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.