Chiteji and Hamilton
9
FAMILY CONNECTIONS AND THE BLACK-WHITE
WEALTH GAP AMONG MIDDLE-CLASS FAMILIES
N. S. Chiteji and Darrick Hamilton
One undisputed fact in the literature on black families is that informal
forms of social support are important in the black community. This literature notes that for black Americans, extended family members often
serve as key bastions for psychological and economic assistance, providing emotional support, money, child care, housing, and food to their
relatives when necessary (Stack 1974; McAdoo 1978; Chatters and
Jayakody 1996; and Taylor, Chatters, and Mays 1998). Such findings
surrounding the importance of family members in providing assistance
among black families parallel more general findings about exchange between families that have been obtained from nationwide research (Cicerelli
1985; Mutran 1985; and Iceland and Hofferth 1997, for example). One
important question that must be asked is how providing social support to
relatives affects the giver. This paper seeks to determine whether such
inter-family connections affect middle-class black families’ ability to accumulate wealth.
Why might wealth accumulation be affected? Considering financial
support exclusively, there is evidence to suggest that the sums of money
being transferred between households are not inconsequential, and that
the number of families engaged in this behavior is not negligible. While
data for black families alone is not widely available, Iceland and Hofferth
(1997) found that among all U.S. households the average annual amount
given to relatives was $3,554 per giving household (in 1988 dollars).
After reviewing several studies, Schoeni (1992) reports that estimates
range from about $1,500 to about $16,000 for the average amount given
by a U.S. household. Schoeni (1992) also reports that the proportion of
households who give monetary assistance to others ranges from about 9
percent to about 16 percent; and that a range of about 5 percent to 33
percent of families are recipients of monetary transfers (Schoeni 1992).
The involvement of parents, adult children and siblings in making these
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The Review of Black Political Economy/Summer 2002
monetary transfers also is highlighted in Schoeni (1992), which notes
that other relatives and non-relatives are only a small proportion of those
involved in inter-household monetary exchange.
Along with this evidence on the widespread financial support that
relatives provide to one another, there also is some suggestion that there
is an inverse relationship between economic status and the receipt of
social support. Mutran (1985), for example, finds that parental income is
inversely related to parents’ receipt of assistance from adult children.1
This result is consistent with the expectation that transfers would flow
primarily from those with resources to those without, either in response
to outright requests by those with few resources or because of their
perceived need. This logic has particular implications for black families
because many black families who are not poor themselves have relatives
who are poor in their extended families (Pattillo-McCoy and Heflin 1999;
Heflin and Pattillo-McCoy 2000; Pattillo-McCoy 1999). Accordingly,
black families who are not poor are not necessarily isolated from poverty. Instead, moderate to well-to-do black families are in a position to
face pressure to make transfers to poor relatives. This would be expected
to potentially have adverse effects on these families’ ability to accumulate wealth, and it may help explain the wealth gaps that many researchers have observed between black and white families in the United States.
The paper is organized as follows. The next section reviews the existing research discussing asset accumulation among black families and
racial inequality in the distribution of wealth. It also discusses the connection that can be made between racial differences in levels of wealth
and poverty in the extended family. The third section describes our dataset
and the procedures that we use to conduct our empirical analysis of the
connections between poverty in the family and black-white wealth differentials, while the fourth section presents our empirical results.
ASSET ACCUMULATION AMONG BLACK FAMILIES AND
RACIAL WEALTH INEQUALITY
Examination of data on the amount of wealth held by American families consistently reveals that wealth is unevenly distributed by race in the
United States. Evidence indicating that black families possess less wealth
than white families—as little as one-sixth the wealth of whites—has been
found using such wide-ranging data sets as the Survey of Income and
Program Participation (Oliver and Shapiro 2000), the National Longitudinal Survey of Youth (Blau and Graham 1990), the Survey of Consumer
Chiteji and Hamilton
11
Finances (Wolff 1998), and the Panel Study of Income Dynamics (Hurst,
Luoh, and Stafford 1998).2 All attest to the greater wealth of the average
white family. This race gap is of interest, partly because economics typically portends that race should not be a consideration that affects economic outcomes, yet racial wealth gaps persist even after factors that
economics traditionally offers to explain saving behavior are taken into
account. It also captures researchers’ attention because wealth serves a
pool of resources that families tap into in times of distress and during
their retirement years. Families with little wealth are vulnerable in the
presence of shocks.
