Black households now have more wealth in pension entitlements than in any other asset class, following a generation in which the share of Black wealth in real estate has dropped by 7 percent, according to a recent presentation by Jon Willis, a senior economist with the Atlanta Fed.
This shift could have significant ramifications in terms of the future transfer of wealth from older to younger generations, an issue that has gained prominence in the Fed's efforts to help promote economic equity. Unlike property, pension benefits generally don't have the capacity to transfer wealth through subsequent generations.
Atlanta Fed vice president and senior economist Jon Willis. Photo by David Fine
The finding is yet another wrinkle in the complex tapestry of household wealth, given that home ownership is regarded as the "biggest component of wealth" for many families, as observed in a 2020 analysis of the 2019 Survey of Consumer Finances.
"This is meant to be food for thought," Jon Willis, a vice president and senior economist with the Federal Reserve Bank of Atlanta, said during his presentation at the June 1 meeting of the Atlanta Regional Housing Forum. The organization provides a platform for discussions of affordable housing.
"If Black households have counted on pensions for the wealth they give, one generation to the next, for the next generation that option is not likely to be there," Willis said in response to a question from the audience. "The next generations aren't going to be able to count on this. So, what can be done to generate wealth going forward?"
"If Black households have counted on pensions for the wealth they give, one
generation to the next, for the next generation that option is not likely to
—Jon Willis, Federal Reserve Bank of Atlanta
Residential real estate prices continue surging
Meanwhile, the rising prices of homes are putting them out of reach of many potential purchasers, according to the Atlanta Fed's Home Ownership Affordability Monitor (HOAM).Two key takeaways from the recent HOAM update include record declines in affordability nationwide as interest rates rise in response to the Fed's efforts to curb inflation, and that the median-income household would spend 41.2 percent of its income each month to pay the mortgage of a median-priced dwelling, a rate that is 11.2 percent higher than the 30 percent maximum rate suggested by the US Department of Housing and Urban Development.
Willis's visual presentation showed the shift in assets among Black, Hispanic, White, and other households during the past 32 years, using data from the Federal Reserve Board's Distributional Financial Accounts, which provide a quarterly snapshot of the distribution of household wealth dating back to 1989.
Each category showed significant shifts that suggest changes in employment and investment patterns from the third quarter of 1989 to the first quarter of 2021. Among Black households, wealth represented in real estate fell from 35.1 percent to 28 percent. Pension entitlements rose from 34 percent to 40.9 percent. Investments in equities tripled but still accounted for just 6.3 percent.
Willis included a reference point to put the value of these rates into perspective. The rate of asset growth during the period was: real estate, almost 5 percent; pension, slightly above 6 percent; and equities, more than 9.5 percent.
Some other observations Willis made include:
- Among White households, real estate wealth declined from 28.4 percent to 21.5 percent. The big shift was in equities, which almost tripled to 27.7 percent.
- Among Hispanic households, wealth in real estate grew from 41.9 percent to 44.1 percent. The proportion of pension wealth rose by 45 percent as a rising number evidently took jobs that offer retirement benefits, growing from 17.7 percent of wealth to 25.7 percent.
- Among all the wealth assets held by "others," the categories of equities and pension entitlements grew as the proportion of involvement in private businesses declined. As private businesses fell from 26.1 percent to 7.9 percent, wealth in equities grew from 12.5 percent to 17.6 percent.
Willis noted one trait shared by all the demographic groups: ownership of aging vehicles. Wealth in consumer durables, including vehicles, dipped in each of the four demographic categories. Some of that might be due to owners keeping vehicles after they've lost substantial value, according to a finding unrelated to Willis's presentation. The 2019 Survey of Consumer Finances showed the conditional median value of vehicles fell by 7 percent, to about $17,000, during the three-year period ending in 2019. The figures predate price hikes in new and used vehicles that began in 2021.