As millions of baby boomers reach retirement age, cities across the country will face unprecedented demand for housing, services, and health care. Urban Institute President Sarah Rosen Wartell sees opportunity for smart growth and investment amid that challenge.
Wartell spoke today at the first annual AtlanticLive Generations Forum hosted by The Atlantic. A series of panels with participants including Secretary of Transportation Ray LaHood and Secretary of Housing and Urban Development Henry Cisneros tackled thorny issues about demographic change and how the millennial and boomer generations alike will deal with housing, transportation, city and neighborhood choice, and other issues.
“The same dynamics for housing demand are at play among baby boomers and millennials,” Wartell said.
As many boomers choose to “age in place,” that is, to retire and continue living in their homes and/or neighborhoods as opposed to in retirement homes, they will demand accessible transportation, services, walkability, and access to health care in their communities. These demands also characterize today’s young, educated, millennial generation.
Will cities and neighborhoods be able to cope with these interrelated demands? There are several key reasons for concern and also several important opportunities.
Areas for concern
Urban Institute models project that between 2010 and 2030 there will be a 70 percent increase in senior homeowners and a 100 percent increase in senior renters
As many seniors choose to “age in place” by staying in their homes and communities, their cities and neighborhoods may not be equipped to provide the transportation, services, and health care they increasingly demand.
Health care will increasingly comprise the largest share of living expenses for seniors, but in-home care and other in-home services can reduce health care costs, and those cost savings can be reinvested in the services that generate them.
Social Impact Bonds and other public-private partnerships may be well-placed to make the initial investments in the many services that will be needed, increasing economic efficiency and generating profits.
Technology will allow many seniors to receive health care monitoring and service delivery in their homes, while millennials will use it to interact with and replace many neighborhood amenities.
In the closing session, Cisneros reiterated many of the points made by the panelists, saying that “demographics is destiny.” Changes in age cohorts, racial composition, and economic equality all illuminate what our future needs will be. Smart policy and planning can take advantage of this knowledge.
Further, he said, amid this general demographic sea change, our country’s minority population is booming just as millennials—and especially minority millennials—face growing wealth and income gaps. Boomers need those populations to reach the middle class to buy their homes, invest in their neighborhoods, and grow the economy. All of these issues will increasingly converge on America’s urban neighborhoods, where tomorrow’s demographics must drive today’s policy.
There’s been a lot of talk about North Korea in the news cycle of late, but little of it relates to the most prominent humanitarian crises occurring within its borders.
In 2000, all 193 U.N. member states, including North Korea, agreed to meet eight human development goals by 2015, including:
Eradicating extreme poverty and hunger,
Achieving universal primary education,
Promoting gender equality and empowering women,
Improving maternal health,
Reducing child mortality rates,
Combating HIV/AIDS, malaria, and other diseases,
Ensuring environmental sustainability,
Developing a global partnership for development.
Since these “Millennium Development Goals” (MDGs) were adopted, some 600 million people worldwide have escaped abject poverty, which is defined as living on less than $1.25 a day.
But as the contrast of North Korea and its neighbor China show us, this progress has been lopsided.
Most of the global reduction in extreme poverty comes from the dramatic growth in China, India, and a few other countries.
On the other hand, in North Korea, with the loss of markets in the Soviet Union and elsewhere in the communist world, per capita income fell by 50 percent, life expectancy has declined by at least five years, and child and maternal mortality has increased. On top of that, one-third of North Korea’s population faces food shortage.
Proving the adage that a picture is worth a thousand words, the famous nighttime satellite image of the Korean peninsula tells the same story.
So while North Korea’s missiles may be a threat to the millions living in South Korea, its own government policies threaten the lives of its 12 million citizens who live in extreme poverty, and the one-third of its children who are stunted by malnourishment.
And, of course, these measures do not account for the burden North Korea’s human rights record imposes on its people. The surest sign of this political and social oppression is perhaps the flagging rates of productivity and innovation.
