How Big Is the Inheritance Gap Between Black and White Families?

One of the most striking differences between Black and White households is a large disparity in wealth. A potential source of this gap is differences in transfers of wealth within families through bequests or gifts. In this article, we document who receives such transfers and the distribution of transfers among those who receive them. Black individuals are much less likely to receive any inheritances or gifts. Black recipients receive smaller amounts and have a much lower probability of extremely large transfers.

One of the most striking differences between Black and White households is a large disparity in wealth.¹ The scale of the gap can be seen in a simple comparison: In 2019, the median White household held nearly nine times as much wealth as its Black counterpart ($180,400 versus $20,700).²

One potential source of the wealth gap is differences in the intergenerational transfer of wealth, either through bequests to heirs or through transfers among the living. Using a statistical decomposition, the 1997 paper "Black-White Wealth Inequality: Is Inheritance the Reason?" estimated that inheritances account for 10 percent to 20 percent of the wealth gap. More recently, simulation analyses in the 2020 paper "Can Income Differences Explain the Racial Wealth Gap? A Quantitative Analysis" indicated that intergenerational wealth transfers explain 26 percent of the gap.

In this article, we explore Black-White differences in inheritances and gifts, documenting how many individuals receive such transfers and the distribution of transfers among those who receive them. We also consider the factors predicting which individuals receive transfers and whether these factors differ across races.

Who Receives Transfers?

Our data source is the Survey of Consumer Finances (SCF), a survey conducted by the Federal Reserve Board that includes unique information on the balance sheets, incomes and demographics of U.S. families. The SCF asks respondents whether they (or their spouses, in the case of married respondents) have received any significant transfers and, if so, inquires further about dates, givers and amounts. The questions are retrospective, and the respondent is asked when each transfer was received, what its value was and who made the transfer. In the analysis below, we will focus on the 2019 wave of the SCF and on individuals born between 1949 and 1972, who were between 47 and 70 years of age in 2019.

Table 1 provides a basic summary, showing for each race the fraction of respondents who receive transfers and the total amount received in 2019 dollars. We begin by noting that transfers are not common, as the majority of both Black and White respondents report no transfers. However, over one-third of White respondents report receiving transfers, nearly three times as many as Black respondents.

In Table 2, we compare within each race those who receive transfers with those who do not. Within either race, respondents who report receiving transfers tend to be older and have more education, more highly educated parents,³ more income and more wealth.

Some of these differences are mechanical. Because the SCF asks respondents to report all the transfers they have received up to the date of the interview, older families by construction must have received at least as many transfers as younger ones. This makes them more likely to have received any transfers at all. Given that most individuals accumulate wealth until their retirement, being older implies higher wealth within our sample. It is therefore not surprising that transfer recipients are wealthier.⁴

At what age do families start receiving transfers? Knowing the answer is useful because the longer a family can hold the wealth it receives, the greater the opportunity for that wealth to grow.

We address this question in Figure 1 by estimating the probability that a respondent born between 1949 and 1972 received at least one transfer by a certain age. In contrast to most of this analysis, we use multiple waves of the SCF when constructing Figure 1. This allows us to include observations from our sample cohort at younger ages. We fit a linear probability model to these data, including controls for survey years. Figure 1 shows that most transfers are received in middle age or later: Among people receiving transfers, at least half receive their first transfer after age 40.

Turning to education, Table 3 shows that respondents with higher levels of education are more likely to report receiving transfers. This gradient is steeper for White respondents — where college graduates are 72 percent (17.3 percentage points) more likely to receive transfers than those with less than a high school diploma — than for Black respondents, where the incremental effect is 32 percent (4.5 percentage points). Such a pattern is consistent with the general result that the Black-White wealth gap remains large even after controlling for education.

Table 3 reveals that Black-White differences in intergenerational transfers cannot be attributed solely to differences in educational attainment. In Table 4, we consider whether the Black-White transfer gap remains once we add a richer set of controls. There are several papers that examine whether the overall Black-White wealth gap can be accounted for (in a statistical sense) by factors other than race.⁵ Applying the complete set of machinery used in these papers is beyond the scope of this article, but we believe that an initial look is informative.

