Asset Ownership by Black and White Families

Financial Counseling and Planning, 2007 by DeVaney, Sharon A, Anong, Sophia T, Yang, Yuan

The likelihood of owning homes, investment accounts, and retirement accounts by Black and White families was analyzed using data from the 2004 Survey of Consumer Finances. Education, income, and contact with more financial institutions were almost always influential in the likelihood of owning assets and the value of assets. White families were less likely to be homeowners if they had been denied credit, whereas Black families had less equity in their homes if they had been denied credit. These and other results reinforce the need for financial counselors and planners and consumer educators to help consumers develop a good credit rating, become more risk tolerant, and develop longer horizons for saving and investing.

Key Words: asset ownership, Black families, Survey of Consumer Finances, White families

Introduction and Purpose

Most families want to increase their ownership of assets and the value of those assets. This study provided insight for educating and advising families by showing what factors are related to the ownership of assets. Wealth is an important measure of economic well-being and, as might be expected, the wealth distribution is not equally distributed by race. Over time the population of the United States has become more diverse. The 2000 Census revealed that the racial and ethnic distribution of the U.S. population was White, 70%; Black, 13%; Hispanic, 12%; Asian and Pacific Islander, 4%; and other, 1% (Stoll, 2004). To limit the scope of the study, only Black and White families were included in this analysis.

Two studies of wealth of Black and White families (National Bureau of Economic Research [NBER], 1990; Gittleman & Wolff, 2004) have provided some insight. Authors of both studies noted that the gap in wealth needs further research. Blau and Graham (NBER, 1990) analyzed data on younger families from the National Longitudinal Surveys of Young Men and Young Women. They found that young Black families held 18% of the wealth of young White families. Black families held more of their wealth in homes and vehicles and less in liquid assets or business assets than Whites. Education was the most important demographic factor affecting the difference in wealth between these younger White and Black families.

In a longitudinal study, Gittleman and Wolff (2004) examined data on families from the Panel Study of Income Dynamics using the 1984, 1989, and 1994 waves. On average, White families had higher incomes and higher savings rates, and White families were more likely than Black families to receive inheritances and to receive larger amounts of inheritances. Gittleman and Wolff pointed out that period effects such as changes in the value of housing could influence wealth accumulation differently for families.

A considerable amount of research has been devoted to the relationship between tolerance for risk, ethnicity, and asset accumulation (e.g., Coleman, 2003; Gutter & Fontes, 2006; Yao, Gutter, & Hanna, 2005). Coleman (2003) compared attitude toward risk and the amount held in risky assets as a percentage of net worth of Black, White, and Hispanic families in the 1998 Survey of Consumer Finances (SCF). She found that Hispanic respondents were significantly more risk averse than Whites. In regard to Black respondents, she concluded that risk varied depending on the level of net worth. Yao et al. (2005) combined data from the 1983, 1989, 1992, 1995, 1998, and 2001 SCF to compare the levels of financial risk tolerance (from taking no risk to substantial risk) held by Blacks, Hispanics, and Whites. Their primary finding was that Blacks and Hispanics were less willing to take some risk but more willing to take substantial risk. Yao et al. suggested that this effect might be due to variation among minority groups.

Gutter and Fontes (2006) investigated the relationship between race and ownership of risky assets (defined as stocks and businesses) as a percentage of total financial assets. They found that Black families were less likely to own risky assets if they had more children, were not working, had less tolerance for risk, and needed more liquidity. However, there was no difference between Black and White families in the proportion of risky assets to net worth when other factors were controlled.

In addition to factors such as education and risk tolerance, the accumulation of assets is likely to be related to factors such as age, income, marital status, planning horizon, and other factors. Therefore, a conceptual model is needed to explore the likelihood of owning the assets and the value of the assets. Because the ownership of homes, investment accounts, and retirement accounts are important to the economic well-being of families, the purpose of this study was to investigate the ownership of these assets. The study used data from the 2004 SCF. Although this is a crosssectional data set, it provided the most recent information on assets of Black and White families.

Ownership of Assets

Homeownership

Homeownership is a way to transmit wealth from one generation to another. Studies have shown that home ownership leads to stronger families and safer, more closeknit communities with better schools and services. However, owning a home has been a challenge for many Black families. The Home Owner's Loan Corporation helped many White homeowners avoid default during the Depression, but not Black homeowners (Conley, 2001). This agency instituted 'redlining' so those neighborhoods deemed high risk would be assigned a red-no loan-rating. Black neighborhoods received this designation, a practice which was also adopted by private banks. The 1977 Community Reinvestment Act outlawed redlining, and Blacks have had more opportunity to become homeowners (Conley, 2001).