So as the 2015 date for achieving the MDGs approaches, and as the international community begins considering new goals for improving the human condition, North Korea’s case highlights a broader gap in the current MDG roadmap and a topic that needs to be part of the framework going forward.
While North Korea’s declining living conditions can be visibly and unarguably connected to its politics, there are plenty of other countries where government policies—more so than geography, climate, colonial history, or natural resources—are the main impediment to meeting the MDGs or any new set of targets.
North Korea provides a clear illustration of a vital component missing from the original MDGs: inclusive political institutions are essential to sustained growth.
It is therefore somewhat refreshing that concepts generating buzz in the discussions of post-2015 development goals are an “inclusive future” and “inclusive growth.”
Precise definitions for these concepts are a work in progress, but they generally hone in on the development community’s concerns about growing inequality and the lack of shared benefits resulting from post-2000 development.
It is hard to be against “inclusive growth,” especially in an era of increasing income and wealth inequality. But it is hard to agree on how this can be achieved. In meetings organized by the United Nations and other international institutions, people with various interests and perspectives on how poverty should be eliminated are weighing in.
In their 2012 book “Why Nations Fail,” academics Daron Acemoglu and James Robinson theorize that inclusive economic policies are only sustained in places with inclusive politics.
“Inclusive politics,” as general a concept as it is, is at least more specific than “inclusive growth,” and targets political processes and structures that sustain a polarizing status quo in many places.
This is an advance on the simple-minded ideas that led to past fads in goal-setting, such as “participatory development,” in which excluded groups were invited into discussions of development projects and programs.
These efforts were not wrong, but they never confronted the growth-killing political climates of the countries in question.
Now, as we go about setting new post 2015 targets, we have the opportunity to integrate politics into the thinking and activities of the development/anti-poverty community.
Activists and policymakers serious about making headway would do well to revisit Mancur Olson’s Power and Prosperity, which anticipated the vital nature of politics when it comes to progress.
Olson explained that market-augmenting institutions provided by a capable, but democratically constrained state are the necessary other invisible hand.
I doubt the North Koreans would have agreed to the UN’s 2000 MDG commitment if it had listed “inclusive politics” amongst the goals. But if we’re serious about “inclusive growth,” we should include these goals in the 2015 batch and be clear what we mean, even at the risk of having fewer members of the General Assembly sign up.
In recent weeks, the growing economic disparities between younger and older Americans, as well as between whites and families of color, received a lot of media coverage. Yesterday, my colleagues Signe-Mary McKernan, Eugene Steuerle, and I told the Treasury Department’s Financial Literacy and Education Commission what we know about these trends and what we think can be done to address them.
The commission is charged with the very important role of educating the public about the complexities of personal finance, and as a part of that, maintaining an informative web site and hotline. We hope the knowledge we shared today can help the commission in its vital mission.
So first things first: how wide are the wealth gaps? Pretty wide.
Let’s start with a broad look across the wealth distribution.
Using data from the Federal Reserve’s Survey of Consumer Finances, we saw that the average American family’s wealth doubled between 1983 and 2010. However we also saw that only the wealthiest households saw anything like that level of growth.
Indeed, while the top 20 percent of wealth holders had an average wealth increase of 120 percent between ’83 and ’10, middle-wealth families only got 13 percent wealthier. On the other end of the distribution, the bottom 20 percent actually saw their relative wealth plummet, from an average debt of $400 in 1983 to an average debt of $17,000 in 2010.
Looking at the data through the prism of race shows a similar gap.
As white people transition from their 30s to their 60s, their average household wealth continually builds. Families of color, on the other hand, don’t have the same increasing trajectory and the disparity gets more pronounced the older people get.
For example, when Americans are in their 30s and 40s, whites have about three-and-a-half times more wealth than African Americans and Hispanics. By the time they reach their early to mid-60s, near the peak of their wealth accumulation, whites have about seven times the wealth of these groups.
Getting on a firm path to wealth building can be more difficult for families of color. African American and Hispanic families, for example, are about five times less likely than white families to receive large gifts or inheritances that could be used for major family investments like a down payment on a home or attending college.
