College is supposed to boost the earning power and the ability of higher education graduates to accumulate wealth. But not if you are black or Hispanic, a new Federal Reserve Bank of St. Louis study shows.
The study titled, “Why didn’t higher education protect Hispanic and black wealth?” showed that college degrees benefited whites and Asian Americans in the last two decades but failed to provide equal benefits for African Americans and Latinos.
“Compared to their less-educated counterparts, typical white and Asian families with four-year college degrees withstood the recent recession much better and have accumulated much more wealth over the longer term,” noted the authors of the study William R. Emmons , Bryan J. Noeth. “Hispanic and black families headed by someone with a four-year college degree, on the other hand, typically fared significantly worse than Hispanic and black families without college degrees.
“This was true both during the recent turbulent period (2007-2013) as well as during a two-decade span ending in 2013 (the most recent data available).”
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Higher education typically has a “protective” effect on wealth, enabling families to weather financial and economic shocks better than families with less education. The median wealth of all families headed by a four-year college graduate dropped by 24 percent from 2007 to 2013 compared with the decline among families without a college degree of 48 percent, the study said.
“The reasons why having a college degree might appear to protect wealth during turbulent times are complex,” the study said. “They probably include both stronger attachment to and performance in the job market during recessions as well as purely financial factors, including balance-sheet choices and financial behaviors. Education is a strong predictor of the quality of financial decision-making.”
However, it has been worse for blacks and Hispanics. White and Asian American college-headed households generally did better than their less educated peers.
“The typical Hispanic and black college-headed family, on the other hand, lost much more wealth than its less-educated counterpart,” the study said. “Median wealth declined by about 72 percent among Hispanic college-grad families versus a decline of only 41 percent among Hispanic families without a college degree. Among blacks, the declines were 60 percent versus 37 percent.”
The study cited “job-market difficulties” that college-educated African Americans and Latinos faced for part of the problem.
That might otherwise be called racism and discrimination.
Other causes cited in the report were financial choices and housing, and they were huge.
“The median debt-to-income (DTI) ratios among college-educated Hispanic and black families in 2007 — on the eve of the Great Recession — were far higher than those among any other group,” the study said.
“In particular, the typical DTI ratio of a college-educated Hispanic family was 100 percentage points higher than the typical DTI ratio of a non-college-educated Hispanic family, while the gap was 140 percentage points among blacks,” the study said. “Compounding this potentially severe squeeze on cash flow were balance sheets heavily concentrated in residential real estate, which subsequently plunged in value. Declines in the average value of owner-occupied homes among college-educated Hispanic and black families between 2007 and 2013 were 45 percent and 51 percent, respectively. The average value of owner-occupied homes declined 25 percent among college-educated white families and increased 6 percent among college-educated Asian families.”
Long-term income trends running from 1992 to 2013 also were cited in the report. Here again, racial disparities stand out.
“The median income of college-grad white families grew by 13 percentage points more than their non-college counterparts,” the study said. “The median income of college-grad Asian families grew 31 percent, while the median income of their non-college counterparts fell 9 percent over the same period.
“Conversely, median Hispanic and black college-grad incomes fell 10 percent and 12 percent, respectively, while the median incomes of their non-college counterparts rose 16 percent and 17 percent, respectively.”
The study concluded saying “racial and ethnic wealth disparities undoubtedly are complex and deeply rooted.”
No kidding. Even when people of color play by the rules and earn college degrees they are more likely to find themselves falling behind even their peers without college degrees. America, what a country!