Wealth and Achievement

People are generally aware that coming from a low-income background tends to impair achievement in school, but via Sara Mead, W. Jean Yeung and Dalton Conley look at wealth as a factor in "Black-White Achievement Gap and Family Wealth":

This article examines the extent to which family wealth affects the Black–White test score gap for young children based on data from the Panel Study of Income Dynamics (aged 3–12). This study found little evidence that wealth mediated the Black–White test scores gaps, which were eliminated when child and family demographic covariates were held constant. However, family wealth had a stronger association with cognitive achievement of school-aged children than that of preschoolers and a stronger association with school-aged children’s math than on their reading scores. Liquid assets, particularly holdings in stocks or mutual funds, were positively associated with school-aged children’s test scores. Family wealth was associated with a higher quality home environment, better parenting behavior, and children’s private school attendance.

Asset building remains a seriously under-discussed issue in American public policy in a whole variety of ways.

Comments

One of the things to remember regarding asset building is the effect of real estate prices on generational wealth. Real estate prices in areas populated by minorities is normally severely depressed compared to real estate in largely white neighborhoods. Since most middle class wealth is built through home ownership, if the value of that asset does not appreciate for minorities, then minorities will not have the same ability to pass on wealth to their children and grandchildren.

Posted by David Amann | April 2, 2008 2:03 PM

Your girlfriend is whistling past the graveyard. She is looking for spurious correlations while ignoring the most obvious causative factors. Do you really think that Rahmana Muhammad’s children would be any more educable if you put $20k in a Fidelity account for her?

THIRD grade has always been a hard year for Rahmana Muhammad’s children, and therefore for her. All of a sudden, it seems to this mother of four, their textbooks have fewer pictures, their homework lasts for hours, and their test scores plummet.

Posted by Juan | April 2, 2008 2:18 PM

Real estate prices in areas populated by minorities is normally severely depressed compared to real estate in largely white neighborhoods.

Really? Are you sure about that? For example, Los Angeles is probably the national epicenter of the real estate bubble, but LA's population these days is almost 90% non-white-European, i.e. "minority".

On a broad scale, California is the LEAST white European large state, but also the one with the sharpest recent rise in real estate prices.

To a considerable extent, this same anti-correlation applies to New York City and many other major regions of the country as well.

Posted by RKU | April 2, 2008 2:28 PM

So if your grandparents were smart and hardworking and saved a lot of money and your parents are the same, then you'll more likely be smart too?

Posted by Steve Sailer | April 2, 2008 2:38 PM

RKU,

"Minority" is a little imprecise. I'm sure there are plenty of minorities in million-dollar houses in the fancier towns in Silicon Valley, for example, but these minorities are South- and East-Asians, not blacks or Chicanos.

As for New York City, go for a walk in an upscale residential neighborhood sometime, e.g., the Upper West Side. Aside from the Mexican delivery boys on bikes and a smattering of other minority service workers (e.g., black Caribbean nannies pushing strollers with white or Asian babies in them), the people you'll see are overwhelmingly white (and, to a lesser extent, Asian).

Posted by Fred | April 2, 2008 2:41 PM

Asset building remains a seriously under-discussed issue in American public policy in a whole variety of ways.

And, of course, the Democrats' solution will involve taxing the wealth of those who have it.

Posted by Anno | April 2, 2008 3:04 PM

"Asset building remains a seriously under-discussed issue in American public policy in a whole variety of ways."

This isn't even true. Plenty of the Bush administration's domestic policies were designed to facilitate asset building: lowering the tax rate on capital gains and dividends, doubling the contribution limits on IRAs, raising the contribution limits on 401(k)s by more than 50% (doubling them for those 50 or over), and proposing adding optional private accounts to Social Security.

Of course, the Social Security proposal was DOA, but part of the motivation behind proposing private accounts was to give low-income workers a way to build intergenerational wealth. There are probably better ways to do that, but they would probably have to involve a similar carve out from the payroll tax to give low-income workers an incentive to participate. Since our income tax system is so heavily progressive already, the bottom 40% of earners have no net income tax liability; hence, they have less incentive to contribute to IRAs and 401(k)s, which are income tax-advantaged, but not payroll tax-advantaged.