Table 4 shows the results of a Probit regression for receiving a transfer. The coefficients on income and age are both positive, although the latter is statistically insignificant. The odds of receiving a transfer increase with the respondent's own education and the education of their parents, although here too several of the coefficients are measured imprecisely.

The coefficient on race is large and statistically significant. In interpreting this coefficient, it bears noting that we have omitted several important factors, including parental income and wealth. The lower frequency of transfers among Black families is likely in part a function of older generations having less wealth to share.

How Large Are the Transfers?

Table 1 also presents the mean and median transfer amounts for individuals who report receiving them. These amounts are totals summed over all transfers and reported in 2019 dollars. The mean transfer for White respondents is twice as large as that for Black respondents, but the median is only about one-third larger. This suggests that the transfer distributions of the two races differs primarily because of differences in the upper tail.

Figure 2 — which shows the distribution of transfers across size bins — confirms this intuition. While almost 5 percent of White transfer recipients report receiving $1 million or more, virtually no Black transfer recipients report the same.

One reason Black individuals receive smaller total dollar amounts is that they receive fewer transfers. Figure 3 shows that almost a third of White individuals receive more than one inheritance or gift, while only 7 percent of Black individuals receive multiple transfers.

Who Gives the Transfers?

Figure 4 shows the distribution of transfers by source. The unit of observation in this figure is the transfer itself, unadjusted for size, rather than the recipient.

The figure reveals that among White respondents, 79 percent of transfers originate from the recipients' parents, 7 percent from their grandparents and 13 percent from other sources.⁶ Among Black respondents, 84 percent of transfers originate from the recipients' parents, 12 percent from their grandparents and only 4 percent from other sources. These differences may suggest that White families have broader financial support networks than their Black counterparts.

A curious result is the low rate of child-to-parent transfers among either race. Papers using other data sources find that Black individuals are more likely to transfer resources to their parents.⁷ The discrepancy may reflect differences in variable construction across the various surveys, but this remains to be confirmed. Table 5 shows how the probability of receiving a transfer — equivalently, the odds of someone's relatives giving them a transfer — depends on the educational attainment of one's parents.

While the odds that a White individual receives a transfer increase monotonically with their parents' education, the pattern for Black individuals is much weaker. The fraction of Black individuals who have college-graduate parents and receive transfers is only 1.2 percentage points higher than the fraction for those whose parents' highest attainment was high school.

It is unclear why this effect is so small. Perhaps most college-educated parents were themselves first-generation graduates, inheriting little wealth and having to support their own parents. Regardless of the cause, education is a weak proxy for wealth accumulation among Black families. Using data from the Panel Survey of Income Dynamics, the 2017 paper "'Family Achievements': How a College Degree Accumulates Wealth for Whites and Not for Blacks" reports similar findings.

Conclusion

In this article, we use data from the SCF to contrast intergenerational wealth transfers among Black and White families. We find that Black individuals are much less likely to receive any inheritances or gifts. Even when receiving transfers, Black individuals receive smaller amounts, with a much lower probability of extremely large transfers.

Those familiar with the Black-White wealth gap may not find these results surprising. Perhaps more surprising is the lack of an education gradient in transfers among Black families, even as the gradient for White families is pronounced. While first-generation college graduates may not expect much in the way of transfers from their less-educated parents, Black individuals with college-educated parents are also very unlikely to receive transfers. Our findings — along with historical data showing a longstanding wealth gap — suggest that low wealth can persist among Black families for generations.

John Bailey Jones is a vice president and economist and Urvi Neelakantan is a senior policy economist in the Research Department of the Federal Reserve Bank of Richmond.

To cite this Economic Brief, please use the following format: Jones, John Bailey; and Neelakantan, Urvi. (December 2022) "How Big Is the Inheritance Gap Between Black and White Families?" Federal Reserve Bank of Richmond Economic Brief, No. 22-49.

This article may be photocopied or reprinted in its entirety. Please credit the authors, source, and the Federal Reserve Bank of Richmond and include the italicized statement below.

Views expressed in this article are those of the authors and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.