...disproportionately impact the financial wellbeing of Black and Hispanic families

Originally by JPMorgan Chase Institute

As the impacts of COVID-19 continue to ripple through households and communities, the JPMorgan Chase Institute has released new research on racial gaps in financial outcomes, as well as how families of different racial groups weather fluctuations in income. The report and accompanying academic paper highlight some of the ways in which COVID-19 may disproportionately impact the financial wellbeing of Black and Hispanic families by offering a new lens into how families respond to income fluctuations across racial groups. An accompanying Insight, also released today, further explores the report findings in light of the current COVID-19 context, as many families are now experiencing income drops and layoffs and receiving stimulus checks.

The report, developed over the past two years, leverages a novel de-identified data source — administrative banking data paired with self-reported race information for 1.8 million families in Florida, Georgia, and Louisiana and shows there are large racial gaps in take-home income and liquid assets that persist across age, income, gender, and geography.

This research also offers a new lens into how families of different racial groups respond to income fluctuations, an event that is especially prevalent now due to business closures and layoffs. It also examines the impact of tax refunds on spending—a payment that could look similar to the direct payment that many American taxpayers expect to receive as a result of the federal CARES Act.

Key Findings:

1. The racial gap in financial assets makes Black and Hispanic families more vulnerable to fluctuations in income. If Black, Hispanic, and White families all had the same levels of liquid assets, we might expect to see almost no racial differences in their spending response to involuntary job loss, payroll fluctuations, or the arrival of the tax refund.

Job Loss: After involuntary job loss, Black and Hispanic families cut their everyday spending (e.g. groceries, household products) more than White families. For every dollar lost in income, Black families cut spending by 46 cents and Hispanic families cut spending by 43 cents, whereas White families cut spending by only 28 cents.

Payroll fluctuations: In a companion academic paper, we examine the path of families’ spending when their employer raises or lowers pay for all employees. In the face of employer-driven payroll changes, Black families alter consumption by 50 percent more than White families, and Hispanic families by 20 percent more than White families.

Tax Refund: Black and Hispanic families increase their spending to a greater extent when they receive a tax refund. In addition, families of all racial groups spend their tax refunds similarly in that they withdraw more cash, spend more on durables, and make larger credit card payments.

Importantly, across all three of these illustrations – involuntary job loss, payroll fluctuations, and the arrival of the tax refund—racial differences in the spending response largely disappear when we account for racial gaps in liquid assets.

2. There are large racial gaps in take-home income and liquid assets that persist across age, income, gender, and geography.

• Take-home income - For every dollar the median White family earns, the median Black family earns just 71 cents, and the median Hispanic family earns 74 cents.

• Liquid assets - Racial gaps in liquid assets are twice as large as gaps in income. For every dollar of liquid assets held by White families, the median Black family has just 32 cents, and the median Hispanic family just 47 cents. Even among families with similar incomes, for every dollar in liquid assets White families have, Black families have roughly 50 cents and Hispanic families have roughly 70 cents.

• Age - Racial gaps in liquid assets are larger for older account holders. For White families, liquid assets increase by five-fold between the ages of 18-24 and 65+. Among Black families they increase just three-fold and among Hispanic families, they actually fall with age after peaking among 35-44 year olds.

• Geography - Across Louisiana, Georgia, and Florida, financial outcomes vary the most among Hispanic families and least among Black families. Black-White gaps are largest in Louisiana, and Hispanic-White gaps are largest in Florida.

As the U.S. continues to manage the spread of COVID-19, policymakers, non-profits, and business leaders need to be especially attentive to policies that support lower-income and Black and Hispanic families who may be disproportionately impacted financially. For more, read the full report here.