While recent research has compiled ample evidence to demonstrate
that levels of wealth are low among black families, and that a racial
wealth gap exists in the United States, researchers are less certain about
the causes of these trends. In the attempt to explain the differences between blacks and whites, analysts have focused on a wide range of variables; and studies vacillate between blaming the personal characteristics
of blacks for the outcome to pinpointing constraints that black families
have faced historically in their attempts to garner wealth. For example,
some research has debated the existence of racial differences in saving
rates (Alexis 1971; Friedman 1957; Galenson 1972, for example). The
relevance of this type of research follows from the traditional economic
assumption that it is saving that fuels wealth accumulation, and it ultimately raises questions about different groups’ propensity to forego current consumption. Other scholarship has emphasized differences in knowledge about individual assets, particularly potentially lucrative assets such
as stocks, whose returns had been remarkably high during the 1990s
(Chiteji and Stafford 2000). Still others have noted that, historically, government policies have favored and subsidized asset accumulation among
whites (Oliver and Shapiro 1995). Additional research has argued that
the racial wealth gap reflects the effect of past and/or continuing market
discrimination—for example, in housing markets (Oliver and Shapiro 2000).
While all agree that income not consumed represents an addition to a
family’s existing stock of wealth, the literature on racial differences in
saving rates is somewhat mired in controversy. Questions abound surrounding how much of a role individual saving plays relative to inheritance in explaining observed differences in accumulated wealth in practice (Blau and Graham 1990; and Menchik and Jianakoplos 1997, for
example); and, more fundamentally, how to best measure saving, since
the existence of asset appreciation may “bias” inferences about thrift that
rely solely on net worth data.
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The Review of Black Political Economy/Summer 2002
Thoughtful reflection reveals that the findings in the literatures covering the black family and inter-family transfers introduce the possibility
that there may be yet another factor to consider when contemplating
saving behavior and wealth accumulation. Families who are presumed to
be well-positioned to accumulate assets because of their income status,
their having attained high occupational prestige, or their having high
levels of education, may find their ability to save to be restricted if they
have poor relatives who rely on them for financial support. It therefore is
reasonable to ask whether there is a connection between the low levels of
wealth possessed by African Americans and poverty among their kin.
Heflin and Pattillo-McCoy (2000) takes a step toward examining the
extent to which the economic status of family members in a household’s
extended family creates constraints that ultimately affect black families’
ability to accumulate assets. Using sibling data from the National Longitudinal Survey of Youth (NLSY) they find that for middle-class families,
having poor siblings is negatively associated with both the odds of owning a bank account and the odds of owning a home, thereby offering
support for the hypothesis that there are family-based constraints on asset
accumulation emerging from the need to make transfers to poor relatives
in one’s kin network. They also find that differences in sibling poverty
explain a portion of the racial gaps in account ownership and in home
ownership. Chiteji and Hamilton (2000) analyzes data from the Panel
Study of Income Dynamics (PSID), which allows one to examine parental poverty in addition to the economic status of siblings. They find that
poverty and economic hardship within the extended family reduce the
probability of a middle-class family’s owning a bank account, the probability of owning stock, and their level of net worth. Chiteji and Hamilton
(2000) also finds that the inclusion of parental and sibling poverty and
hardship measures reduce the size of the race coefficient that typically is
found in regressions. One question that remains, however, is how much
of the gap between the holdings of black and white families is explained
by differences in poverty in the family. This is the question that our
analysis seeks to answer.
METHODOLOGY AND DATA
This paper focuses on the predicament of middle-class families for two
reasons. First, eliminating low and high socioeconomic families rids the
analysis of extreme observations, providing an implicit control that allows us to focus on more ‘typical’ families. Second, much of contempo-
Chiteji and Hamilton
13
rary research and public discussion presumes that black middle-class
families have “made it,” possessing either the income, professional status, or education to put them on par with “typical” white families.3 These
characteristics seemingly would enable them to subsequently accumulate
wealth at the same rate as their white peers. Additionally, the middle
class represents families who presumably have surplus resources above
what is needed to meet basic needs that potentially can be transferred to
others.
Our analysis adopts an income-oriented definition of middle class,
designating families as middle class if they fall within the middle 60th
percentile of the income distribution.4 This sample of middle-class families is taken from the 1994 Panel Study of Income Dynamics (PSID), and
it includes about 3,000 families. The PSID is a nationally representative
survey of U.S. households that contains information about a variety of
economic sociodemographic characteristics of U.S. families. It began
following a set of households in the 1960s, tracking them and the new
families created when the children of the original sample families become adults and set up their own families over time. The PSID, therefore, is uniquely suited to our analysis.5 It is one of the few surveys that
permit one to obtain information about families and their relatives; it
offers data on the parents of our sample of middle class families in
addition to the data covering the plight of their siblings.
Variables Incorporated in the Analysis
Measures of total household wealth, individual asset holdings, and
portfolio allocation are taken from the “1994 Wealth Supplement.” Total
household wealth is measured as net worth including home equity. This
variable is a summation of dollar amounts held in all individual assets net
of the value of a household’s debts. Information about individual assets
is used to separate total wealth into the component comprised of financial holdings (dollar amounts held in bank accounts, stock, and bonds),
and the portion represented by holdings of assets that generate a flow of
consumable services (automobile and other “wheel” wealth, and housing).6 We also incorporated data from another PSID supplement—the
“Active Savings Files: 1984–1989, and 1989–1994.”
Data obtained from the core survey of the 1994 PSID also is used in
the analysis. Our empirical research includes demographic variables measuring the number of children in the family, the age of the household
head, the gender of the household head, the race of the household head,
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and marital status. It also includes a measure of occupation (a dummy
variable indicating whether the occupation is in the professional or managerial category), an educational variable (years of schooling of the household head), and a measure of income that is both long-term and not
contemporaneous with our wealth measures. We construct this income
measure by compiling data from the 1987, 1988, 1989, 1990, and 1991
PSID surveys. We then take the average of labor income over this five
year period as a measure of average lifetime income. The analysis also
incorporates one variable from the “1984 PSID Wealth Supplement.”
From it we obtain a measure of our families’ parents’ net worth. Finally,
our regressions include a dummy variable that indicates whether the
middle-class family received a bequest. This variable is constructed from
the data on inheritance contained in the “1989–1994 PSID Active Savings File.”
To examine poverty in the extended family, we obtain a variety of
measures of the economic circumstances of parents and siblings, all from
the 1994 core survey of the PSID. This includes parent and sibling income measures, which measure total family income. It also includes an
income to needs ratio, which compares a family’s total family income to
the poverty threshold for a family of comparable family size. And, it
includes four dummy variables: (1) one indicating whether the parents’
(sibling’s) total family income falls below the poverty threshold given
their family size, (2) another indicating whether the parent (or sibling)
received either aid to families with dependent children or foodstamps, (3)
a variable denoting the employment status of the parents (siblings), and
(4) a variable that indicates whether a middle-class family’s parents (siblings) lived in public housing. Each provides an indication of the extent
to which there is economic hardship or need among a middle-class family’s
parents or siblings.
EMPIRICAL RESULTS
This section first discusses our descriptive statistics in order to compare the experiences that middle-class black and white families have with
wealth accumulation and poverty and economic need in their extended
family. It then reports the results of regression analysis that examines the
relationship between the gap between blacks and whites’ levels of wealth
and differences in amount of poverty in the family that blacks and whites
experience.
