A new study by economists at the Center for Household Financial Stability disseminates research on family savings and debt and finds that the attainment of a college education does not appear to “protect” the wealth of all American families equally.
This is a descriptive study that examines the income and wealth of different families and the stability (or lack thereof) of each. Analysts use survey data from the 2013 edition of the Survey of Consumer Finances.
First, the researchers found that college-educated families—meaning those in which the head of the household has a four-year college degree—earn significantly higher incomes than those headed by someone without a college degree (no surprise there). The median income among all families headed by a college graduate is 2.4 times greater than the median income among families headed by a non-college-graduate.
Second, the median wealth (the value of real estate and other assets) of all families headed by college graduates declined by 24 percent between 2007 and 2013 as a result of the prolonged recession; the decline among families without college degrees was much higher at 48 percent.
Third, higher education appears to protect wealth during rocky economic times, but mostly just among white and Asian families. Specifically, over the long term (from 1992 to 2013) the median net worth of families differed quite a bit by race. The net worth of white families led by college graduates rose about 86 percent over the two decades, while the net worth of college-educated Asians rose 90 percent. Yet the median net worth of black families led by college graduates dropped nearly 56 percent; the comparable figure was 27 percent for Hispanic families.
Fourth, analysts examined the typical debt-to-income (DTI) ratio for families in 2007, right before the Great Recession. The median DTI ratios among college-educated Hispanic and black families were far higher than for Asians or whites. The typical DTI for a college-educated black family was 140 percentage points higher than the typical DTI ratio of a non-college-educated black family. The comparable figure for Hispanics is one hundred points, and for whites fifty-four points.
Finally, the housing boom between 2007 and 2013 went extra poorly for minority families. Declines in the average value of homes among college-educated Hispanics and blacks were 45 and 51 percent respectively; the decline in average home value was 25 percent among college-educated white families.
The researchers posit that wise financial choices play a bigger role than income fluctuations when it comes to wealth. Yet in their estimation, “higher education alone cannot level the playing field.” That’s sobering news for all of us.
SOURCE: William R. Emmons and Bryan J. Noeth, “Why Didn't Higher Education Protect Hispanic and Black Wealth?,” Federal Reserve Bank of St. Louis, Issue 12 (August 2015).