The data also show that age is an important factor in wealth accumulation disparities.
Members of the baby boom and silent generations on average acquired a lot more wealth than Americans who were the same age a quarter century ago. For example, the average wealth of today’s Americans aged 56 to 64 is more than twice the amount held by people in the same age range in 1983.
So why do younger Americans have less wealth than prior generations had at their age?
The answers have to do with home equity and student loans.
Home equity fell by roughly 60 percent between 2007 and 2010 and a lot of younger Americans bought their first home just before the housing crash, when home prices were at their peak, or close to it. So when the housing market crashed, these homebuyers were the hardest hit.
Ranking only behind mortgage debt, student loans are the second largest source of debt for today’s Americans in their late-20s to late-30s. By way of comparison, student loans were a relatively small component of debt for their counterparts in the 1980s.
And large student loan debts can be especially debilitating by delaying traditional wealth-building behaviors, such as: homeownership, retirement savings, and building a rainy day fund.
So what can be done to help these vulnerable groups?
A great place for the Financial Literacy and Education Commission to focus is on finding innovative ways to prevent young Americans from burying themselves in student loan debts that are likely to prevent them from making wealth-accumulating investments after they finish school.
But teaching financial literacy at younger ages is also critical. The earlier in life a person begins to build wealth, the more time those assets have to compound and become more valuable. So the key is to teach more people to make sound financial decisions earlier in life.
Building a national financial education strategy that permeates throughout our financial and academic institutions can get more people off on the right foot and headed towards a more secure financial future.
A group of mothers who have been under the radar are those who are low-income, not working, and are not receiving Temporary Assistance for Needy Families (TANF) benefits or government disability benefits. In research parlance, they are “disconnected.” And in real life, they deal with circumstances that present major risks for their children’s development.
In 2009, roughly 20 percent of low-income single mothers (about 1.2 million) were in this category at any point in time. Of these moms, 27 percent are disconnected for at least four months over the course of a year and 11 percent are disconnected for a year or more, mostly because they lose their jobs (but in some cases because they lose TANF or Supplemental Security Income benefits).
The vast majority of these mothers are in poverty—82 percent compared with 54 percent of all low-income single mothers. Some do receive assistance from other sources, though. About half participate in the Supplemental Nutrition Assistance Program (SNAP) and Medicaid. About a fifth receives government housing assistance and one-third receives child support.
These mothers usually face more than one challenge consistently found to affect children’s cognitive development, social adjustment, and behavior: poverty, limited education, mental or physical health problems or disabilities, substance abuse, domestic violence, criminal records, or lack of citizenship. Disconnected mothers are also more likely than other low-income single mothers to be caring for an infant or a very young child (birth to age 3), who are particularly vulnerable to negative consequences later in life from these very early experiences.
Interventions to improve the odds for their children are much-needed. Matching research to family needs suggests several steps that could help these families:
Increasing and stabilizing income. The best way to do that is to prevent disconnection in the first place. For low-income single mothers who are working, this means helping them keep their jobs—for example, through investment in stable child care and in services to help them keep jobs, move up on the job, and find a new job quickly. For mothers who have lost a job, it means improvements in unemployment insurance to help them stabilize income right away. For mothers on TANF, states should reach out intensively to those at risk of being sanctioned in order to provide services to them and continue help for their children.
Reducing income loss when mother and baby are particularly vulnerable, around pregnancy, birth, and infancy. Expanding paid family leave beyond the two states that currently provide it and designing a targeted TANF program for mothers of infants are two potential options
Supporting and enhancing parenting through home visiting and Early Head Start. Treatment for maternal depression is crucial given its high prevalence among disconnected mothers and the risks it poses for children.
High-quality early childhood education, as well as early intervention and special education for children with disabilities would enhance their development directly.
