Racial Differences in Economic Security: The Racial Wealth Gap – Treasury

By: Assistant Secretary for Economic Policy Benjamin Harris and Economist Sydney Schreiner Wertz 

This summer the Treasury Department initiated a blog series focusing on economic issues surrounding racial equity. This post is the second blog entry in this series, focusing on the racial wealth gap as a key component to assessing economic security. Indeed, racial differences in household wealth are some of the most visible and impactful manifestations of racial inequality in the United States. Unfortunately, as we describe below, racial wealth gaps continue to persist—threatening the economic security of impacted families and weakening the economy as a whole.

The Importance of Wealth for Economic Security

Wealth is defined as the total financial value of what an individual or household owns (assets) minus all debts (liabilities). Assets include the value of a home and other physical assets, retirement savings, other financial investments, cash, and money in the bank. Liabilities include home mortgages, auto loans, credit card debt, student debt, and other types of debt and money owed. Wealth is distinct from income received from working or investments. Households can turn income into wealth by saving or investing.

Wealth is essential for economic security because it can be used for consumption, which is directly connected to wellbeing. Wealth is also a resource households can draw from in times of economic hardship, enabling them to smooth consumption over time despite temporary income loss or instability. Moreover, wealth is necessary for individual economic mobility and growth of the economy as a whole. Wealth gives households the ability to pursue an education, take employment or investment risks, move to new neighborhoods, buy a home, and start a business. The ability to take these risks and be resilient to economic shocks has positive spillovers to the entire economy.

Research indicates that there are long-lasting advantages of wealth accumulation for families. For example, there is a strong correlation between the wealth of parents and their children,[1] in part because intergenerational wealth transfers make up a substantial share of total wealth.[2] Empirical evidence also shows that gains in household wealth increase the probability that children enroll in[3] and graduate from college,[4] which increases their lifetime earnings from employment.[5] These findings call attention to the generational benefits of wealth accumulation and the harms that come from its absence: family wealth boosts future wealth potential, and low-wealth families struggle to progress without it.

Furthermore, the benefits of wealth extend beyond economic security to health and psychological well-being. Negative wealth shocks have been shown to significantly reduce physical and mental health and survival rates among elderly adults, with psychological stress stemming from wealth loss as a key mechanism.[6] Wealth may also affect health through access to the high-quality healthcare it affords.</…….

Source: https://home.treasury.gov/news/featured-stories/racial-differences-economic-security-racial-wealth-gap