Assets and Wealth
The Distribution Of Wealth Among Older Americans
To document patterns of wealth disparities among older Americans, Table 1 presents estimates of mean net worth by race and ethnicity obtained from the baseline 1993 AHEAD survey. This table also separates total household wealth into its principal component parts—housing equity, financial assets, and tangible assets (cars, business, real estate other than the main home). Expressed in July 2000 dollars, mean wealth of 1993 American households that contained a person over age sixty-nine was $213,405. Using means as the yardstick, home equity ranks first closely followed by total financial assets with combined tangible assets a distant third. While it is often believed that the elderly have few economic resources at their disposal, this is certainly not the case when their average wealth levels are compared to those of younger households. For example, in 1994, median household wealth of those over age sixty-five was 7.5 times that of those twenty-five to thirty-four years old.
Race and ethnic disparities in wealth are quite large. For every dollar of wealth an older white household has, black households have twenty-seven cents and Hispanic households have almost one-third as much wealth as their white counterparts. Whites have more assets in all major subcategories, but their advantage is smallest in home equity and largest in financial assets. Stunningly low levels of financial assets among older minority households are revealed here. While minority households have about half as much home equity as whites do, white financial assets exceed those held in minority households by a factor of nine to one. These more liquid financial assets may be a better index of the resources a household has on hand to meet emergencies.
Table 2 highlights the extent of wealth inequality among the elderly by listing net worth at selected percentiles of the wealth distribution. In contrast to a mean wealth of $213,405, the average or median household (at the fiftieth percentile) has $105,198, a reflection of a severely skewed wealth distribution. The top 1 percent of the population in this age group possesses about 10 percent of the wealth, and the top 5 percent possess 27 percent. While there are many older households with little wealth to tap into during difficult times, these data remind us that there coexist many other older households who are among the most affluent households in the country. Furthermore, the enormous wealth inequality in America clearly has little to do with race or ethnic issues. Even among whites, wealth disparities are large. White households at the ninetieth percentile have 224 times more wealth than white households at the tenth percentile.
Inequality is even more pronounced when the focus is limited to financial wealth holdings where half of this population group holds only about 1 percent of all financial wealth. Neither the average older black nor the average older Hispanic household has any financial wealth at all. Even the bottom third of older white families has less than $3,000 in liquid assets at their disposal, and one in five has less than $300.
These then are the basic facts about wealth among older American households. They are characterized by modest wealth holdings for the typical older household, large inequalities in wealth, large racial and ethnic differences in wealth, and very little evidence of any prior savings behavior by poor or even middle-class older households.
The first question is to what extent income differences across older households account for these large wealth disparities. Household income and wealth are strongly positively related, albeit in a highly nonlinear way. Financial assets and total net worth all increase at a more rapid rate than income as we move from lower income to higher income older households. Above the median income there are very large increases in household wealth as income rises; in contrast below the median household income, there is little difference in wealth across income groups. It turns out that this simple nonlinear relationship between wealth and income goes a long way toward explaining the large racial and ethnic wealth differences among older households documented in Tables 1 and 2. In contrast to whites, black and Hispanic households are concentrated below median incomes while white households are much more likely to be situated above the median where wealth increases much faster than household income does.
Income differences alone, however, are unable to account for the vast inequality in wealth holdings among older households. While less commented upon, the diversity in wealth holdings even among households with similar incomes is enormous. Among median income households over age seventy, total net worth varies from $390,060 among those in the top 5 percent to only $3,546 among the bottom 10 percent. Similarly, variation in financial assets for median income households runs from $178,177 (the top 5 percent) among the lowest 20 percent of such median income households. The within-income diversity of wealth holdings holds true even among households in the lowest income decile. About one in ten such households have more then $41,000 in financial wealth while more than half of them have only $400 or less. At the other end of the spectrum, one in every five households in the top decile of average household income have accumulated less than $6,000 in financial assets over their lifetimes.
Net worth also varies significantly across marital categories. Not surprisingly, wealth is highest among married respondents. By far the largest discrepancy takes place among those who had separated or divorced. Median net worth of those households is only one-fifth the wealth of married households. In all cases, married couples' net worth is far more than twice that in other household configurations, indicating that something more than simply combining two individuals' assets into one married household is going on. The analysis in Lupton and Smith suggests that married couples apparently save significantly more than other households, an effect not solely related to their higher incomes nor to the simple aggregation of two individuals' wealth.