Ensuring that children and their parents receive health insurance, food assistance, and other supports they are already eligible for is becoming a priority in some states and should be in all. Continuity in children’s Medicaid eligibility and in their connection to a pediatrician should be a priority for state policymakers. Automatically qualifying them when they receive SNAP would reduce the burden of reenrollment on both the states and the families. At the same time, only about half of disconnected mothers are enrolled in SNAP. Nationally, about two-thirds of eligible working parents with children participate in the program, so removing barriers to enrollment is particularly imperative.
Children of noncitizen parents need better access to benefit programs available nationwide or as a state option. These include TANF child-only benefits and state policy options for Medicaid, Children’s Health Insurance Program, and SNAP that provide maximum coverage to noncitizen parents with children. These parents may have legal status but could be excluded from health and nutrition benefits under complex state and federal policies, or they may be undocumented immigrants who fear coming into contact with government agencies, even if their citizen children are eligible for benefits.
Such policies would help both disconnected mothers and their children in the long run.
If you’re a parent, whether you have a relatively high income or are earning minimum wage, you likely qualify for tax benefits. These benefits, when looked at in tandem, reveal a complex maze of support for families with children. Nearly everyone with children receives some benefit, but the pattern of benefits calls into question the overall fairness of the system. Independent of that, in a time of tight budgets, it’s appropriate for policy makers to question whether benefits are being delivered in the most efficient way possible.
For a single parent with two children, benefits rise rapidly before falling dramatically once income exceeds about $22,000—which is just above the 2013 poverty guideline for a family of three ($19,530). This can make it difficult for families as they try to move out of poverty—just as they earn a little more money, they lose the benefits that helped give them a leg up.
The largest of the child benefits for low-income, working parents—the earned income tax credit (EITC)—will provide an estimated $57.7 billion in benefits to 20.4 million families with children. (Additional, but much smaller, benefits will go to individuals without children.) Research consistently shows that the EITC encourages single mothers to work. It does this by supplementing wages by 34 to 45 cents for every dollar earned, until the maximum credit is reached. Parents with two children will receive a maximum credit in 2013 of nearly $5,400. The credit phases out beginning at income slightly below $18,000 for single parents. For married parents the phase out does not begin until earnings exceed about $22,000. Families in the lowest two-fifths of the income distribution receive almost all of EITC’s benefits.
On top of that, a low-income single parent of two could receive an income boost of up to $2,000 from the child tax credit (CTC). The CTC provides less benefit overall to low-income families with children because many families with higher incomes also receive the credit. In 2013, the CTC will distribute $55 billion in benefits to 35.5 million families with children, according to Tax Policy Center (TPC) estimates. Middle- and upper-income families will receive over half of the benefits from the CTC.
Fewer families with children benefit from the child and dependent care tax credit (CDCTC) than from the EITC or the CTC. And benefits are concentrated among relatively higher-income families. TPC estimates that, in 2013, families in the top 40 percent of the income distribution will receive over half of the $4 billion in benefits from the credit, in part because it never fully phases out.
Higher-income single parents can also benefit from the dependent exemption and head of household filing status (a special filing status afforded to single parents that generally taxes income at lower rates than a person would face if they filed as “single,” the equivalent filing status for unmarried individuals without children). Because both of these benefits depend heavily on a person’s tax rate, those with the highest rates receive the largest benefit. TPC estimates that households in the top fifth of the income distribution will receive an average benefit of $687 from the dependent exemption in 2013 compared with $10 for families in the bottom fifth. Over one-third of all benefits from the dependent exemption flow to families in the top fifth of the income distribution.
With the federal budget under enormous pressure, policymakers must spend limited dollars to maximum effect. Understanding how child-focused credits fit together—or don’t—and recognizing who benefits from them is a good starting point for lawmakers seeking to reform the tax code with fairness and efficiency in mind.
In a publication released in numerous states as well as a JAMA Forum article and a recent list of ten supposed “myths” about Medicaid expansion, the Heritage Foundation repeatedly cites our paper for the proposition that “40 of 50 states are projected to see increases in costs due to the Medicaid expansion,” and that expansion would force such states “to dig deep into their already overstretched budgets.” Even in the 10 remaining states, according to Heritage, the budget gains we projected to result from expansion were speculative and uncertain, since they supposedly relied on states cutting payments for hospital uncompensated care.
