Large ethnic differences in wealth at all levels of net worth shows new LSE report

Coins in a jar. Nick Fewings on Unsplash

The typical person from a Bangladeshi, black Caribbean or black African background has no significant level of household net worth, in contrast to the typical white Briton who has a household net worth of £140,000, according to new research.  

Ethnic minority groups in Britain, at all levels of wealth, are substantially less well off than white Britons, shows the report (1). 

The exceptions are British Indians who have a typical household net worth of £160,000. 

The report looks at, for the first time, the scale and causes of ethnic disparities in wealth at all levels of net worth. 

The wealthiest five per cent of British white people have £893,000, or more, in household wealth, which is nearly three times higher than the wealthiest five per cent of people from black African backgrounds who have £304,000 in household wealth.

At the other end of the wealth spectrum, 31 per cent, 38 per cent and 44 per cent of people from black Caribbean, Bangladeshi and black African backgrounds respectively are in net debt (2). This compares to 15 per cent of the white British population and 11 per cent of people of Indian heritage.

For those at the richest and the poorest ends of the wealth scale, differences in net financial wealth (3) are responsible for most of net worth gap between ethnic groups (4).

For people in the middle of the wealth scale, differences in net housing wealth (5) are responsible for the largest share of the ethnic wealth gap.

For the least wealthy individuals from ethnic minority backgrounds, the research finds that characteristics such as age, household composition, income, education, the social class of parents and region lived in, explain most of their lower wealth holdings relative to white Britons.

Eleni Karagiannaki, Assistant Professorial Research Fellow at the Centre for Analysis of Social Exclusion (CASE) at LSE, said: “Factors such as income, age and class explain the ethnic wealth gap for the poorest, rather than factors which are more challenging to measure, such as a difference in the tendency to save or to hold debt. It’s background characteristics rather than behaviour that make the difference at these levels of wealth.

“However, at the middle and top of the wealth scale, ethnic differences in overall net worth are not explained by differences in characteristics between ethnic groups.

“The analysis also shows that background characteristics explain a large share of ethnic gaps in net financial wealth at the middle and the low-end of the financial wealth scale. However, they do not explain the ethnic disparities in housing wealth at any level of the housing wealth scale. This suggests that ethnic minority groups face unseen disadvantages which translate into substantially lower housing wealth relative to white Britons. Many factors may be contributing to this such as differential access to mortgage financing, restrictions and discrimination in the social housing and the private renting sector, as well as ethnic differences in the probability of receiving inheritances or gifts and loans from family for house purchase.”

The research uses data from Understanding Society: The UK Household Longitudinal Study. Itwas supported by the LSE International Inequalities Institute.

Behind the article

(1) The scale and drivers of ethnic wealth gaps across the wealth distribution in the UK: Evidence from Understanding Society by Eleni Karagiannaki.

(2) The value of their financial assets such as bank deposits, stock, bonds and shares is less than the value of their financial liabilities, such as credit card debt, personal loans from a bank etc.

(3) The balance of financial assets such as bank deposits, stocks, bonds, and shares versus financial liabilities.

(4) The least wealthy from all ethnic groups are less likely to own their own homes, so their savings are their only source of household wealth and is what differentiates them. Similarly, the wealthiest individuals from all groups are very likely to own their own homes, so again it is their savings that differentiate them.

(5) The value of household main residence minus the value of mortgage debt secured against it.

Eleni Karagiannaki, is Assistant Professorial Research Fellow at the Centre for Analysis of Social Exclusion at the London School of Economics and Political Science and a Faculty Associate at the International Inequalities Institute at LSE