#Answer: Financial Inequality Does Not Just Include Income

When we evaluate the financial statements of individuals, income statements are usually the main draw. Here, we find revenue — and specifically, the eponymous income. ‘How much do you make?’ is a question that in many ways contributes to how we define ourselves, our statuses and our self-worth.

But what about our balance sheets? Here is where someone’s financial safety and foundation can be found. For businesses, assets = liabilities + equity. In our case, equity = net worth. If we’re looking for a determinant of self-worth, wouldn’t net worth be a likely suspect? This might have been the case in the 19th century, however, today it’s ‘income’ that holds sway in the headlines — both in prevalence and emotional significance — over ‘worth’ and ‘wealth’ (figure 1).

Figure 1: Prevalence of words ‘income,’ ‘worth,’ and ‘wealth’ in English literature (1800–2008)

To that end, income inequality is an alliteration that often finds its place in the lexicon of policymakers and politicians: Tax the rich! Flat tax for all! Equal pay for men and women! All of these causes find their roots in our personal income statements.

Our Income Statements

The Bureau of Labor Statistics’ wage data confirms that income inequality, like for gender, does exist in the U.S. In 2011, women earned $0.82 for every dollar earned by men (figure 2). Within the female workforce, the gender pay gap increases with age — women under 35 have the highest earnings parity with men ($0.92) while women ages 55 to 64 have the lowest ($0.75).

Figure 2: 2011 Median women’s earnings as a percent of men’s, by age

For a short-term historical perspective on this disparity, the wage gap from 1993 to 2011 was fairly stagnate, increasing from $0.77 to $0.82 in that time period, with a low oscillation among the age groups (figure 3).

Between ages, there is also a gap — with women under 35 earning 24 percent less than women of 35 to 54 years of age (figure 4). Wages also decrease 11 percent for women 65 years and over.

Figure 3: Median women’s earnings as a percent of men’s, by age (1993–2011)

These stats and figures fit into our narrative about income inequality. The gender pay gap is a known occurrence in America, and the age pay gap seems fairly intuitive — with more experience comes more productivity and higher wages.

Figure 4: 2011 Median women’s weekly wages, by age

Our Balance Sheets

But any investor worth her two-cents knows that one metric or data-point tells only a partial, limited story. A laser-like focus on income inequality may obfuscate a more complete understanding of financial inequality.

The U.S. Census Bureau’s report on Net Worth and Asset Ownership of Households for 2011 brings to light a much more severe inequality, this time, in relationship to the net worth of U.S. householders.

Figure 5: 2011 Median women’s net worth as a percent of men’s, by age

For every dollar of a man’s net worth, a woman has $0.81 cents. While very similar to the gender pay gap, a closer breakdown presents something of a paradox between the two (figure 6). While women under 35 earned $0.92 for every dollar men earned in 2011, their comparative net worth with men was by far the lowest — having only $0.22 in wealth for every dollar in wealth of their male peers. Forty percent of these under 35 female householders had a net worth that was either zero or negative. This gender gap decreases entirely with older householders. In fact, women 55 to 64 years of age have a higher net worth than their male peers — having $1.11 in wealth for ever dollar in wealth for men.

Figure 6: Median women’s net worth as a percent of men’s, by age (1993–2011)

Compared to the income gap, the wealth gap has historically been more volatile and has actually increased. In 2011, the total gender wealth gap was at its greatest with $0.82 — with women historically having as high as a $1.07 wealth advantage for every dollar in wealth for men in 2004.

But for women under 35, the correlation between their gender wealth gap and the gap for all women was zero. From a high of having $0.48 in wealth for every dollar in wealth for men in 1995, women under 35 have seen the wealth gap only widen. This gap reached in apex in 2009, when women under 35 had only $0.03 in wealth for every dollar in wealth of their male peers. In comparison, the total gender wealth gap for 2009 was $0.92.

Figure 7: 2011 Median women’s net worth, by age

Finally, there is a much more pronounced age gap in wealth than there is in income (figure 7). The net worth of women under 35 increases 593 percent to the next age bracket. In other words, women under 35 have just $0.14 in wealth for every dollar in wealth of women ages 35 to 54. This jump occurs again as women ages 35 to 54 have just $0.16 in wealth for every dollar in wealth of women ages 55 to 64. This age-gap in wealth is significantly larger for women than it is for men.

Two Is Better Than One

By analyzing data about our net worth, we are able to construct a more comprehensive and accurate narrative of financial inequality in America. As shown, the wealth gap seems to be all encompassing. While only gender and age were explored here, other factors, including race, marital status, education, and home ownership all showcase significant wealth gaps. The goal now is to better understand these gaps and figure out if there are constructive ways of making our balance sheets more equitable and sustainable. As the income inequality debate continues, lets hope that “wealth” and “worth” make their way into the public policy zeitgeist so we can truly tackle the issue of financial inequality.