Chiteji and Hamilton
15
Patterns of Asset Accumulation by Race
Because the literature on racial wealth inequality has demonstrated an
interest in levels of wealth, in the composition of black portfolios, and in
saving rates, we present descriptive data covering each of these three
dimensions of saving behavior. Analysis of the PSID data confirms the
standard findings that (1) nationally, black families possess less wealth
than white families do, and (2) that they hold a smaller portion of their
wealth in financial form than white families. As shown in Table 1, the
net worth of the average black family amounts to about $34,500 (in 1994
dollars), while the average white family possesses about five times this
amount. Additionally, about 25 percent of black wealth is held in financial form, with about 75 percent held as consumable wealth, while the
portfolios of white families exhibit a 32–63 split between financial and
consumable assets.7 Ownership rates for individual financial assets also
are lower for blacks than they are for whites.
Not surprisingly, these racial gaps shrink when one restricts the analysis to middle-class families, but sizeable differences remain nonetheless.
The net worth of the average middle-class black family is about $36,000
(in 1994 dollars). Middle-class whites hold about three-and-a-half times
this amount. The differences in portfolio composition narrow only slightly
when the analysis is restricted to middle class families. The difference
between the financial share of the portfolio held by middle class black
families and that held by middle-class white families falls only about 5
percent, from 31 percent to 26 percent (see Table 1).8
While discussions of portfolio composition have received much attention in the literature on racial wealth inequality, largely because examining the extent to which differences in the share of the portfolio held in
financial form narrow as one controls for class status offers a way to
gauge the degree to which black and white families become similar at
high levels of economic status, examining the share of the portfolio held
in financial form is not the only way to measure families’ connection to
the financial marketplace. One also can examine data covering individual
assets. Examination of data on the proportion of middle-class families
holding individual financial assets suggests less similarity among middleclass black and white families than one might infer from the broader
measure of financial share of the portfolio. Middle-class black families
exhibit lower rates of asset ownership than white families when one
examines bank accounts and stock. For example, about 86 percent of
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The Review of Black Political Economy/Summer 2002
TABLE 1
Sample Statistics for the Middle Class
* p < 0.10
middle-income white families own a bank account, while only about 55
percent of middle-income black families hold this type of financial asset
(see Table 1). The financial marketplace participation rate differences are
even more striking for stocks. Among middle-class families, the proportion of white families that own stock is more than twice as high as the
proportion of similarly situated black families—about 35 percent compared to 13 percent.
This examination of rates of ownership of specific assets shows that
Chiteji and Hamilton
17
the simple data on differences in shares of the portfolio that middle-class
families hold in financial form clearly do not give a complete picture of
the extent to which black families resemble their white counterparts in
terms of financial marketplace participation. They fail to provide the
complete story of race differences in the financial arena. Additionally,
black families are not only less likely to be involved in the financial
marketplace, but their participation appears to be tenuous—their participation rate falls when one moves away from the basic, payments-oriented financial instrument to the “more sophisticated” and high yielding
stocks. Finally, Table 1 also indicates that the share of the account, stock,
and bond markets owned by blacks (as measured by the race composition
of asset-holders) is lower than their share of the middle-class population.9 These data suggest that despite the fact that middle-class blacks
have made inroads into financial markets, their experience remains different from that of the typical middle class white family.
