You don’t need an economics degree to understand the essence of wealth in this country: The rich get richer, the poor get poorer.
But it’s not so easy to quantify the wealth gap with the kind of precision we’ve come to expect in our Big Data world. Different studies yield different results, depending on the statistics and assumptions researchers plug into their mathematical models.
Just how rich are the rich? Do the poor really get poorer?
A paper released last week by the Federal Reserve Bank of Boston is the latest effort to examine these questions through the prism of race. It finds — somewhat surprisingly, at least to me — that disparities in wealth between white families and families of color are smaller than other studies have asserted. Moreover, the differences have been fairly stable over the past three decades.
The conclusions are driven by a broader calculation of wealth than those used in much of the other research on the topic. The overall picture remains one of Croesus-scale capital held by a small swath of society, but this report expands our understanding of one of the country’s most fundamental and pernicious problems.
Here are four things I learned.
First, there’s more than one way to count wealth.
Most research has used some form of net worth as a proxy for wealth. Simply put, net worth — also known as market wealth — is the sale value of what you own (a home, a business, stocks, for example) minus the amount you owe (a mortgage, credit card debt, etc.). But even studies using net worth can vary significantly based on their specific parameters.
A stark example: One report, produced in 2015 and highlighted later in a Globe Spotlight series, found that the median net worth of US-born Black families in Boston was a confounding $8, while it was $12,000 for Caribbean-born black families and $247,500 for all white families in the city. (The median is the midpoint of the range of values being analyzed.)
But a year later, the widely followed Survey of Consumer Finances, conducted every three years by the Federal Reserve in Washington, put the median net worth of all Black households nationally — native born and immigrant — at $17,600, compared with $171,000 for white households.
Two different cuts of the demographics. Two different population surveys used to arrive at net worth. Two different bottom lines.
The authors of the new paper — the Boston Fed’s Jeffrey Thompson and Alice Henriques Volz of the Federal Reserve in Washington — go beyond net worth, estimating what they call “combined wealth.” It’s their version of net worth plus two key additions: Social Security and traditional pensions.
Thompson and Henriques Volz calculated combined wealth for a sample of households where the family head was 40 to 59 years old, an age group for which they said they could more accurately project Social Security and pension income in retirement.
What they found: When looking at just market wealth, white families had 5.8 times the median net assets of Black families in 2019, a ratio that fell by almost half to 3.0 when using combined wealth. For Hispanic families, the ratio went from 3.9 to 2.2. The combined-wealth ratios have remained relatively constant since 1989.
In dollar terms, median combined wealth for Black families was $197,000, five times more than their market wealth alone. For Hispanic families, median combined wealth was $269,000, also five times their market wealth. For white families, median combined wealth was $596,000, but that was less than three times their market wealth.
The study also examines average wealth figures, which are higher than the median because the insanely vast fortunes of the one percenters tilts the scales. But the trends are the same.
Second, Social Security and pensions can be pivotal for families of color.
Social Security income is a far more important financial resource for families of color than for white families, according to the report. For median Black and Hispanic households, projected Social Security wealth was three times their market wealth. For white families, market wealth was higher.
Most private-sector employers have eliminated traditional pensions, which provide a defined monthly payment, in favor of 401(k)-type plans, where workers direct a portion of their paycheck to investment accounts whose proceeds are supposed to fund retirement. But traditional pensions are still relatively common in the public sector, especially among federal workers, where the proportion of Black workers is bigger.
That helps explain why among Black families, average wealth from defined benefit pensions exceeded market wealth. For white and Hispanic households, market wealth was substantially higher. (Pensions don’t play a big role when looking at median wealth because far less than half of each group has them.)
“There is a missing piece” in most tallies of wealth for people of color, Thompson said in an interview, referring to pensions and Social Security. “They are counting on it. It’s important to them.”
Excluding these future income streams limits our understanding of the sources and concentration of wealth, Thompson said.
Third, Asian American families are now the richest demographic in the country.
Thompson and Henriques note that Asians are often not tracked in wealth surveys due to their relatively small sample sizes. They got around that obstacle by combining the results of two Fed consumer finance surveys (2010-13 and 2016-19) and expanding the age range for heads of households to 30 to 62 years old.
Using this method, median combined wealth for Asian families was $806,000 compared with $539,000for white households.
Finally, not all sources of wealth are created equal.
Thompson and Henriques Volz concede that Social Security and traditional pensions come with significant drawbacks: They are usually available only in retirement and in fixed amounts over fixed periods of time; they can’t be used as collateral for a loan; and while family members may get survivors’ benefits, the head-of-household income streams can’t be inherited or gifted.
Unlike stocks or a second home, you can’t sell your pension if you lose your job or get sick and need cash to get by, Howard said. “It can’t be a cushion in an emergency.”
William Darity, a coauthor of the 2015 study that reported the $8 net worth for US-born Black families in Boston, raised another issue.
While the ratio for the white-Black wealth gap narrowed by almost half when using the combined wealth measure, the difference in dollars grew larger: $399,000 for combined wealth compared with $176,000 for market wealth.
Darity, a professor of economics and public policy at Duke University, is a proponent of reparations for Black American descendants of persons enslaved in the United States, using federal payments to bring up their net worth to the level of white Americans.
“Ironically, if I were to take these [combined wealth numbers] numbers at face value, the reparations bill would be even larger,” he said.
In our interview I asked Thompson whether the smaller disparity in wealth he and Henriques Volz identified using combined market wealth suggested the problem wasn’t as intractable as he previously thought. Of course not, he said.
The research points to the merits of preserving public-sector pensions and Social Security to protect the financial resources of Black and Hispanic workers in retirement. But the underlying causes of the wealth gap — racism and its role in the inequality of education, income, home ownership, and intergenerational wealth — remain.
“You still have conversations about all the same policy questions,” he said. “It’s all still on the table.”