Introduction
In November 2023, the triennial Survey of Consumer Finances (SCF) for 2022 was released, offering insights into post-pandemic household economics compared to the 2019 pre-pandemic survey. Notable coverage by NPR, NYT, and CNN highlights a 36.4% ($51,228) increase in median net worth from $140,856 to $192,084 in inflation-adjusted 2022 dollars.
However, this rise masks significant disparities. The Northern Trust's analysis reveals heightened income and wealth among the highest earners. The Federal Reserve Board identifies disparities in households facing COVID-19 shocks, linked to income, wealth, and telework options. As the People’s Policy Project notes, wealth inequality as observed in the SCF has remained high each cycle. Intra- and inter-racial gaps persist. Despite higher percentage growth in Black and Hispanic wealth, the numerical wealth gap with White families widens due to the latter's higher baseline wealth.
Analysis
The 2022 SCF involved 4,602 households, with 4,595 included in the public dataset used for this analysis. Any variations from the Federal Reserve Board's estimates may arise from disparities in the public data. The graphs in this paper present confidence intervals at the 95% confidence level using survey replicate weights. Household categorizations are based on income percentiles: 0-20, 20-40, 40-60, 60-80, and 80-100.
For instance, the median income household, in the 50th percentile is placed in the 40-60 category. The 2022 SCF is notable for introducing Asian as a distinct racial category, with Other now encompassing a diverse group, including American Indian, Alaska Native, Native Hawaiian, Pacific Islander, and others. Due to small sample sizes, disaggregation by race and income for Other or Asian households was not feasible and, consequently, omitted from the analysis.
The blog presents two figures: population and median income, each separated by the level of disaggregation: overall, by income, by race, and finally, by race and income. Despite the significant impact of COVID-19, which resulted in over 1.1 million deaths as of May 2023, the household population continued to grow from 2019 to 2022. Figure 1 illustrates the population represented by the SCF during this period.
Figure 1: Household Population Overall
Next, Figure 1 by race illustrates the percentage of households belonging to different racial groups in 2019 and 2022. No statistically significant changes were observed, except for the Other race category. It's important to note that this change is due to a compositional effect – specifically, the separation of Asians in the 2022 data, whereas they were included in the Other category in the 2019 data. Consequently, the 2019 percentage for Other households included Asian households, leading to a higher percentage than it would have been otherwise.
Figure 1: Household Population by Race
In this figure, the percentage of households for each racial and income group in 2022 is compared to 2019. The data highlights that Black and Hispanic households are overrepresented in the 0-20 and 20-40 income percentiles (low income) and underrepresented in the 60-80 and 80-100 percentiles (high income). This pattern remains consistent across both survey years. The underrepresentation of these minority groups in the highest income percentiles exemplifies inter-racial inequality, which impacts the overall wealth levels of these groups.
Figure 1 by Race and Income: Household Composition by Race and Income
This figure shows the median net worth increase from 2019-2022. In 2022 median net worth increased 36.4% or $51,228, from $140,856 to $192,084. While this increase in the median net worth has been widely celebrated, there has been less investigation into how and where this increase is felt most deeply.
Figure 2: Median Net Worth Increase
Disaggregating by income it becomes clear that while the lowest income households did see a small increase in their net worth, the increases were not statistically significant. Households in the 40-60th percentiles and 60-80th percentiles did see a statistically significant increase in their net worth as well, but much of the growth in net worth was concentrated in households in the 80-100th income percentiles.
Figure 2 by Income Quantile: Median Net Worth
Examining the median net worth by race reveals notable disparities. While Black and Hispanic households experienced slight increases in net worth, these were not statistically significant. In contrast, White households saw a significant 29.6% increase in net worth. Asian households exhibited the highest net worth, but due to a small sample size, the margin of error was considerable.
Notably, Other households seemingly reduced their net worth. However, this is a compositional effect – specifically, Asians were separated in the 2022 data but not in the 2019 data. Consequently, the 2019 median for Other households included Asian households, artificially boosting their median net worth higher than it would have been otherwise.
Figure 2 by Income Quantile: Median Net Worth
The median net worth by race and income shows that White households, at every income level have a higher net worth than Black and Hispanic households. Furthermore, comparing within income quantiles Black households’ net worth ranges from $126 to $683 and Hispanic households’ net worth ranges from $250 to $693 for every $1,000 owned by a White household. The highest income Black and Hispanic household quantiles faired relatively better against White households than Black and Hispanic households in the lowest income quantiles. The composition of Black and Hispanic households, as displayed in Figure 1 by race and income, showed that the Black and Hispanic households were overrepresented in the lowest income quantiles, where median net worth is lowest, this underrepresentation begins to explain some of the overall racial disparities.
Figure 2 by Race and Income Quantile: Median Net Worth
Homeownership's Impact on Net Worth
Homeownership plays a crucial role in shaping net worth, and recent data from the Census Bureau reveals an overall increase in homeownership rates, primarily attributed to younger buyers. This trend, driven by a more diverse younger demographic, suggests the potential for increased home equity among households of color.
While future analyses will provide a more detailed narrative, the current situation indicates disparities. Black, Hispanic, and Other (including American Indian or Alaska Native) households are less likely to own their homes compared to White and Asian households. This disparity hinders their ability to establish a consistent household net worth.
For Black and Hispanic households that do own homes, their net worth often becomes more closely tied to home equity than similarly income-situated White and Asian households. The latter derive net worth from diverse sources such as stock market participation, business equity, and other avenues in addition to home value.
Conclusion
The increase in median net worth deserves acknowledgment; however, it conceals crucial disparities in the distribution of this net worth surge. Notably, high-income households, homeowners, and White households have experienced disproportionate gains since the onset of COVID-19, leaving behind many Black and Hispanic households.
While there is an observed increase in the net worth of Black and Hispanic households, it fails to reach statistical significance. This signifies that the overall racial wealth gap, when measured numerically, is on a widening trajectory. As the year unfolds, there remains a concern for the financial vulnerability of low-income households and those with limited asset ownership. The disparities underscore the need for ongoing attention to address and rectify these imbalances.
MDIs are well positioned to address some of the disparities listed above. Their financial education programming can increase financial literacy, their provision of consumer loans can help provide liquidity to cash-strapped households, and their small business and mortgage lending can generate new opportunities for wealth-building.
Author: Carl Romer
Recommended further readings:
Changes in U.S. Family Finances from 2019 to 2022 – Federal Reserve
Wealth Distribution in 2022 – People’s Policy Project
Greater Wealth, Greater Uncertainty: Changes in Racial Inequality in the Survey of Consumer Finances – Federal Reserve
U.S. Families' Experiences of the COVID-19 Pandemic: Evidence from the Survey of Consumer Finances – Federal Reserve
Black wealth is increasing, but so is the racial wealth gap – Brookings Institution
Wealth Surged in the Pandemic, but Debt Endures for Poorer Black and Hispanic Families – Pew Research Center
Building Wealth Brick by Brick – First American
Acknowledgements: This research was supported in part by a Wells Fargo grant tied to a broader examination of financial wellness.
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