The scale and drivers of ethnic wealth gaps across the wealth distribution in the UK: evidence from Understanding Society

Using data from Understanding Society, this paper investigates for the first time the scale and the drivers of ethnic disparities in wealth across the net worth distribution (until recently assessed at the mean or the median). The analysis reveals that apart from people in the Indian ethnic group, all other ethnic minority groups have substantially less net worth than the White British group across the distribution and are less likely to hold high-return assets and more likely to hold financial debt. The picture in terms of housing wealth is similar: the Indian ethnic group comes out as the group with the higher housing wealth than any other ethnic group. By contrast, in terms of net financial wealth all ethnic minority groups including the Indian ethnic group have substantially less wealth (including very high levels of indebtedness) than the White British group. The wealth disadvantage of ethnic minority groups with lower net worth holdings relative to the White British group, is reduced but remains substantial across the distribution, even after accounting for differences in observable characteristics. The scale of the differences that is explained by observable characteristics varies across the distribution and across groups but their effect is generally stronger at below the median. Analysis by wealth component shows that observable characteristics explain a larger share of the ethnic gaps in financial wealth than the ethnic gaps in housing wealth. This is especially the case at below the median financial wealth levels where the financial wealth disadvantage of most ethnic groups, is fully explained by differences in observable characteristics. By contrast, differences in observable characteristics have a negligible effect in explaining the lower net housing wealth of ethnic minority groups with lower housing wealth across the housing wealth distribution, suggesting that ethnic minority groups face unobserved disadvantages, which translate into lower housing wealth. By contrast, differences in observable characteristics fully explain the housing wealth advantage of people in the Indian ethnic group.