The average white family has 4.4 times as much wealth as the average Black family, notes a new study coauthored by Federal Reserve Bank of Boston economist Jeffrey Thompson. And when pension assets are not included in the wealth measurement, the ratio increases to 6.8. The study looks at the potential causes of this wealth gap and finds that inheritances and other types of wealth transfers from one generation to the next play only a small part. The main contributors to the gap, the authors find, are differences in lifetime earnings and pension assets.

“To the extent that wealth accumulated in past generations – when Black families were denied access to home ownership and economic opportunity by law and extralegal means – is handed down to subsequent generations, those inheritances could be directly responsible for some of the existing wealth gaps. When we examine the data to evaluate the role of inheritances, however, we find they contribute only modestly to current white/non-white wealth gaps,” write Thompson and Brookings Institution senior fellow John Sabelhaus in “The Limited Role of Intergenerational Transfers for Understanding Racial Wealth Disparities.”

The authors find that white families are more likely than Black families to receive inheritances or inter vivos gifts – money or other assets from living parents or other family members. Also, such intergenerational transfers of wealth are larger, on average, when they involve white families as opposed to Black families. However, the study notes that most families, regardless of race, do not receive any inheritance or substantial inter vivos gifts, and when there are intergenerational transfers, they tend to be relatively small. Just one-third of white families and about one of every 10 Black families receive any inheritance, and more than half of the inheritances or gifts that any families receive total less than $50,000.

Years of fulltime employment play a key role in wealth accumulation

Intergenerational transfers account for only 14% of the wealth disparity between white and Black families, according to the study. That’s when the analysis doesn’t include controls for lifetime earnings and other variables that further reduce the importance of inheritances and inter vivos gifts. The authors argue that the primary contributors to racial wealth disparities are lifetime earnings, pension assets – which accumulate with years of work – and what the authors refer to as “human capital factors,” such as education level. Together, these variables explain 80% of the white-Black racial wealth gap, according to the study.

The study’s findings emphasize the importance of full-time employment for wealth accumulation, especially for people with college degrees. As noted, pension assets, which the authors include in their wealth measure, can be tied to years of employment. Across races, the average wealth of families in which the head of the household is 50 to 65 and at least one adult has a college degree is just $154,000 when the household head and their spouse or partner have only 10 to 19 years of full-time employment. That figure soars to $1.3 million when the household head and spouse or partner have 50 to 59 years of full-time employment and at least one adult has a college degree.

The authors note that the typical white family (a family whose wealth places them near the middle of the wealth distribution) has a little more than $245,000 in wealth on average. The average wealth of a typical Black family is just over $35,000. But the typical white family is headed by a 55-year-old married couple with 40.5 years of combined full-time work, and the highest educational attainment in the household is a bachelor’s degree. The typical Black family is headed by a 50-year-old single adult with 27.6 years of full-time work, and the most common level of education is an associate degree or some college.

“The key lesson for policymakers concerned about disparities in wealth by race is that inheritances and inter vivos transfers are not very important, but lifetime earnings and pensions are vital to building wealth and can account for nearly all the differences we observe among racial groups,” Thompson and Sabelhaus write. “Opportunities to increase lifetime earnings and improve access to quality pension plans are vital to building wealth.”

Thompson and other economists and researchers discuss the racial wealth gap in Season 3, Episode 2 of the Boston Fed’s podcast, Six Hundred Atlantic.