Posted by Fred | April 2, 2008 3:28 PM

Federal income tax may be progressive, but taxes as a whole as relatively flat except for the extremes. I don't think people paying little federal income tax aren't putting money into IRAs due to the lack of tax benefits. It's most likely the lack of money.

I don't think you can directly target asset building with tax code revisions. Rather, it's following and enacting policies that lead to gains at all income levels. In other words, elect a Democratic president.

Posted by American Citizen | April 2, 2008 3:43 PM

What remains seriously under discussed is the fact that black Americans (with the exception of those who are recent immigrants from other countries) are the only group in this country who suffer under the disadvantage of having had their inheritance -- the fruits of their forebears labor -- stolen from them through law. First by the institution of slavery, later by the injustices of Jim Crow.

The Baby Boomer generation is the very first generation of black Americans to spend their working life without those formalized, legal impediments to asset creation -- although they have certainly had to, over the decades since the passage of the Civil Rights Act, continue to deal with and fight income and asset limiting discrimination in various guises.

What really needs to be discussed is some form of reparations to address this injustice. Perhaps through massive investment in educational institutions as well as programs designed to support small business creation and home ownership in the African American community.

Posted by esmense | April 2, 2008 4:22 PM

"Perhaps through massive investment in educational institutions as well as programs designed to support small business creation and home ownership in the African American community."

I agree with the premise of the argument -- that today's African-Americans suffer because they didn't inherit as much from previous generations as they would have without Jim Crow. The most overlooked factor in American life is the importance of who your relatives are.

On the other hand, we are now in the 44th year of the Great Society, 40th year of the Affirmative Action era, 39th years of minority business enterprise promotion, 15th year of home loans to minorities programs (by the way, how's _that_ working out lately?), etc. etc. Trillions have been transferred to blacks over the last four and a half decades as, in effect, compensation. How's that worked out?

And, in some areas where blacks were not legally restricted from property ownership, and indeed had prospered in factory jobs, such as Detroit, the new generation managed to trash post-1965 most of the market value of their parents' homes through riot (e.g., Detroit 1967), crime, arson (Devil's Night), drug use, electing crooked politicians (e.g., the latest Detroit mayor), disruptive behavior in the public schools, etc. At this point, parts of Detroit, such as the State Fair neighborhood, are being reclaimed by the Michigan forest.

So, here's a modest suggestion: better behavior by blacks would make homes in black neighborhoods worth more (due to increased demand) and homes in white neighborhoods worth less (due to greater supply of homes in acceptably satisfactory neighborhoods). Indeed, we've seen some of this over the last 15 years and I hope the trend continues.

Posted by Steve Sailer | April 2, 2008 4:44 PM

Mr. Sailor --

African Americans aren't responsible for America's transition from an industrial economy to a service economy or for the corresponding collapse of many of our older, industrial cities and regions. But, because of racism and the limits it places on (physical) mobility, it has been more difficult for them to escape the ill consequences of that transition and collapse.

As for the Great Society and other programs you mentioned; they have never been implemented to any great degree and have, during the last close to 40 years, mostly been admininistered by Republican administrations that did not believe in them -- and primarily used them, often corruptly, to reward various well-to-do constituencies of their own.

Nonetheless, there is no denying that the US African American community has made economic strides and boasts a much broader and more affluent middle class now than during the mid-60s. Some of that was probably helped to at least some small extent by those programs, but, most likely, even more so by affirmative action.

What is needed now is something entirely different from what we have seen in the past -- a very deep and substantial investment in the educational resources available to African American children, investment in cultural and economic institutions in African American communities, and some serious thought given to how to address the mobility problem.

I personally come from a long line of economic "boomers" -- my Scots forebears landed in Virginia early in the 18th Century and their progress across the continent -- and in the post War era of the 50s,60s and 70s, out into the broader world -- as skilled craftsment, teachers and preachers, merchants, builders, engineers, skilled professionals and entrepreneurs, reads like an economic history of the US. I am well aware that without the ability to pull up roots and easily go where opportunity was most presenting itself, my own family's fortunes would have been limited. I think many white Americans fail to consider the advantage this kind of mobility confers on them -- and the disadvantage suffered by those for whom lighting out from the community in which they were born to a new place in which they are strangers and alone is likely to hold grave danger.

Posted by esmense | April 2, 2008 8:11 PM