Do Racial Disparities in Private Transfers Help Explain the Racial Wealth Gap? New Evidence From Longitudinal Data


How do private transfers differ by race and ethnicity, and do such differences explain the racial and ethnic disparity in wealth? Using the Panel Study of Income Dynamics, this study examines private transfers by race and ethnicity in the United States and explores a causal relationship between private transfers and wealth. Panel data and a family-level fixed-effect model are used to control for the endogeneity of private transfers. Private transfers in the form of financial support received and given from extended families and friends, as well as large gifts and inheritances, are examined. We find that African Americans and Hispanics (both immigrant and nonimmigrant) receive less in both types of private transfers than whites. Large gifts and inheritances, but not net financial support received, are related to wealth increases for African American and white families. Overall, we estimate that the African American shortfall in large gifts and inheritances accounts for 12 % of the white-black racial wealth gap.

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  1. 1.

    We define private transfers as (1) financial (e.g., cash, checks) support given and received and (2) large gifts or inheritances received. These transfers may be inter vivos (made during the giver’s lifetime) or inherited (takes effect upon the giver’s death). Both transfer types can be intergenerational (between different generations) or intragenerational (within a generation). Data used for this analysis capture interhousehold transfers (between households), not intrahousehold transfers (within a household), although our models control for family coresidence.

  2. 2.

    For example, Cox (1987) used the President’s Commission on Pension Policy survey from 1979, Wilhelm (2001) used the 1989 wave of the PSID, Avery and Rendall (1997) used the 1989 SCF, and Menchik and Jianakoplos (1997) used the 1989 SCF and 1976 wave of the National Longitudinal Survey of Mature Men.

  3. 3.

    For instance, a person gives money to his unemployed relative (or friend) as insurance for receiving similar help in the future when he faces a financial emergency.

  4. 4.

    There are fixed costs associated with the purchase of a home, so the benefits of the home purchase would be observed over time.

  5. 5.

    The PSID added 441 immigrant families in 1997 and 70 families in 1999.

  6. 6.

    Prior to 1999, wealth information was collected in 1984, 1989, and 1994.

  7. 7.

    Our analysis by race and ethnicity is based on the race and ethnicity of the head of the household; interracial marriage is relatively rare in the PSID sample.

  8. 8.

    We have information only on number of parents living as reported in 2007, so this variable is not time-varying in our empirical models.

  9. 9.

    When the PSID shifted to biennial interviewing, it began collecting many, but not all, data items for each of the two prior years. Although income support received from two years ago is collected, income support given is collected only from the past year, not two years ago. Thus, we are not able to construct a measure of net support received two years ago.

  10. 10.

    Our measure does not include loans or charitable contributions to organizations.

  11. 11.

    The PSID does not provide information that allows us to separate transfers given by the family head and spouse/partner from those given by other family members.

  12. 12.

    Whether omitting loans that convert to gifts results in an underestimate or overestimate can be understood in an omitted variable bias framework. If people who receive loans that convert to gifts are less likely to receive a large gift or inheritance, then we underestimate the relationship between large gifts/inheritances and wealth. If, on the other hand, people who receive loans that convert to gifts are more likely to receive a large gift or inheritance, then we overstate the relationship. If the two are uncorrelated, bias is not an issue.

  13. 13.

    These differences in wealth stem from lower asset holdings for minorities, not from higher debt.

  14. 14.

    The wealth differences by race and ethnicity remain large and statistically significant when measured with means instead of medians. For example, mean wealth for black non-Hispanics, Hispanics, and white non-Hispanics was $75,571, $129,686, and $311,214, respectively, during the 1999–2007 period.

  15. 15.

    Recall that although transfer income received at t – 2 is collected, transfer income given at t – 2 is not collected.

  16. 16.

