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posted on 20 May 2017

The Link Between Family Structure And Wealth Is Weaker Than You Might Think

from the St Louis Fed

-- this post authored by William Emmons, Lead Economist, and Lowell Ricketts

Our colleague, Ray Boshara, recently published an op-ed in the Washington Post that summarized some of the research we and other scholars presented at a conference examining stark racial and ethnic differences in educational and wealth outcomes.

One topic discussed at the conference and raised by several readers of the op-ed was the possible role of family structure in explaining diverging wealth outcomes. Ray did not discuss this topic in the op-ed because two conference papers (described below) found it did not help explain the black/white wealth gap under consideration.

Research at the conference also examined all races and ethnicities - not just blacks and whites - but Ray chose to focus this op-ed on black-white wealth differences because of space considerations and factors unique to that gap.

This post fills those gaps. While there is an overall correlation between, say, two-parent families and higher wealth, research presented at the symposium found that this link actually is inconsistent across racial and ethnic groups and quite weak in a causal sense.

Spurious Connections

In a nutshell, when we focus on family-structure differences within racial or ethnic groups, rather than between groups, there is essentially no relationship at all. Our interpretation is that any correlation between family structure and wealth that exists in aggregate data is largely spurious. That is, it reflects deeply rooted structural, systemic or other unobservable factors that differ across races and ethnicities.

These “deep" causes of differences in both family structure and wealth accumulation could include:

  • The continuing effects of past discrimination

  • Segregation in housing, health care and education

  • Environmental, epigenetic (that is, suppressed expression of true genetic abilities) or cultural factors that differentially affect early-childhood development

We concluded that family-structure differences are a symptom of deeper driving forces, not an important cause per se of wealth differences. One implication is that, even if we could change patterns of marriage and child-bearing among many people, this alone would be unlikely to affect racial and ethnic wealth gaps very much, if at all.

Family Structure and Wealth

Robert Lerman of the Urban Institute presented research at the conference focused squarely on this topic. He found that changes in family structure have been too small to explain the diverging wealth outcomes across race and ethnicity evident in data reaching back to 1985. Being married provided no protection against large wealth losses among college-educated black and Hispanic families.

Our research also looked for possible wealth effects of differences in family structure.2 In addition to the number of adults and children in a household and whether the family provides financial support to relatives or friends, we examined a host of other factors that might explain a family’s wealth. These included a family head’s:

  • Race or ethnicity

  • Age at the time of the survey

  • Birth year

  • Educational attainment

  • Health status

We also examined the family’s balance sheet (its assets and liabilities), its day-to-day financial management, and other advantages and disadvantages, as measured by income windfalls and shortfalls and whether the family had received a large gift or inheritance at any time in the past.

Differences between Family Structures

We first assumed that each family head freely chooses all aspects of her or his life other than birth year and race or ethnicity that might be relevant for wealth accumulation. This “post-racial" model - which is standard in the economics literature - suggested that “stronger" family structures (for example, two-parent families) contribute marginally to higher wealth among blacks but actually detract (again, marginally) for Hispanics and Asians (all measured relative to whites).

Our conclusion was that differences in family structure were not consistently or significantly associated with differences in families’ wealth.

Differences within Racial and Ethnic Groups

Next, we examined a “structural" model that did not assume all families face identical choices and norms. Instead, we assumed that, for example, a young Hispanic family realistically made choices with reference to other young Hispanic families. Our structural model thus examined individual families’ situations relative to their own-age and own-race/ethnicity averages.

In this model, differences from peer-group means in family-structure variables contributed essentially nothing to understanding wealth differences. Rather than causing wealth differences, differences in family structure appear mostly to reflect differences in peer-group means or norms, not individual choices that translate into different amounts of wealth.

Our Findings

The bottom line is that links between family structure and wealth are weak, inconsistent and mostly spurious. We conclude that the deeper causes of differences in both family structure and wealth are structural or systemic or due to other unobservable factors related to race or ethnicity in complicated ways.

These underlying causes of different opportunities, choices and peer-group norms facing individuals and families are undoubtedly difficult or impossible to change. But it is important to recognize what our symposium research found: only by addressing these deep causes can we hope to meaningfully affect racial and ethnic wealth gaps.

A live-streamed public event examining key symposium research findings will take place at the St. Louis Fed on May 23. Proceedings of the symposium and related resources are available in the links below.

Notes and References

1 See Boshara, Ray. “Black College Graduates Are Losing Wealth. Here’s What Can Help." Washington Post, April 12, 2017.

2 We use data from the Federal Reserve’s Survey of Consumer Finances.

Additional Resources

Source

https://www.stlouisfed.org/on-the-economy/2017/may/link-family-structure-wealth-weaker

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

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