Wealth and Risk – City Journal

Wealth and Risk – City Journal

Wealth disparities among racial groups in America are caused by multiple factors, including differences in education and income and a legacy of discrimination. But distinctions in risk-taking and tolerance are also important, persistent—and often overlooked.

The Federal Reserve Board recently released its triannual Survey of Consumer Finances, the most comprehensive snapshot of American household balance sheets. Each report offers a sober reminder of the wealth differences between black and white households in the United States. Median net worth among white households is $181,000; for black households, it is just $20,700.

Following up on its promise to monitor racial economic disparities more closely, the Fed released a report on what’s behind the wealth gap. Differences in income account for much of it, and white Americans are more likely to inherit money or property, which can provide an important foundation for wealth accumulation. Also, white parents are more likely to help their children buy a home.

The survey also reveals that nonwhites are much less likely to own risky assets. Taking risk with one’s investments is the only way to grow wealth when interest rates are near zero, as they are now. The two most common ways to build a fortune are either to build a business or to participate in equity markets. About 60 percent of white American households own stock, compared with just 33 percent of black households. About 16 percent of white Americans own at least some share
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