These claims distort our work. We identified 10 states in which Medicaid expansion would yield net savings based on just one factor—namely, unusually generous prior Medicaid coverage, for which states could claim enhanced federal matching funds. The modest additional gains resulting from uncompensated care savings did not tip any state from the red into the black.
Medicaid Expansion Offers Budget Savings, Revenue, and Economic Gains to States
More importantly, Heritage ignored our explanation that, because we were limited to “data available for all 50 states and the District of Columbia, we were unable to estimate several potential sources of state fiscal gain;” and that if additional, state-specific factors were considered, “many more states could realize net fiscal gains.” Nor did Heritage acknowledge that all states must pay for national health reform but only those that expand Medicaid will receive large, offsetting allotments of federal Medicaid dollars, with resulting economic activity, jobs, and state revenue.
For example, a report one of us prepared along with colleagues in Ohio found that, while a Medicaid expansion would increase that state’s Medicaid costs by about $2.5 billion from 2014 through 2022, it would also save Ohio $1.5 billion by reducing state spending on current programs in favor of the largely federally financed expansion. Such programs cover so-called “medically needy” adults, women with breast and cervical cancer, and adults who are waiting for disability determinations. At the same time, expansion would increase state revenue by as much as $2.8 billion, in part because of the economic activity galvanized by more than $31 billion in new federal Medicaid funds, but also because of prescription drug rebates and taxes on Medicaid managed care premiums. The overall result: at least $1.8 billion in net state budget gains.
We also found that Medicaid expansion would create more than 27,000 Ohio jobs, reduce the number of uninsured by more than 450,000, cut health costs for employers and residents by $285 million and $1.1 billion, respectively, and lessen budget shortfalls facing Ohio’s counties. Analysts in states like New Mexico, Oregon, Michigan, and Virginia similarly concluded that Medicaid expansion would yield state savings on high-risk pools, public employee coverage, and mental health care and substance abuse services for the poor uninsured. In fact, every comprehensive fiscal analysis of which we are aware has found that Medicaid expansion yields net state budget gains.
Governors have structured their proposals to guard against the risk that the federal government might, for the first time in history, cut its share of Medicaid funding. For example, the plan from Ohio’s Gov. John Kasich would automatically end Medicaid expansion if federal funding drops even one percentage point below promised levels, and HHS has repeatedly made clear that states have complete freedom to rescind the expansion. Rather than “lock workers in poverty” as nonsensically asserted by Heritage, Medicaid expansion means that, in the median state, a working mother with two children will no longer lose health coverage if her earnings rise above 61 percent of the poverty level, which is $229 a week. No wonder many governors in both parties now support Medicaid expansion.
Medicaid’s Effectiveness
Heritage rhetoric pictures Medicaid as a “broken program” with “creaking foundations,” but solid research documents Medicaid’s effectiveness. Recent studies published in Oxford’s Quarterly Journal of Economics and the New England Journal of Medicine found that Medicaid expansion improves access to care after one year; significantly reduces the incidence of depression, improves overall health status and the detection of diabetes, and virtually eliminates catastrophic health care burdens after two years; and saves numerous lives within five years. Studies that controlled for health and socio-economic status discovered that Medicaid and private coverage provide similaraccess to care—with Medicaid costingsubstantially less. Medicaid costs per person are projected to actually decline in 2012 then rise more slowly than the economy as a whole throughout the coming decade.
To be sure, Medicaid is far from a perfect program. In particular, spending constraints cause states to limit payments to Medicaid providers, reducing their willingness to serve Medicaid patients. That said, Medicaid expansion would improve access to care for millions of uninsured—including poor veterans and their families; create thousands of new jobs; provide significant revenue to hospitals facing significant Medicare cuts; lower health care costs for employers and consumers; provide fiscal relief to localities; and in substantially more than 10 states—perhaps even most states—yield net budget gains that could be reinvested in education, transportation, tax cuts or other priorities. Why would state leaders focused on achieving practical results for their constituents reject a policy that produces such benefits?
