A college education has always been associated with higher long-term pay and wealth. Education has also traditionally been thought to “protect” wealth and mitigate the effects of an economic downturn.
However, new research suggests this trend may not hold true across all racial and ethnic groups. A study by the Federal Reserve Bank of St. Louis found that college-educated blacks and Hispanics lost significantly more wealth in the recent recession than their counterparts without college degrees.
According to the study, black college grads lost 59.7 percent of their median net worth from 2007 to 2013, while blacks who did not attend college lost only 37.3 percent of their wealth during the same period.
Why would a college education result in a greater loss of wealth?
The authors speculate that “financial decision-making” probably played a role. Research found that black college graduates had a much higher debt-to-income ratio than blacks without college degrees, and the authors thought it might be possible that the college grads were hit harder during the recession because they were homeowners.
College-educated Americans are more likely to be homeowners, regardless of race, however, the decline in the average value of homes among college-educated black families between 2007 and 2013 was 51 percent, while the average decline in home value for college-educated white families was 25 percent.
“That’s a perfect example of why housing is such a risky asset,” William Emmons, senior economic advisor at the St. Louis Fed told CBS Moneywatch. While Americans often believe homeownership is “the road to wealth accumulation,” the impact on black and Hispanic families “shows the risks about a concentrated asset that’s very undiversified geographically,” he said.
The study found that whites and Asians sustained more minimal losses during the recession, and a college education had the opposite effect on these groups. College-educated whites lost 16 percent of their net wealth from 2007 through 2013, compared with a loss of 32.9 percent for those without college degrees.
“Evidence presented here suggests that college degrees alone do not provide short-term wealth protection, nor do they guarantee long-term wealth accumulation,” the report concluded. “The underlying factors causing racial and ethnic wealth disparities undoubtedly are complex and deeply rooted. Further research is needed.”