Patterns of Poverty in the Family and their Empirical Connection to
Racial Differences in Wealth Accumulation10
Tables 2 and 3 provide data comparing the extent to which middleclass black and white families experience poverty within their extended
families. The desire to link information about parents to middle-class
families requires us to conduct this analysis using a sample of middleclass families that is younger than all middle class families in the population at large. This is because we obtain information about families’ parents by linking our 1994 middle-class families to other families in the
PSID who are themselves parents of PSID families, which means that we
must be able to observe two generations of an extended family in the
PSID in order to talk about the economic circumstances of the relatives
of middle-class families.11
When examining the economic characteristics of the families that are
parents of our middle-class respondents, we find a higher incidence of
poverty among kin for middle-class black families than we do for middleclass white families. As shown in Table 2, the average income of a
middle-class black family’s parents is lower than that of parents of middleclass whites.12 Additionally, the proportion of families with parents who
are poor is greater for middle class black families. For example, about 36
percent of the parents of middle income black families fall below the
poverty line, while only about 8 percent of the parents of middle-class
white families are in this position. Additionally, about 19 percent of the
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TABLE 2
Sample Statistics for Parents of the Middle Class
* p < .10
parents of middle-class black families receive AFDC and/or food stamps.
Only about 4 percent of the parents of middle-income white families are
poor, according to this indicator. Finally, if receipt of public housing is
used as an indication of low economic status, about one-fourth of the
parents of middle-class black families are poor, while only about 4 percent of the parents of middle-class white families are in this position.
The examination of the economic characteristics of siblings produces
similar results (see Table 3).13 Among blacks, siblings of the middle
class have a lower average income and a lower income-to-needs ratio
than is the case for whites. Additionally, for middle-class blacks, the
proportion of siblings below the poverty line is about four times as high
as it is for whites. Rates of aid to dependent families (AFDC) and/or food
stamp receipt and unemployment rates are also higher among siblings for
middle-class blacks. These various measures suggest that middle-class
blacks are more likely to have siblings who need assistance than middleclass whites are. The PSID data on the economic status of siblings and
parents suggest that middle-class blacks experience more poverty in the
family than middle-class whites.14
Chiteji and Hamilton
19
TABLE 3
Sample Statistics for Siblings of the Middle Class
* p < .10
Decomposing the Racial Wealth Gap
To examine the sources of the black-white wealth gap and to determine whether differences in experiences with poverty in extended family
contribute to the existence of this gap, we decompose the gap between
middle-class black and white families. Table 4 reports the results of this
analysis. It presents the percentage of the black-white wealth gap for
middle-class families that is explained by standard economic and demographic fundamentals, along with the portion explained by sibling and
parental poverty.
We estimate reduced-form models of wealth that are regressed on age,
age-squared, gender of head, marital status, race, number of children,
education, average lifetime income, occupation, parental wealth, and the
bequest variable as independent variables. Age and age-squared are standard life cycle variables that economics identifies as important determinants of saving behavior. The rationale for including marital status comes
from the observation that two-adult families experience economies of
scale that free up resources for saving, and the fact that these families
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tend to be more stable than other families. To the contrary, a larger
number of children dampens wealth accumulation because a family with
many children must devote a larger share of family resources to maintaining its members than a family with few children does. The inclusion
of measures of education and average family income reflect the orthodox
economic view that levels of human capital and long-term income affect
saving behavior. Similarly, because one can argue that one expects those
who work in professional or managerial occupations to be in a better
position to accumulate wealth than those in other occupations—because
their occupational status provides access to networks with information
about saving and because these occupations may offer fringe benefits
that lead to greater wealth generating abilities—we specify our regression to allow for the possibility that this variable affects wealth accumulation. The inclusion of the regressor measuring parental wealth is intended to distinguish the effect of having parents who are currently poor
(and thus a present source of pressure on current wealth accumulation)
from a potentially more general effect of not coming from an affluent
background.15 Similarly, a dummy variable indicating whether the middle
class family has received any inheritance is included to eliminate the
possibility that the parental poverty measures would reflect parents’ tendency to leave bequests. The inclusion of these two independent variables strengthens the argument for interpreting any finding that parents’
current economic situation affects wealth accumulation as an effect that
represents the consequence of having to be concerned about one’s parents’ being in need (rather than reflecting some endowment that parents
have given their children).
