Lifetime earnings, not inheritance, drive racial wealth gap, study finds

What is the main reason for a persistent wealth gap between white and non-white families in the U.S.? Hint: It's not inheritances.

Intergenerational inheritances only account for about 14% of the wealth gap between Black and white households , according to a recent study from the Federal Reserve Bank of Boston. Instead, two of the biggest factors are lifetime earnings and access to retirement plans.

"Pursuing a career that is going to give you a good chance of having high earnings for a long and stable career, that's that's where you want to go," said Jeffrey Thompson, an economist at the Federal Reserve Bank of Boston who co-authored the study.

Researchers looked at survey data from 2007 to 2019 spanning thousands of families. They found one-third of white families and one of every 10 Black families receive an inheritance. More than half of those inheritances are less than $50,000. Thompson said the data points to a common misconception about how most people in the U.S. build financial wealth.

"We think of the extremes of the distribution, and we think of people who are truly rich," Thompson said. "So you might come to this question thinking that inheritance matters a lot."

In reality, Thompson said, most people accumulate wealth over time.

For policymakers interested in bridging the racial wealth gap, Thompson said one practical strategy would be to help more people access retirement funds. That could mean giving workers who don't have retirement plans through their employers access to alternative plans. Last year, the Biden administration passed a measure to make it easier for workers to enroll in retirement accounts and receive tax credits for their contributions.

There are some possible contributors to the racial wealth gap that were not measured in the story, Thompson said. These include financial support from families outside of inheritances. For example, white families are much more likely to be able to help loved ones pay college tuition or put a down payment on a house than non-white families.