As the media revisits its monthly project of over-analyzing today’s new jobs numbers, it’s worth remembering—again—that 165,000 new jobs is just the first estimate and is likely to get substantially revised. In two months, the final revision to April’s numbers will come out and may well paint a different picture.
Last month's March estimate of just 88,000 new jobs was greeted with consternation and worry, and it's already been revised once to 138,000.
As the interactive chart below shows, the difference between the first and final estimates of jobs changes is often quite large—enough to change the headlines, in fact. On average since January 2007, the difference between the first and final numbers was 70,000 jobs (compared with an average increase or decrease of 230,000 jobs). In the ensuing 73 months (to April) for which we have final revisions, the revision differed by more than 50 percent of the first estimate 27 times. In 18 of 73 months, the revision differed by more than 100 percent of the first estimate. In 20 of 73 months, the magnitude of the difference was greater than the magnitude of the first estimate.
Having said that, these monthly job estimates—as preliminary as they are—still give policymakers a rough idea of what’s going on. The first estimate is highly correlated with the final revision and only rarely (twice in the past 73 months), has the revision reversed the direction of the change in jobs (turning job losses into job gains or vice versa).
A recent New York Times article discussed arguments for and against down payment requirements, which are currently being considered as a way to prevent foreclosures.
These proposed rules, though, could potentially widen the country’s sizeable wealth inequality gap.
A 20 percent or even a 10 percent down payment requirement is likely to make homeownership difficult, especially for families with low and middle wealth or income, including many young families and families of color. The Center for Responsible Lending estimates that based on median incomes, it will take nearly 25 years for a typical Hispanic household to save for a 10 percent down payment loan and nearly 30 years for a typical African American household.
To make matters worse, black and Hispanic families are five times less likely to receive a large gift or inheritance—lump sums that can help families make down payments for homes and other assets. These disparities contribute to the racial wealth gap.
Homeownership is still the key wealth-building avenue for most Americans, so limiting access to mortgages could make wealth inequality worse. The power of homeownership as a wealth-building tool comes not primarilyfrom the growing value of property but from automatic, monthly mortgage payments that are a form of savings and build equity.
We need to be careful not to overreact against homeownership for low-income families as a result of the foreclosure crisis. Homeownership can be done right for low-income families. Foreclosure rates for people who bought their homes through Individual Development Account programs—which provide savings incentives, pre-purchase counseling, and guidance in choosing affordable non-predatory products—were one-half to one-third the rate for other low-income homebuyers in the same communities. This and similar success stories tell us that the down payment is just one among many factors that contribute to successful low-income homeownership.
Last week, at the request of the House Ways and Means Committee, I testified on how Congress could reform the mortgage interest deduction, a popular tax expenditure with a big sticker price.
The congressional Joint Committee on Taxation estimates the mortgage interest deduction will cost $380 billion over the next five years, making it one of the largest individual tax preferences in the Internal Revenue Code. The Urban-Brookings Tax Policy Center estimates that 40 million taxpayers will benefit from the deduction in 2015.
In spite of its widespread use and large fiscal cost, the deduction does little to promote home ownership. It provides no subsidy to the nearly two-thirds of taxpayers who do not itemize, and only a modest subsidy to those in the 15 percent bracket.
The subsidy’s value is largest for families in high tax brackets who are most likely to own a home even without preferential tax treatment. Instead of promoting more home ownership, the deduction mostly encourages those who already own homes to buy larger and more expensive houses with borrowed money.
If Congress wants to encourage homeownership, it could direct more of the tax subsidy to prospective homebuyers who straddle the line between renting and buying. Two ways to better target the subsidy: (1) replace the deduction with a uniform percentage tax credit for mortgage interest, or (2) provide an investment credit for first-time home purchases.
In my written testimony, I provided estimates for the effects of four potential reforms.
