Skip to main content

Ethnic and racial disparities in saving behavior

Abstract

Using data of households approaching retirement in the U.S., I perform quantile decompositions of the Whites’ differences in saving rates with Mexican Americans (ethnic gap) and with African Americans (racial gap). The gaps are small at the bottom half of the distribution and widen at the top, especially those resulting from changes in asset prices (passive savings). Differences in observable factors account for the entire gaps at lower quantiles, but some unexplained racial gap remains at higher quantiles. Thus, racial wealth inequality could be partly attributable to differences in the distributions of saving rates conditional on socio-economic characteristics. Income is the main contributor to the active savings gaps, and education is more important for passive savings. Including retirement assets, the racial but not the ethnic gap in total saving rates disappears. The results suggest that reducing disparities in income, education and pension savings would help to reduce wealth inequality between minorities, particularly Mexican Americans, and Whites.

This is a preview of subscription content, access via your institution.

References

  • Altonji, J.G., Doraszelski, U.: The role of permanent income and demographics in Black/White differences in wealth. J. Hum. Resour. 40(1), 1–30 (2005)

    Article  Google Scholar 

  • Banks, J., Muriel, A., Smith, J.P.: Attrition and health in ageing studies: Evidence from ELSA and HRS (2010)

  • Barsky, R., Bound, J., Charles, K.K., Lupton, J.P.: Accounting for the Black-White wealth gap: A nonparametric approach. J. Am. Stat. Assoc. 97(459), 663–673 (2002)

    Article  Google Scholar 

  • Blau, F.D., Graham, J.W.: Black-White differences in wealth and asset composition. Q. J. Econ. 105(2), 321–338 (1990)

    Article  Google Scholar 

  • Brown, T.H.: Diverging fortunes: Racial/ethnic inequality in wealth trajectories in middle and late life. Race and Social Problems 8(1), 29–41 (2016)

    Article  Google Scholar 

  • Charles, K.K., Hurst, E., Roussanov, N.: Conspicuous consumption and race. Q. J. Econ. 124(2), 425–467 (2009)

    Article  Google Scholar 

  • Chiteji, N., Gouskova, E., Stafford, F.: Financial marketplace participation and pension holdings over the life course. In: Nembhard, J.G., Chiteji, N. (eds.) Wealth Accumulation and Communities of Color in the United States: Current Issues. The University of Michigan Press, pp. 191–215 (2006)

  • Cobb-Clark, D.A., Hildebrand, V.A.: The wealth of Mexican Americans. J. Hum. Resour. 41(4), 841–868 (2006)

    Article  Google Scholar 

  • DiNardo, J., Fortin, N.M., Lemieux, T.: Labor market institutions and the distribution of wages, 1973-1992: A semiparametric approach. Econometrica 64(5), 1001–1044 (1996)

    Article  Google Scholar 

  • Duncan, B., Trejo, S.J.: Intermarriage and the intergenerational transmission of ethnic identity and human capital for Mexican Americans. J. Labour Econ. 29(2), 195–227 (2011)

    Article  Google Scholar 

  • Dynan, K.E., Skinner, J., Zeldes, S.P.: Do the rich save more? J. Polit. Econ. 112(2), 397–444 (2004)

    Article  Google Scholar 

  • Even, W.E., Macpherson, D.A.: Racial and Ethnic Differences in Pension Wealth. In: Polachek, S.W. (ed.) Worker Well-Being and Public Policy, Research in Labor Economics, Vol. 22. Emerald Group Publishing Limited, pp. 203–225 (2003)

  • Firpo, S., Fortin, N.M., Lemieux, T.: Unconditional quantile regressions. Econometrica 77(3), 953–973 (2009)

    Article  Google Scholar 

  • Fortin, N.M., Lemieux, T., Firpo, S.: Decomposition Methods in Economics. In: Ashenfelter, O., Card, D. (eds.) Handbook of Economics, Research in Labor Economics, Vol. IV. Elsevier, pp. 1–102 (2011)

  • Gittleman, M., Wolff, E.N.: Racial differences in patterns of wealth accumulation. J. Hum. Resour. 39(1), 193–227 (2004)

    Article  Google Scholar 

  • Gouskova, E., Chiteji, N., Stafford, F.: Pension participation: Do parents transmit time preference? J. Fam. Econ. Iss. 31(2), 138–150 (2010)

    Article  Google Scholar 

  • Holland, P.W.: Statistics and causal inference. J. Am. Stat. Assoc. 81(396), 945–960 (1986)

    Article  Google Scholar 

  • Hurst, E., Luoh, M.C., Stafford, F.P.: The wealth dynamics of American families, 1984-94. Brook. Pap. Econ. Act. 29(1), 267–338 (1998)

    Article  Google Scholar 

  • Juhn, C., Murphy, K.M., Pierce, B.: Wage inequality and the rise in returns to skill. J. Polit. Econ. 101(3), 410–442 (1993)

    Article  Google Scholar 

  • Juster, F.T., Smith, J.P., Stafford, F.: The measurement and structure of household wealth. Labour Econ. 6(2), 253–275 (1999)

    Article  Google Scholar 

  • Keister, L.A., Vallejo, J.A., Borelli, E.P.: Mexican American mobility: Early life processes and adult wealth ownership. Soc. Forces 93(3), 1015–1046 (2015)

