Racial and ethnic differences in wealth and asset choices.

White households in the United States are far wealthier than black or Hispanic households, a disparity that remains unexplained even after taking into account income and demographic factors. This article uses data from the Health and Retirement Study to examine various components of aggregate wealth, including housing equity, nonhousing equity, financial assets in general, and risky assets in particular. It inspects asset choices by race and ethnicity and assesses whether differences in saving behavior--and, consequently, in rates of return on assets--are possible sources of the wealth gap. It also demonstrates the equalizing effect of pension wealth and Social Security wealth on total wealth. Racial and ethnic differences in housing equity narrow among households in the higher income quartiles, whereas differences in nonhousing equity generally widen as income increases. The widening gap in nonhousing equity stems from differences in financial asset holdings, particularly risky assets. At every income quartile and educational level, the percentage of black and Hispanic households that own risky, higher-yielding assets in considerably smaller than the percentage of white households. Thus, some of the wealth gap appears to be attributable to differences in saving behavior. Understanding how people save--in particular, knowing whether certain people will be more vulnerable financially because of their saving choices--helps policymakers assess older Americans' financial preparedness for retirement and anticipate their economic well-being thereafter. Lower rates of investment in the financial market will probably result in slower wealth creation in minority households. Recognizing this, some organizations are trying to open opportunities for minority households to invest in the financial market. This is a positive step toward narrowing the wealth divide. Such efforts will become even more critical if Social Security reform places increased responsibility on individuals to manage personal accounts.