Differences in Net Worth between Elderly Black People and Elderly White People
Ozawa, Martha N., Tseng, Huan-yui, Social Work Research
The economic well-being of elderly people is determined partly by how many assets they have. This article presents the findings of a study on the differences in the level of net worth held by white elderly people and black elderly people and the correlates of net worth of these two groups. The study found an enormous difference in net worth of these groups, even after other variables were held constant. Regression results indicated that whereas both lifetime earnings and human capital variables are significant predictors of the net worth of white men, these variables have little or no bearing on the net worth of black men. Separate analyses of data for white women and black women found that human capital variables are significant predictors of the net worth of white women, but variable lifetime earnings is the significant predictor of the net worth for black women.
Key words: economic security; net worth; old age; race
With the 21st century rapidly approaching, the public stance on the economic well-being of elderly people is changing. The philosophy behind the Social Security Act of 1935 was to help the nation share the risk of losing earnings because of old age and to pool the resources to ensure income security in old age for everyone. But the financial viability of social security began to be questioned in the 1970s, and since then, the idea of the privatization of social security has gained currency. Indeed, the centerpiece of one of the three reform proposals--the Personal Security Accounts (PSA) plan--made by the Advisory Council on Social Security, 1994-1996 (1997) is the privatization of a large part of social security. The spread of individual retirement accounts (IRAs), 401(k) plans, and Keogh accounts compounded the development of individual responsibility to ensure individuals' income security in old age.
The combination of the growing financial difficulty in funding social security benefits on a pay-as-you-go basis for an increasing number of elderly people and the spread of IRAs is forcing many countries to adopt the full or partial privatization of social security. Australia and some Latin American countries already have some forms of IRAs instead of traditional social security systems. Sweden allows individuals to shift part of their payroll taxes into private accounts (Feldstein, 1997).
As the traditional form of social security is minimized, the economic well-being of elderly people will depend increasingly on what they have in the form of private pensions and private wealth. Indeed, even now, income stratification among the elderly population is determined not by the amount of social security benefits, but by the amount of income from assets and from private pensions or annuities. Government data indicate that the highest fifth of aged individuals (individuals or couples) draw 24.4 percent of their total income from asset income, compared with only 2.7 percent for the lowest fifth. Likewise, the top fifth received 10.5 percent of their total income from private pensions or annuities, compared with 1.7 percent received by the bottom fifth (Glad, 1996).
The present study focused on the net worth of white and black elderly people. Financial assets, such as stocks and bonds, can generate income (Ozawa, 1997). The ownership of a home provides in-kind income, in the form of rent-free housing. Furthermore, the holding of a large net worth, whether liquid or not, generates an intangible sense of economic well-being. Thus, the investigation of net worth of white elderly people versus black elderly people provides vital information to assess these two groups' economic security in old age.
The specific questions the study addressed were these:
* What is the level of net worth held by white and black people 10 years after retirement?
* Controlling for other variables, what are the racial differences in net worth held 10 years after retirement? …