Abstract
This study analyzes the hypothesis that retirement savings differ by race and ethnicity partially because households of color are more likely than white households to provide informal financial support to financially fragile relatives and friends. The authors use a unique combination of the US Census Bureau’s Household Pulse Survey from August 2020 to December 2021 and the Federal Reserve’s Survey of Consumer Finances from 2010 to 2019 to study retirement wealth, 401(k) plan participation, 401(k) account contributions, and preretirement liquidity between households that give and don’t give informal financial support by race and ethnicity. They provide both summary statistics and some illustrative multivariate regression results for the relevant correlations, and conclude that informal financial support poses financial risks. Households provide such support during financial emergencies; it is widespread and occurs frequently over the life course. Many households of color save more for retirement when providing informal financial support, although this is not the case for white households. Preretirement liquidity in the form of 401(k) loans is also greater among Black households than among white households. Black households show greater saving efforts than white households while providing informal financial support but do not see systematically larger account balances. This suggests that higher preretirement liquidity could offset the additional contributions. In this way, households of color that provide informal financial support to friends and relatives are running faster to stay in place with regard to their own retirement savings.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have