Income And Wealth Gaps: College Grads Vs. Nongrads

from the St Louis Fed

Gaps in income and wealth are growing between families headed by someone with a four-year college degree and families without a degree. The latest essay in the Demographics of Wealth series, produced by the St. Louis Fed’s Center for Household Financial Stability, examined this trend in-depth.

In the essay “The Financial Returns from College across Generations: Large but Unequal,” authors William Emmons, Ana Hernflndez Kent and Lowell Ricketts noted that there was a strong association between a family head’s level of education and the family’s financial well-being. “In other words, we confirm the conventional wisdom that more education is associated with more income and wealth,” they wrote.

Share of Families with College Degrees

The authors first noted that the share of families headed by someone with at least a four-year college degree has risen, growing from 23 percent of families in 1989 to 34 percent by 2016.

A similar rise was noted in families headed by someone with a postgraduate degree. In 1989, almost 9 percent of all families were headed by someone with such a degree, while about 13 percent of families held a postgraduate degree by 2016.

Widening Gaps

These differences are notable, as the median family headed by someone without a college degree earned only 44 percent of what the median college grad family earned. The wealth gap was even more pronounced, with the median nongrad family having only 18 percent as much wealth as the median college grad family.

Coupled with the rise in the number of families headed by someone with a college degree, “these trends have resulted in a large shift of aggregate income and wealth toward college-educated families,” Emmons, Kent and Ricketts wrote.

Family Income

College graduate and noncollege graduate families experienced similar percentage growth in income from 1989 to 2016: