Academic journal article Review - Federal Reserve Bank of St. Louis

College Is Not Enough: Higher Education Does Not Eliminate Racial and Ethnic Wealth Gaps

Academic journal article Review - Federal Reserve Bank of St. Louis

College Is Not Enough: Higher Education Does Not Eliminate Racial and Ethnic Wealth Gaps

Article excerpt

Wealth gaps between the median African-American (Black) and median non-Hispanic White (White) families and between the median Hispanic and median White families are large, having changed little during the past quarter century.1 Typical Black and Hispanic wealth is about one-tenth of White wealth, while typical Asian wealth is now about two-thirds of White wealth (all measured at the medians of the respective distributions).2 Racial and ethnic wealth gaps are much larger than the corresponding income gaps. The conclusions are similar if we adjust for family size or consider means rather than medians or look at various percentiles of the respective wealth distributions.

Proposals aimed at reducing racial and ethnic wealth gaps include better financial training, different behavioral incentives, stronger institutional support, and outright cash transfers. Yet there is little empirical evidence that any of these measures produce meaningful or lasting results for wealth outcomes within a single generation, let alone across generations. The ultimate causes of large and persistent racial and ethnic wealth gaps remain largely unknown.

More ambitious-albeit more daunting-strategies focus on broad-based improvements in academic or job skills and increased higher-education attainment rates. Bridging the "skills gap" or "education gap" presumably would pay off both in the job market, where most income is earned, and in financial decisionmaking, where savings turn into wealth. The hopeful subtext of these strategies is, "If only we could raise the skill levels and educational attainment of Blacks and Hispanics to White or Asian levels, racial and ethnic income and wealth gaps would be greatly reduced if not eliminated." A corollary is, "Nothing else will be as effective." Yet the power of education to address racial and ethnic wealth gaps is unproven. A variety of evidence suggests education-focused strategies have had limited effectiveness in addressing racial and ethnic wealth gaps-at least so far. Several types of evidence point to the limits of education.

First, Asians as a group have significantly higher high school, college, and post-graduate/ professional degree attainment rates than Whites but summary measures of their wealth are lower.3 To be sure, younger cohorts of Asians have widened their education advantage vis-à-vis Whites rapidly. The financial payoff may appear in the future-indeed, median family income among Asians already is higher than among Whites, while the wealth gap between the two is declining. Nonetheless, the Asian experience cautions that a direct link between a high level of college and postgraduate degree attainment and high wealth is not automatic.

Second, despite a half century of huge public investments in education-including admittedly uneven progress toward desegregation and parity in primary and secondary educational quality-racial and ethnic high school graduation-rate gaps have declined but remain substantial. Black-White and Hispanic-White college graduation-rate gaps remain large and, unfortunately, appear to be increasing (albeit slowly) among younger cohorts.4 Thus, any plan to achieve Black-White and Hispanic-White graduation-rate parity first must overcome the stagnant (high school) or slightly increasing (college) graduation gaps that exist now.

Third, wealth gaps have widened substantially among college graduates of different races and ethnicities during the past two decades.5 In particular, the median Black college-graduate family in 2013 had 56 percent less wealth than the median Black college-graduate family in 1992, and the median Hispanic college-graduate family had 27 percent less wealth in 2013 than its 1992 counterpart (both adjusted for inflation). Meanwhile, the median White collegegraduate family in 2013 had 86 percent more wealth than the median White college-graduate family in 1992, while the corresponding increase was 90 percent among Asians. The result is that the median White college-graduate family in 2013 had wealth 11 times as large as the median Black college-graduate family and 7 times as large as the median Hispanic collegegraduate family, up from less than 3 times for both groups in 1992. …

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