Racial Gaps in Financial Outcomes : Big Data Evidence

Even amidst strong macroeconomic conditions, families experience high levels of income volatility that have important implications for well-being. Families with limited liquid assets are dramatically less likely to smooth consumption in the face of income fluctuations, and it stands to reason that racial gaps in liquid assets could result in racial differences in consumption smoothing. In this report, the JPMorgan Chase Institute uses administrative banking data to study racial gaps in liquid assets, take-home income, and families’ consumption response to income volatility from the vantage point of a novel de-identified data source: administrative banking data paired with self-reported race information from voter registration files. We find large racial gaps in take-home income and liquid assets which persist across age, income, gender, and geographic segments. Additionally, we find racial differences in consumption smoothing. Compared to White families, Black and Hispanic families exhibit sharper drops in spending after involuntary job loss and larger increases in expenditures after the arrival of the tax refund. However, these racial differences in consumption smoothing are explained by racial gaps in liquid and financial asset buffers. Taken together, our results shed light on the distributional impacts and importance of efforts to reduce financial volatility and increase liquid assets for low-income families and address the structural factors that contribute to racial gaps in income and assets