While we present a variety of measures of the economic status of
parents and siblings in our descriptive tables, the regression analysis does
not incorporate each of these measures. Instead, the decomposition analysis
uses a composite measure of sibling “need,” which is a single dummy
variable indicating whether a middle-class family had a sibling that either
receives AFDC/food stamps or is unemployed. Additionally, it employs
the parental receipt of AFDC/food stamps variable as the measure of
economic hardship among parents. As noted in Chiteji and Hamilton
(2000), which presents regressions using a variety of measures of economic need among kin, these measures are the most informative ones for
attempts to understand the influence that poverty in the extended family
has on levels of wealth.
In this paper, we follow the decomposition strategy employed by Brown
and Corcoran (1997), decomposing the black-white wealth gap into dif-
Chiteji and Hamilton
21
ferences due to differing endowments of various components of wealth
generating factors, and remainder of the racial gap that is not explained.
The decomposition analysis uses coefficients from a pooled regression to
explain a predicted gap between middle-class black and white families.16
The pooled regression coefficients are used as weights to compare the
components of the wealth gap due to different wealth-generating characteristics, and also an indicator of race is included to capture the remainder of the wealth gap that cannot be explained by the differing characteristics (unexplained gap).
Tables 4 and 5 present the results of the decompositions.17 Table 5
includes measures of parental and sibling poverty measures, while Table
4 excludes them, so that we can compare how the inclusion of poverty in
the family alters the portion of the wealth gap that is left unexplained by
racial endowments in the two models.
Using the respective weighted mean characteristics of black and white
families, Table 4 indicates a predicted wealth gap of $35,733. The table
goes on to reveal the decomposed components of the gap. The disparity
due to life-cycle factors actually favors blacks suggesting that black families used in the analysis gain a 5 percent wealth advantage as a result of
where they are situated in the life cycle. All of the remaining variables
display favorable characteristics of white families in relation to black
families. Demographic variables—the household head’s marital status,
gender, and number of children—collectively explain 9 percent of the
wealth gap. Twenty-three percent of the wealth gap is explained by socioeconomic variables, with less than 1 percent of that gap due to years
of schooling, 6 percent due to membership in a managerial or professional occupation, and 16.5 percent due to average lifetime income, which
is the single most important variable in accounting for the gap. Next, the
family background characteristics explain a little more than 15 percent of
the gap with the indicator of bequest receipt accounting for 3 percent and
parental wealth accounting for 13 percent. Even after accounting for life
cycle, demographic, socioeconomic, and family background characteristics, 57 percent of the black-white disparity remains unexplained.
Table 5 adds the poverty in the family measures—parental need and
sibling need—to the model. The inclusion of these two variables reduces
the portion of the gap left unexplained from 57 percent to over 45 percent, and does not substantively alter the impact of the other variables on
the wealth gap. Disparities in parental need accounts for about 3 percent
of the wealth gap, while sibling needs account for more than 8 percent of
the gap. Taken together, poverty in the family is the third most important
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TABLE 4
Black-White Wealth Differences Attributable to Various Sets of
Explanatory Variables
Notes: 1Predicted values of mean wealth for whites and blacks are evaluated at racespecific weighted means. Regressions are estimated without using sampling weights to
avoid heteroscedasticity, but weights are used for decompositions so that they will be
representative of a young cohort of middle-class families in the United States.
2These decompositions use coefficient estimates from the pooled regression (which included both white and black observations, and added a dummy variable for one race).
3Life-cycle variables include age and age-squared.
4Demographic variables include marital status, gender of head, and number of children.
Chiteji and Hamilton
23
TABLE 5
Black-White Wealth Differences After Including Poverty in the
Extended Family
Notes: 1Predicted values of mean wealth for whites and blacks are evaluated at racespecific weighted means. Regressions are estimated without using sampling weights to
avoid heteroskedasticity, but weights are used for the decompositions so that they will be
representative of a young cohort of middle class families in the United States.
2These decompositions use coefficient estimates from the pooled regression (which includes both white and black observations, and added a dummy variable for one race).
