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Abstract
This study uses the 2007 Survey of Consumer Finances to empirically explore Black-White differences in saving behavior. The impact of the explanatory variables in the model is allowed to differ between Black and White households to understand Black-White differences in saving. The results indicate that Black-White differences in saving are explained by racial differences in the individual determinants of saving, not by race in and of itself. The individual variables that significantly differ for Black and White households in their effect on saving are receiving government assistance, feeling that credit use is bad, being turned down for credit in the past 5 years, and having a saving horizon of the next few years.
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JEL classification: D12; D91; J15
Keywords: Household saving; Racial differences
1. Introduction
According to U.S. Bureau estimates, African Americans are the second largest minority group and are projected to increase to approximately 15% of the U.S. population in the future (Lusardi, 2005). African Americans have a substantial, increasing presence in the United States, and the wealth disparities between Black and White households have not decreased much over the past 20 years (Hanna and Lindamood, 2008), so it is important to continue exploring the financial behaviors of this group. Research shows that Blacks hold lower levels of wealth compared to Whites, and racial and ethnic differences in financial well-being and financial knowledge are consistently shown by researchers. A recent study by the Center for Responsible Lending indicates that California's payday lenders are more concentrated in Black and Latino neighborhoods, draining these communities of $247 million in payday loan fees each year (Davis, Ernst, Li, and Parrish, 2009).
Research shows that the wealth of Whites is five to 10 times higher than that of Blacks (Davern and Fisher, 2001; Oliver and Shapiro, 1995; Smith, 1995; Wolff, 1998). Studies consistently show that Whites hold more wealth than Blacks even when controlling for other variables (Badu, Daniels, and Salandro, 1999; Bucks, Kennickell, Mach, and Moore, 2009; Plath and Stevenson, 2000), with this wealth inequality possibly resulting from the composition of wealth, as some assets provide a higher return than others (Keister, 2000). In addition, racial and ethnic differences in financial well-being and financial knowledge...