The relative, historic highs of the U.S. stock market in recent years belie the fragile financial circumstances of more than one-quarter of American households that are struggling to get by.
“The Report on the Economic Well-Being of U.S. Households,” recently released by the Federal Reserve, reports that 74 percent of U.S. adults say they are “living comfortably” or “doing OK,” an improvement since last year’s survey. But that means more than one-quarter are not doing okay, including more than one-third of black and Hispanic adults. Furthermore, 4 out of 10 adults surveyed said they could not pay an unexpected expense of $400 without borrowing or selling something. The numbers shine a light on the fact that a significant percentage of U.S. households are still living on the edge.
The report, based on the Fed’s fifth annual “Survey of Household Economics and Decisionmaking,” does not break down the data based on gender. But it’s safe to assume that women—the sole, primary, or co-breadwinners in more than two-thirds of U.S. households—are more likely to be among those struggling to make ends meet as they face a pay gap and a wealth gap that limits their capacity to earn, save, invest and protect their assets.
Most of us have seen the data on the pay gap: Women earn 80 cents on the dollar compared to men, and for black and Latina women, it’s 63 cents and 54 cents respectively. But few people realize that the women’s wealth gap is far greater than the income gap. And for women of color, it’s not a gap, but a chasm. At the median, single women own just 32 cents for every dollar owned by white men, and black and Latina women own less than a penny.
Our national dialogue about growing inequality often refers to income and wealth defining the problem, but we typically focus on income and the workplace when we look for solutions. The same is true when we talk about gender inequality. Make no mistake: Closing the gender income gap is critical to reducing economic insecurity for women and their families, but it’s not enough to ensure their long-term prosperity. That’s because it’s only part of the problem.
Wealth is different than income. Wealth is a family’s assets minus their debt. It includes all of their savings and any equity they have in a home or business, minus credit card, student loan, mortgage, or other forms of debt. It’s what they rely on to get through emergencies—a sick child, job loss, or divorce; it’s resources for a secure retirement; and it’s a nest egg that can be passed on to ease the future emergencies or major transitions of the next generation. It’s wealth, not income, that has the greatest potential to improve the economic mobility of women, their families, and future generations.
Why are there such stark wealth gaps? We need to look at our nation’s long history of racial and gender discrimination to understand the causes of the women’s wealth gap. Many households of color were excluded from owning property and building wealth for centuries due to de jure and de facto discrimination. This included the sale and bondage of people of African descent to build wealth for white people, laws that restricted business ownership and the occupations of free black people to menial sectors, redlining and racially restrictive covenants, and public programs like Social Security, which explicitly left out domestic and farm workers, who were mostly people of color. If we layer on a long history of laws that excluded women from owning property, earning advanced degrees, or accessing mortgage and business credit in their own name, it gives you a sense of how history has created the women’s wealth gap we see today.
But the drivers of the gap are not behind us. Today, women, and especially women of color, face public systems and private sector practices that limit or undermine their capacity to build their economic security. For example, women, especially women of color, are less likely to be eligible for employer-based benefits—like paid leave and retirement-savings plans—because they work part time, often to care for family members, or in industry sectors, or for smaller firms that don’t offer benefits. When they do gain access to retirement savings, they’re often given investment advice that is tailored to meet the needs of men—who will likely work more paid hours, earn higher incomes, and live fewer years.
Women, especially lower-income women, are less likely to have access to public benefits that support savings and investment because of the way they’re structured. Take Social Security, for example. The formula used to determine benefits penalizes women when they take time out of the workforce—known as “zero-earnings years”—to care for family members. Some countries give “caregiver credits” for this unpaid labor; the U.S. system does not. This means that lower-income women will retire with more years to live (on average) but fewer benefits than men, thereby increasing their chances of living in poverty during their so-called golden years.
Closing the women’s wealth gap is good for women and it’s good for our economy. The World Economic Forum estimates that advancing gender economic parity in the U.S. will grow our GDP by $1.75 trillion.
So what can we do about it?
One approach is to increase women’s access to retirement-savings plans. For example, California recently passed a policy that requires small businesses to give their workers access to retirement-savings accounts and creates the infrastructure to help them do so. When fully operational in early 2019, the CalSavers program will give millions of working women in California a pathway to save for retirement.
Private sector leaders are also recognizing that meeting the financial needs of women is good for business. One market innovator, Ellevest, is targeting investment services to women based on algorithms that take women’s incomes and life spans into account.
The new Fed data shows we have a lot to do to build the financial security of the 1 in 4 U.S. families that aren’t “doing okay.” Women today play a pivotal role in the financial well-being of families, communities, and even the national economy. Isn’t it about time that we changed public systems and private sector services to support them in that role?