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Briefing
A More Comprehensive Measure of the Black-White Wealth Gap
In this article, we apply a simple graphical device — the plot of the relative rank distribution — to summarize the Black-White wealth gap. We also introduce the relative rank Gini coefficient — an analog to the standard Gini coefficient — as a summary measure of rank inequality. We find that the rank wealth gap is widest in the middle of the wealth distribution. Black-White rank wealth gaps are higher among college graduates than among other education groups. Households with young or retired heads have higher rank gaps than middle-aged households. We caution that rank gaps are not ...
Briefing
Expanding the Scope of Workforce Development
Workforce development efforts often are geared toward adult workers. But examining workforce development from the perspective of human capital theory suggests that earlier interventions may yield high returns.
Journal Article
The cost of unanticipated household finance shocks : two examples
This article presents two simple calculations aimed at providing a first step in quantifying the costs of unanticipated financial shocks to a household. The two types of shocks considered are (1) an unanticipated drop in net worth and (2) an unexpected increase in the interest rate on borrowing. The shocks are faced by households in a life-cycle consumption-savings model and the costs are measured in terms of annual consumption. In general, for empirically plausible shocks, the results show that net worth shocks are substantially costlier than interest rate shocks. The costs of the shocks ...
Briefing
How Couples Approach Portfolio Allocation
The classical theory of household portfolio allocation finds that the share of household wealth invested in risky assets is independent of the level of household wealth. However, this prediction is at odds with empirical observations. This Economic Brief presents findings that reconcile the two. A model in which a household's portfolio allocation reflects the preferences of both spouses, adjusted for the bargaining power of each spouse, predicts that the wealthier a household becomes, the greater the share of its wealth will be invested in risky assets.
Report
Falling Short: Why Isn't the U.S. Producing More College graduates?
Why is the United States not producing more college graduates, especially in light of the large and persistent wage gap between workers who graduate from college and those who do not? Senior policy economist Urvi Neelakantan and economics writer Jessie Romero consider several factors that may help answer the question, including inadequate preparation during students' K-12 years. They discuss how K-12 preparation varies with socioeconomic status and how "school-choice" initiatives are intended to give more children access to high-quality schools.
Briefing
Black-White Differences in Student Loan Default Rates Among College Graduates
Despite the financial benefits that college completion offers, student loan defaults are not uncommon among college graduates. Default rates differ markedly by race, with 30 percent of Black college graduates with federal student loans reporting having defaulted at least once compared to 10 percent of White graduates. This Economic Brief compares student loan borrowing, repayment and default behavior of Black and White college graduates. While the amounts that the two groups borrow are comparable, Black graduates are not only more likely to default but also more likely to be on income-based ...
Briefing
Who Values Access to College?
A quantitative model of college enrollment suggests that the value of college access varies greatly across individuals. Forty percent place no value on the option to attend despite large public subsidies, while 25 percent would enroll even without the subsidies. In the model, redirecting public funds from those who attend college irrespective of subsidies to those who don’t attend even with subsidies both preserves college enrollment and improves overall outcomes. While these two groups are clearly visible only in the model, and not in the data, this analysis suggests that more-targeted ...
Briefing
Portfolios Across the U.S. Wealth Distribution
In this article, we examine how household portfolios vary with wealth, age and race. Households in the middle of the wealth distribution hold most of their wealth as real estate, while wealthier households are more heavily invested in stocks and private business equity. As households age, they repay education loans and other debt and accumulate real estate and (to a lesser extent) financial assets. We find that Black households hold considerably less home equity, stocks and business equity. This can be explained (statistically) by lower levels of total wealth and by differences in age and ...