3Life-sycle variables include age and age-squared.
4Demographic variables include marital status, gender of the head, and number of children.
5A middle class family is classified as experiencing parental need/pressure if its parent
has received AFDC or foodstamps within the past year.
6A middle class family is classified as having experienced sibling need/pressure if a
sibling has received AFDC or foodstamps, or is unemployed.
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factor, behind average lifetime income and parental wealth, in explaining
the gap. Though previously not recognized by economists, this result
suggests that the economic circumstances of kin have important implications for racial wealth disparities.
Finally, if one considers all family background or kin characteristics,
Table 5 indicates that differing racial endowments of theses variables
account for more than 27 percent of the racial wealth gap, which exceeds
the 23 percent explained by socioeconomic characteristics. Hence, the
middle-class black families in this sample suffered about a 27 percent
reduction in their wealth relative to white families as a result of the kin
networks into which they were born. The model still leaves over 45
percent of the black-white wealth disparity unaccounted for, which suggest that there may be other important contributors that could shed light
on why white middle class families are able to accumulate twice as much
wealth as their black counterparts.
CONCLUDING REMARKS
Our empirical investigation of the relationship between the economic
situation of kin and middle-class families’ ability to accumulate wealth
reveals that having parents who are poor and having siblings whose
economic circumstances are similarly precarious explains a non-trivial
portion of the gap that exists between the amounts of wealth accumulated
by black and white families. By identifying a previously unrecognized
factor that influences wealth accumulation, this finding helps researchers
to better understand saving behavior. It suggests that the differences that
currently are observed between black and white families do not fully
reflect differences in preferences for immediate consumption or lack of
thrift. Instead, the research suggests that families’ ability to accumulate
wealth is affected by constraints that some families experience because
of the desperate circumstances of their relatives, and that black families
are more likely to be in this position than white families are. Because
character is often at issue in public debates about race, we find these
results interesting, as our analysis suggests that it is admirable character
traits like generosity and compassion that may actually explain the “adverse” outcomes experienced by some middle-class black families.
This research has implications for the way that economists think about
saving behavior and wealth inequality. Economists’ traditional models of
saving emphasize either the individual or the household. Accordingly, it
is individual characteristics that typically are used as controls in empiri-
Chiteji and Hamilton
25
cal studies of saving behavior, or in cases in which household financial
behavior is analyzed, the household typically is conceptualized as a nuclear
family. It is not standard to include characteristics of extended family
members in these analyses. In fact, aside from the literature on the bequest motive for saving (which examines altruism among parents, and
how affluent parents’ saving behavior is influenced by the circumstances
of their children or the goals that the parents have for them), connections
between related family members rarely are explored when saving behavior is analyzed in economics. Our research suggests that theoretical analyses of saving that move beyond the traditional focus on individuals,
nuclear families, and a singular focus on the altruism of parents are
warranted in order to begin to explore altruistic motivations that run from
child to parent, as well as connections between adult children and their
siblings. The finding that poverty in the extended family affects wealth
accumulation suggests that saving behavior may be characterized by a
greater range of altruistic behavior than has typically been acknowledged. The traditional focus on an individual’s circumstance or on the
nuclear family potentially overlooks some important constraints on the
behavior of some families, black families in particular, suggesting that
economists desiring to understand wealth accumulation more fully would
benefit from the recognition of the need to incorporate family-level constraints in their analysis. The ties that bind different family members to
one another cannot be ignored.
NOTES
This research was presented at the National Economic Association meetings in
January, 2001. The authors would like to especially thank Rucker Johnson for his
invaluable research assistance, and they also thank Joseph Lupton and Robert Taylor.
Furthermore, they acknowledge the support of the Ford Foundation and the Robert
Wood Johnson Foundation. Any mistakes are the sole responsibility of the authors.
Please direct correspondence to: Prof. N. Chiteji, Department of Economics,
Skidmore College, Saratoga Springs, NY 12866.
