical Family Across Race and Ethnicity in 2022

Overall, families were wealthier in 2022 than in 2019 and appear to have had sufficient income to cover their recurring expenses, but some of their ability to cover their expenses with income may have been due to transitory factors that temporarily buoyed incomes in 2021. While families can also cover expenses using wealth, particularly for Black and Hispanic families the gains in wealth were concentrated in housing, which is somewhat illiquid and may not be as useful as liquid wealth for covering recurring expenses. As shown in Figure 4, real average liquid wealth, which includes assets such as cash, checking, and savings accounts, did not grow much for Hispanic families and fell for Black families.

To get a better sense of how families thought about this mixture of indicators of financial well-being, we turn to a series of SCF questions that provide insight into families' own views about their current and future income, as well as the economy more broadly. First, we look at changes in the fraction of families who reported their income deviated from what the SCF calls usual income, which is the income the family would expect to earn in a "normal" year. Figure 9 shows the share of families, by race and ethnicity, that reported their income was unusually low (top panel) or high (bottom panel). Between the 2019 and 2022 surveys, the share of White families that said their income was lower than usual went up by 2.1 percentage points, and the share that said it was higher than usual went up by the same amount, perhaps indicating a bit more income volatility for White families. At the same time, the share of non-White families that said their income was unusually low went up by much more—ranging from an increase of 6.3 percentage points for other families to 9.0 percentage points for Black families. There is also no correspondingly large increase in the share of non-White families that said their income was unusually high.

Figure 9. Especially Non-White Families Said Their Income Is Unusually Low

The increase in the share of families reporting unusually low incomes is widespread across families, not just among lower-income families (not shown).²⁰ Therefore, we see a broad-based increase in economic pessimism that was especially strong for non-White families.

In addition to usual income, the SCF also asks families about their uncertainty about their income next year.²¹ Figure 10 shows the share of families who reported they were uncertain about next year's income increased since 2019 for every race and ethnicity. However, the step-up in uncertainty for Black and Hispanic families was especially strong—14.2 percentage points and 10.9 percentage points more families reported uncertainty about their income next year, respectively, considerably more than the increase among White families (7.0 percentage points). Other families also reported an increase in uncertainty of 9.2 percentage points. Once again, the cross-race patterns appear consistent with transitory income sources propping up families' income that they did not expect to continue in the future, especially for non-White families.²²

Figure 10. Larger Shares of Non-White Families Were Uncertain About Next Year's Income

Given that families had increasingly dour views of their current income and elevated uncertainty about future income, we now turn to their views of the economy more broadly. A number of other surveys suggest there has been a considerable increase in the number of families that have a pessimistic outlook about both the macroeconomy and families' individual financial situations since 2019.²³

Respondents to the 2022 SCF were also more pessimistic about the economy's future than in 2019. Figure 11 shows that the percent of families saying the future economy will be worse skyrocketed in 2022 across all races and ethnicities.²⁴ In fact, the share of families expecting a worse economy is at or near record highs for all races and ethnicities, far eclipsing the 2010 SCF, which was fielded in the aftermath of the Great Recession.

Figure 11. More Families of All Races and Ethnicities Expected a Worse Economy over the Next Five Years

Overall, the SCF depicts a complex account of families' finances and disparities across race and ethnicity. Broad-based gains in wealth across race and ethnicity have narrowed wealth ratios somewhat over the past three years, but income ratios widened slightly. In particular, incomes for non-White families were propped up by temporary sources, like government support, that have ended, with real wages stagnant, on average, for Black and Hispanic families. While most families were able to meet their required payments, families, especially non-White families, have grown more pessimistic and uncertain about the current and future state of both their own finances and the economy. The recent improvements in wealth ratios across races is promising, but families' increased financial uncertainty suggests continued improvements may not persist in the future.

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