    Article  Google Scholar 

  • Kochhar, R., Fry, R., Taylor, P.: Wealth Gaps Rise to Records Highs between Whites, Blacks and Hispanics. Pew Research Center, Washington D.C. (2011)

    Google Scholar 

  • Land, K.C., Russell, S.T.: Wealth accumulation across the adult life course: Stability and change in sociodemographic covariate structures of net worth data in the Survey of Income and Program Participation, 1984-1991. Soc. Sci. Res. 25(4), 423–463 (1996)

    Article  Google Scholar 

  • Liebler, C.A., Rastogi, S., Fernandez, L.E., Noon, J.M., Ennis, S.R.: America’s churning races: Race and ethnic response changes between census 2000 and the 2010 census. CARRA Working Paper Series (2014)

  • Lusardi, A.: Financial education and the saving behaviour of African-American and Hispanic households. Report for the US Department of Labor (2005)

  • Machado, J.F., Mata, J.: Counterfactual decomposition of changes in wage distributions using quantile regressions. J. Appl. Econ. 20(4), 445–465 (2005)

    Article  Google Scholar 

  • McKernan, S.M., Ratcliffe, C., Steuerle, E., Zhang, S.: Less than equal: Racial disparities in wealth accumulation (2013)

  • Menchik, P.L., Jianakoplos, N.A.: Black-White wealth inequality: Is inheritance the reason? Econ. Inq. 35(2), 428–442 (1997)

    Article  Google Scholar 

  • Modigliani, F., Brumberg, R.: Utility Analysis and the Consumption Function: An Interpretation of the Cross Section Data, pp. 388–436. Rutgers University Press, New Brunswick (1954)

    Google Scholar 

  • Nix, E., Qian, N.: The fluidity of race: “Passing” in the United States, 1880-1940. NBER Working Paper Series (2015)

  • Oaxaca, R.L., Ransom, M.R.: On discrimination and the decomposition of wage differentials. J. Econ. 61(1), 5–21 (1994)

    Article  Google Scholar 

  • Oliver, M., Shapiro, T.: Black Wealth / White Wealth: a New Perspective on Racial Inequality. Routledge, New York (1995)

    Google Scholar 

  • Pessin, J.L.: Reaching out to Latinos: Firms factor in Hispanic culture in striving to hit the right note. The Wall Street Journal (2011)

  • Piketty, T.: Top Incomes over the Twenthieth Century: A Summary of Main Findings, pp. 1–17. Oxford University Press, New York (2007)

    Google Scholar 

  • Richman, K., Ghilarducci, T., Knight, R., Jelm, E., Saad-Lesser, J.: Confianza, saving and retirement: A study of Mexican immigrants (2012)

  • Scholz, J.K., Levine, K.: U.S. Black-White wealth inequality, pp. 895–929. Russell Sage Foundation, New York (2004)

    Google Scholar 

  • Smith, J.P.: Racial and ethnic differences in wealth in the health and retirement study. J. Hum. Resour. 30(Supplement 1995), S158–S183 (1995)

    Article  Google Scholar 

  • Thompson, J.A., Suarez, G.A.: Exploring the Racial Wealth Gap Using the Survey of Consumer Finances. Finance and Economics Discussion Series, Federal Reserve Board, Washington D.C. (2015)

  • Venti, S.F., Wise, D.A.: The cause of wealth dispersion at retirement: Choice or chance? AEA Papers and Proceedings 88(2), 185–191 (1998)

    Google Scholar 

  • Wolff, E.N.: Changing inequality of wealth. Am. Econ. Rev. 82(2), 552–58 (1992)

    Google Scholar 

  • Wolff, E.N., Gittleman, M.: Inheritances and the distribution of wealth or whatever happened to the great inheritance boom? J. Econ. Inequal. 12(4), 439–468 (2014)

    Article  Google Scholar 

  • Woo, L.G., Schweke, F.W., Buchholz, D.E.: Hidden in plan sight a look at the $335 billion federal asset-building budget (2004)

  • Yun, M.S.: A simple solution to the identification problem in detailed wage decompositions. Econ. Inq. 43(4), 766–772 (2005)

    Article  Google Scholar 

  • Zhang, S., Feng, S.: Understanding the unequal post-Great recession wealth recovery for American families. The B.E. Journal of Economic Analysis & Policy 17(4), 1–18 (2017)

    Article  Google Scholar 

Download references

Acknowledgments

For insightful discussions, I am grateful to Christopher Woodruff and Sascha Becker. I also thank James Banks, Victor Lavy, Michael McMahon, Omer Moav, Cormac O’Dea, Elyce Rotella, Jennifer Smith, Frank Stafford and Thijs van Rens for helpful advice. I thank seminar participants at the 4th CAGE Research Meeting and 16th IZA European Summer School in Labor Economics for their comments, especially Jeffrey Wooldridge and Tymon Słoczyński.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Mariela Dal Borgo.

Electronic supplementary material

Below is the link to the electronic supplementary material.

(PDF 770 KB)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Dal Borgo, M. Ethnic and racial disparities in saving behavior. J Econ Inequal 17, 253–283 (2019). https://doi.org/10.1007/s10888-018-9400-3

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10888-018-9400-3

Keywords

  • African Americans
  • Mexican Americans
  • Saving rates
  • Wealth inequality