    The dependent variable is set to zero for the 5.5 % of families that have zero wealth and the 11.4 % of families that have negative wealth because the natural log is not defined for zero or negative values. The model produces similar results if we drop these observations instead of setting them to zero. To further understand the implications of how we treat these negative and zero wealth values, we estimated three additional sets of models using wealth (vs. the natural log of wealth) as the dependent variable. The three model scenarios are (1) models estimated on the full sample (all negative and zero wealth values are included), (2) models estimated on the full sample, but negative wealth values are replaced with zeros, and (3) all observations with zero or negative wealth dropped. The estimated effect of large gifts and inheritances on wealth is nearly identical across the three models (overall and by race), suggesting that how negative and zero wealth values are treated does not affect the results.

  17. 17.

    We test whether our results are sensitive to using a measure of permanent family income (average income from 1998 to 2006) rather than family income last year. They are not.

  18. 18.

    Given the potentially important role of immigrant status in private transfer differences, we examine differences in private transfers by immigrant status, as well as race and ethnicity, in our upcoming regression results.

  19. 19.

    The “support received” coefficients less the “support given” coefficients do not equal the net “support received” coefficients exactly because net transfers received are estimated using WLS regression, whereas support received and given are estimated using Tobit regressions. The estimated coefficients do sum exactly when WLS is used for all three regressions, in part because the black “support given” coefficient becomes positive and insignificant.

  20. 20.

    We include home equity in our wealth definition because of the important role that private transfers can play in down payments. Excluding home equity from wealth cuts our estimate of the contribution of racial differences in private transfers to the wealth gap in half, from 12 % to 6 %.

  21. 21.

    We calculate the dollar change in wealth as (exp(0.004) – 1) × 83,360, where 83,360 is the weighted median of wealth.

  22. 22.

    This lack of relationship between financial support and wealth continues to hold when support received and support given enter this specification individually, rather than as net support received (p = .30 and p = .40, respectively; not shown).

  23. 23.

    This finding is based on estimates of Eq. (5), where the weighted average of log wealth is 10.4 for white non-Hispanics and 7.2 for black non-Hispanics. The weighted averages of large gifts and inheritances accumulated between 1997 and 2007 are $21,320 for white non-Hispanics and $2,914 for black non-Hispanics. Because large gifts and inheritances are a rare event, we use their accumulated value over the past 10 years (between 1997 and 2007) to measure their cumulative effect on the racial wealth gap.

  24. 24.

    Important caveats are that the PSID does not capture gifts or inheritances of less than $10,000, nor does it capture loans from family or friends that are never repaid (which, in essence, convert to gifts). As a result, we are unable to measure differences in smaller gifts/inheritances or unpaid loans by race/ethnicity or their role in the racial wealth gap.

  25. 25.

    The likelihood of receiving a large gift or inheritance did not change over the study period, although the dollar amount increased for white non-Hispanic families. The average real dollar value of large gifts and inheritances increased from $66,000 for white non-Hispanic families (conditional on receiving) in 1999 and 2001 to $83,000 in 2005 and 2007. Black non-Hispanic and Hispanic families saw no statistically significant increase.

  26. 26.

    Provisions in the American Taxpayer Relief Act of 2012 exempt estates less than $5.25 million, an amount that will be inflation-adjusted over time.


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This research was funded by the Ford Foundation and the Annie E. Casey Foundation. We thank them for their support and acknowledge that the findings and conclusions presented are those of the authors alone and do not necessarily reflect the opinions of the foundations, the Urban Institute, its board of trustees, or its sponsors. The authors are grateful to three anonymous referees, Ngina Chiteji, Donald Cox, Trina Shanks, and Mauricio Soto for their helpful comments and suggestions. In addition, we value the input of audience participants at the 2012 annual meeting of the Population Association of America, the Urban Institute Opportunity & Ownership seminar, and the Race & Ethnicity seminar.

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Correspondence to Signe-Mary McKernan.



Table 3 Comparison of full PSID sample and PSID analysis sample means

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McKernan, SM., Ratcliffe, C., Simms, M. et al. Do Racial Disparities in Private Transfers Help Explain the Racial Wealth Gap? New Evidence From Longitudinal Data. Demography 51, 949–974 (2014).

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  • Wealth
  • Race and ethnicity
  • Private transfers