The Rising Importance of Stock-Linked Assets in the Black-White Wealth Gap.

Abstract

Studies have examined the racial disparities in household characteristics, homeownership, and familial transfer as primary drivers of the Black-White wealth gap in the United States. This study assesses the importance of stock-linked assets in generating wealth inequality. As financial assets become a growing component of household portfolios, the Black-White wealth gap is increasingly associated with the racial disparity in stock-linked assets. Using data from the Survey of Consumer Finances and the Panel Study of Income Dynamics, this study shows that the contribution of stock-linked assets to the Black-White wealth gap has expanded in both absolute and relative terms, surpassing those of homeownership and business equity. Furthermore, a substantial disparity in financial wealth exists even for otherwise similar Black and White households. Although the disparity is larger among those with more economic resources, a gap remains among those with less. Lastly, our analysis shows that the combination of lower ownership levels and lower returns on financial wealth among Black households could account for a quarter of the Black-White wealth accumulation gap, net of differences in current net worth and household characteristics. Our findings suggest that considering financial assets is critical for understanding contemporary racial wealth inequality.