Racial Gaps in Financial Outcomes: Big Data Evidence

56 Pages Posted: 19 May 2020

See all articles by Diana Farrell

Diana Farrell

JP Morgan Chase & Co. - JP Morgan Chase Institute

Fiona Greig

JPMorgan Chase Institute

Chris Wheat

JP Morgan Chase & Co. - JP Morgan Chase Institute

Max Liebeskind

JPMorgan Chase Institute

Peter Ganong

University of Chicago; National Bureau of Economic Research (NBER)

Pascal Noel

University of Chicago Booth School of Business

Damon Jones

University of Chicago - Harris School of Public Policy

Date Written: April 21, 2020

Abstract

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.

Keywords: racial gaps, household income & spending, consumption response, job loss

JEL Classification: J10, J15, D10, E2

Suggested Citation

Farrell, Diana and Greig, Fiona and Wheat, Chris and Liebeskind, Max and Ganong, Peter and Noel, Pascal and Jones, Damon, Racial Gaps in Financial Outcomes: Big Data Evidence (April 21, 2020). Available at SSRN: https://ssrn.com/abstract=3582557 or http://dx.doi.org/10.2139/ssrn.3582557

Diana Farrell

JP Morgan Chase & Co. - JP Morgan Chase Institute ( email )

New York, NY
United States

Fiona Greig (Contact Author)

JPMorgan Chase Institute ( email )

Washington, DC
United States

Chris Wheat

JP Morgan Chase & Co. - JP Morgan Chase Institute ( email )

New York, NY
United States

Max Liebeskind

JPMorgan Chase Institute ( email )

601 Pennsylvania Avenue NW
Washington, DC 20004
United States

Peter Ganong

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pascal Noel

University of Chicago Booth School of Business ( email )

Damon Jones

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

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