Abstract
Low- and moderate-income (LMI) households need financial assets to help cope with income and expenditure shocks. Prior research identifies racial differences in wealth and wealth effects. We examined whether these gaps and effects exist for liquid financial assets. Using group invariance tests in structural equation modeling, we assessed the relationship between financial shocks and material hardship, as mediated by liquid financial assets and moderated by race/ethnicity among a sample of LMI tax filers (N = 7544). Though most study participants were employed (71%), average income was only $18,055 and average liquid financial assets was $4701. Black households had $2774 less in liquid financial assets compared to white households (p < .001) after controlling for income and other factors. Model fit for the final moderated mediation model was excellent (RMSEA = 0.026, 90% C. I. [0.020, 0.033], CFI = 0.977). The mediating effect of liquid financial assets was 10.4% for white, but only 3.6 and 4.4% for black and Latino households, respectively. That is, the proportion of the relationship between shocks and hardship mediated by liquid financial assets varied by race/ethnicity. Policies aimed at helping LMI households build emergency savings such as tax refund savings matches may be less likely to benefit black and Latino households than white households, suggesting the need for other policies to address this form of the racial wealth gap.
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Notes
Participants not randomly assigned (n = 192,481) had filed their taxes before the start of the experiment on January 31, 2013 or began their tax return in another software program from the sample company.
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Washington University in St. Louis gratefully acknowledges the funders who made the Refund to Savings Initiative possible: the Ford Foundation; the Annie E. Casey Foundation; Intuit, Inc.; the Intuit Financial Freedom Foundation; the Smith Richardson Foundation; and JPMorgan Chase & Co.
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Despard, M., Grinstein-Weiss, M., Guo, S. et al. Financial Shocks, Liquid Assets, and Material Hardship in Low- and Moderate-Income Households: Differences by Race. J Econ Race Policy 1, 205–216 (2018). https://doi.org/10.1007/s41996-018-0011-y
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DOI: https://doi.org/10.1007/s41996-018-0011-y