1. The social support variable in Mutran (1985) includes monetary gifts, although
it is not restricted to financial help exclusively.
2. For a summary of the results found in these four studies, see Chiteji and
Stafford (1999).
3. Wilson, William J. 1978. The Declining Significance of Race.
4. Researchers interested in alternative definitions of class should see Chiteji and
Hamilton (2000). There, three measures of middle class are employed—a middleclass occupation category and a middle-class education category, in addition to the
middle-income category.
5. The PSID is an annual survey from 1968–1997, and is biannual from 1997
onward.
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6. For detailed discussion of the PSID wealth supplement, see Hurst, Luoh, and
Stafford (1998).
7. The term “consumable” wealth follows Oliver and Shapiro. This measure
incorporates home equity, automobile wealth, and other vehicles, such as boats. The
financial and “consumable” categories need not add up to 100 due to the presence of
a business equity measure in the PSID (which was excluded from the consumable
and financial categories).
8. Note, however, Chiteji and Hamilton (2000) finds that the results using other
definitions of middle class are slightly different, and that whether black and white
families become similar at this level of economic status depends upon how one
defines middle class. There, it is shown that race differences in portfolio composition widen when college education is used to measure class status.
9. This finding would not prevail if middle-class blacks accumulated stocks, and
other individual assets, at the same rate as middle-class whites. We therefore include this data as an additional way of thinking about race differences.
10. This section relies heavily on a discussion contained in Chiteji and Hamilton
(2000).
11. Accordingly, the information about relatives that is described in Tables 2 and
3 (and ultimately our regression analysis) is representative of younger middle-class
families only. Hypothetically, an alternate way of obtaining information about a
middle-class family’s parents that would circumvent this particular problem would
be to obtain information about parents’ circumstances from the adult children (our
middle-class families). This method of data collection would generate parental
information for older middle-class families as well. The PSID data is not collected
in this way. Yet using direct observations of parent’s situations that are available in
the PSID may provide more reliable descriptions of parents’ circumstances, as
children’s reports of their parent’s economic situation may be less accurate than the
parents’ own assessments.
12. Table 2 reports the means for the group of families whose head (or head and
wife) are parents of our middle-class sample members. This “sample” of parents
includes each parent family only once, even if the parental unit is the progenitor of
more than one middle-class family. The figures reported in Table 2 need not be
comparable to poverty rates and unemployment rates in the population at large. The
fact that the group described in Table 2 represents parents of adult children means
that they are families that are older than the typical U.S. family.
13. A sibling family is defined as a family in which either the head or the wife
was a sibling of one of the middle-class families in our analysis. Each sibling family
is counted only once, even if it represents a sibling of more than one middle-class
family.
14. As noted earlier, the sample of middle-class families that forms the basis for
our analysis is a group that is younger, on average, than the middle-class families in
the population at large.
15. As noted earlier, this variable is measured ten years prior to 1994, a time that
should be close to the period in which many of our young families would have lived
at home. While not a perfect measure of family background, 1984 is the earliest date
that wealth data is available in the PSID.
16. Our analysis decomposes a predicted gap rather than the actual gap because
our regressions are estimated without weights, while our calculations of mean values
for the independent variables require the use of weights. See DuMouchel and
Duncan (1983) and Gottschalk for a detailed discussion of the appropriateness of
unweighted versus weighted regressions.
Chiteji and Hamilton
27
17. Our regressions use Stata’s clustering procedure to account for the fact that
some young families may share the same parental or sibling units. The mean values
of the parental and sibling pressure regressors used for the decomposition reflect the
mean values for these regressors (rather than the mean levels of poverty and unemployment in the parent and sibling samples presented in Tables 2 and 3), since we
are interested in the average amount of pressure experienced by young families,
rather than the average amount of need in the parent or sibling samples. (In instances in which one set of parents produces more than one offspring, for example,
the average amount of poverty among parental households and the average number
of young families with parents who are poor can be different.)
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