Wealth Disparitites Among Mature & Older Adults

Smith, James

Abstract

There is little known with any confidence about the adequacy of wealth for poor people and for our two most numerous minorities-Blacks and Hispanics. Due in part to this inadequacy of data, as well as the inherent difficulty of the issues, surprisingly little is known about what generates the enormous asset differences observed across socio-economic classes. This project attempts to comprehensively describe the patterns of asset accumulation and savings among middle-aged and older American households. This description will be comprehensive in an important dimension often ignored in the literature. Most studies have used personal net worth, but this ignores large components of wealth-pensions and Social Security in particular. These often-neglected components are not only quantitatively large, but they are distributed quite differently across income and race than personal net worth is. By viewing all these components in combination as well as in isolation, new insights can be gained about the reality and motives that cause wealth differences across households. The research will also examine the trajectories in these components and aggregates of wealth as these mature and older adults age. There is good a priori reason to believe that components of personal wealth such as pension and social security wealth have very different age trajectories than the more conventional definition. The research will also attempt to isolate some of the underlying reasons and behaviors that may account for why the large wealth differences likely to emerge in this research exist. Such differences could result from differential inheritances and bequests, lower permanent income or poorer health, taste differences operating through time and risk preferences, high old age replacement rates through social insurance and pension programs, more extensive family support networks, and asset tests in means tested social insurance programs that discourage asset possession. Fortunately, HRS and AHEAD have data relating to all the factors mentioned in this paragraph. Two important new data sets will be used-the Health and Retirement Survey (HRS) and Asset and Health Dynamics of the Oldest-Old (AHEAD). Combined, these two innovative surveys span the mature and older ages in the life cycle. They hold the promise of significantly improved measurement of wealth both in the quality of individual items as well as the components of wealth that can be measured.