Eliminating the deduction.
Limiting the deduction to interest on the first $500,000 of home acquisition debt.
Replacing the deduction with a 15 percent refundable credit on the first $25,000 of eligible interest.
Switching from the deduction to a 20 percent non-refundable credit for interest on the first $500,000 of home acquisition debt.
All these options would raise taxes and reduce the subsidy — mostly for upper-middle income taxpayers. Replacing the deduction with a credit would reduce tax burdens on average and increase the housing subsidy for those in the bottom 80 percent of the income distribution.
The revenue gains from all these options would be smaller if they are part of a broader tax reform that lowers marginal individual income tax rates. In that case, some options would even lose money. With lower rates, eliminating deductions raises less money, but new credits would cost just as much.
It is important to recognize that proposals to pare back the mortgage interest deduction could adversely affect housing prices, though how much of a hit they would take is uncertain at best. Introducing reforms gradually would reduce risks to the housing market, though such transition rules would delay both the revenue gains and the improved incentives from the reforms.
The current mortgage interest deduction is hard to justify on policy grounds. Implementing policy reforms such as those I presented to the committee would encourage more homeownership at a lower fiscal cost. But designing appropriate transition rules that reduce market disruptions while simultaneously retaining the benefits of reforming the mortgage interest deduction will be challenging.
Photo of Eric Toder by The Urban Institute's Matt Johnson.
Over the past 30 years, wealth disparities in the United States have worsened. While high-wealth families—those in the top 20 percent—saw their average wealth more than double, low-wealth families (those in the bottom 20 percent) saw their average wealth fall well below zero. As for those in the middle, their average wealth inched up only 13 percent.
A striking dimension of this wealth inequality—disparities by race and ethnicity—is highlighted in our new brief, coauthored with Eugene Steuerle and Sisi Zhang, and in the video above. On average, white families have six times the wealth of black and Hispanic families. So for every $6.00 a white family has in wealth, black and Hispanic families have only $1.00 (e.g., $632,000 vs. $103,000). The income gap, by comparison, is much smaller, although still substantial. On average, white families have twice the annual income of black and Hispanic families. For every $2.00 of income white families earn, black and Hispanic families earn $1.00.
While these ratios have not changed much over time, the real dollar value of the gap has grown. The average wealth of white families was $230,000 higher than the average wealth of black and Hispanic families in 1983. This grew to over $500,000 by 2010 (figure 1).
Are there other time dimensions to this disparity? Yes. The racial wealth gap grows sharply with age (figure 2). In 1983, whites in their thirties had an average net worth of $184,000. Today, these whites, who are in their early sixties, have accumulated $1.1 million in wealth, on average. In contrast, black families have seen their wealth go from $54,000 to $161,000 and Hispanic families from $46,000 to$226,000. White families started with about 3.5 to 4 times more wealth than families of color in their 30s, but had 7 times more wealth in their 60s. In other words, these initial racial differences grow over the life cycle both absolutely and relatively.
Though the United States is one of the wealthiest countries, this prosperity remains out of reach for many Americans. Blacks and Hispanics, who strive to make a better life for themselves and their families, are not on the same wealth-building paths as whites. They are less likely to own homes and retirement accounts, so they miss out on these traditionally powerful wealth-building tools. Families of color also lost a greater share of their wealth in the aftermath of the Great Recession.
A common misconception is that poor or even low-income families cannot save. Evidence from savings programs and research shows they can.
Wealth is where the economic opportunity lies. Social safety net programs emphasize consumption, and many even discourage saving by making families ineligible if they have a few thousand dollars in savings in some states. Wealth-building policies, on the other hand, are delivered as tax subsidies for homeownership and retirement. Families of color are less likely to be able to use these tax subsidies, so benefit little or not at all. Without fair policies, paths to building wealth can vanish. Reforming policies like the mortgage interest tax deduction so it benefits all families, and helping families enroll in automatic savings vehicles, will help improve wealth inequality and promote saving opportunities for all Americans.
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