The wealth gap: How education fails to measure economic disadvantage

When Ajuah Helton was a college student, her financial aid package came up a few thousand dollars short. What happened next threw her off course.

Her mom took out a high-interest federal loan that she ultimately couldn’t repay. The next year, her mom wanted to avoid more loans, but didn’t have other funds to tap into. Helton, out of options, left school for a semester to work to make up the difference.

“That’s with a mom who was fully employed, college-educated, but did not come from anything that allowed her to say, ‘Oh $5,000? Let me just go to my bank account or my stock market and pull out a little bit of cash,’” Helton says.

Helton, who is Black, did graduate. She is now the national director of KIPP Through College, a program designed to help students like herself earn college diplomas. But every day, she sees her own story reflected back at her — the absence of family wealth shaping the trajectories of students, particularly Black students.

“That legacy plays out in any number of ways, starting with what a family has access to to pay for education,” said Helton. “Often, there is no mortgage to take out of a home. There is no long-term savings.”

America’s racial wealth gap is massive. The median Black household with children has a net worth of $300, compared to $47,250 for the median white family. Those Black families have 1%, and Hispanic families have 8%, of the average white family’s wealth.

The education world often ignores wealth, though, focusing instead on family income, where racial disparities are smaller. It’s ingrained in how we study efforts to help students at an economic disadvantage and talk about them, too: How are low-income students faring compared to their more affluent peers?

But a small body of new research suggests that wealth matters in a distinct way — and ignoring it means we may be underestimating the extra support that low-wealth students and schools need.

One of those studies, by University of California Berkeley economist Rucker Johnson, finds that wealth directly affects students’ chances of completing college. Johnson hopes it will serve as a call to action, especially because families with little wealth will have a hard time making up for the pandemic’s disruption of typical school.

“The fact that we don’t typically measure wealth means the default is an income conversation,” he said. Wealth, he said, “influences access to educational opportunity pretty much at every stage — I’m talking about pre-K affordability all the way to college.”

The education world thinks about family income. It rarely accounts for family wealth.

Family income does matter. It predicts — and likely contributes to — students’ success in school.

That’s why the education world explicitly considers income in so many ways, from eligibility for early childhood education programs to federal school funding decisions. The nation’s free and reduced-price lunch program is based on family income, too.

The free lunch data, though quite imprecise, is widely used to measure economic disadvantage. “We’re groomed to think about just income because of Title I or free and reduced-price lunch,” said Mohammed Choudhury, the chief innovation officer for San Antonio schools.

This wouldn’t be a problem if wealth and income measured the same thing. But they don’t, especially for Black and Hispanic families.

A recent study found that Black households with children took in about 50% the income of white families but held just 1% of the wealth. High-income and highly educated Black Americans still have much less wealth than their white peers — a reflection of policies that have excluded Black families from building housing wealth and passing it down to future generations.

“The racial differences in income versus the racial differences in wealth are of a completely different magnitude,” said Johnson.

Why wealth matters for families and for children

Wealth, critically, buffers families from financial hardship.

High-wealth families, regardless of income, are in a better financial position to navigate tumultuous life events, like a divorce or becoming disabled. For low-wealth families, those same events often prompt struggles to pay for food or health care, according to a new study.

Wealth, the study explains, serves as a “private safety net.”

Wealth also shapes educational opportunity. It can affect where a family lives, and therefore where children attend elementary, middle, and high school, as well as college. It can influence, too, whether those children experience material hardship and the degree of stress in their household, which can affect their ability to focus on school.

Still, there is not a lot of research on how wealth affects students’ performance in school. “I think it’s a gap,” University of Washington education researcher Dan Goldhaber. “The data is just not available.”

The small number of studies that do tackle this question suggest that wealth matters. Students from high-wealth families are much more likely to graduate from high school and complete college, according to a 2018 paper. Even controlling for other factors, including income, children from high-wealth families were 10 percentage points more likely to earn a college degree than those from low-wealth families.

“It’s important to understand it as a distinct dimension of inequality,” said Fabian Pfeffer, a University of Michigan sociologist and author of the study.

The recent study by Johnson, the Berkeley researcher, goes a step further, suggesting that wealth is not just connected to academic success, but a cause of it.

He found that when a family’s housing value spiked by about $50,000 in the years leading up to college, their child’s chances of finishing college increased by 3 to 4 percentage points. That may be because students from wealthier families are more likely to attend selective and well-resourced schools that increase their chances of graduating.

“Does parental income matter? Yes,” Johnson said. “But parental wealth and parental income in combination matter much more.”

Liz Valladares, a recent high school graduate who went to a KIPP middle school, is experiencing those effects firsthand. When COVID-19 hit, her mom’s work hours were cut. Without another financial cushion, she had to tap into a college fund she had started a few years earlier. The added financial strain means Valladares is attending her local community college in Los Angeles rather than the university she’d planned for.

“It was hard for me,” said Valladares. “But as a parent it was harder for her to tell her own kid, ‘We can’t really afford that, you’re going to have to change your dream.’”

Valladares says school is going well so far — with the help of money from KIPP to pay for a laptop and books — and she hopes to transfer in a couple of years. But many students lack such support, and research shows students are far more likely to drop out if they attend a two-year rather than a four-year college.

What should we do about it?

Whether and how the country should address its wealth gaps is the subject of fraught debate. Some argue that we need to address the issue directly, with a tax on wealth or reparations for descendents of enslaved people.

Of course, school officials don’t control economic policy. But they can decide how to respond to students’ economic circumstances. If our shared understanding of economic disadvantage is flawed or incomplete, students who stand to benefit from additional help are going without it.

“I’m definitely intrigued,” said Zahava Stadler, who works on school funding for Education Trust, an education and civil rights group. “While I wouldn’t say that we have enough information to know for sure that it’s the right approach, there is an intuitive logic to the idea that family wealth, just like income, are a part of the picture.”

Wealth already does play one notable role in education. States usually send extra school funding to communities with limited housing wealth to make up for the fact that they can’t collect much in property taxes.

Doing more, Stadler said, will require better data. “We’re hampered by what data is easy to get at the student level,” she said. “That’s a lot of the problem here.”

Perfect data might be difficult or intrusive to obtain. But some are figuring out how to measure economic hardship in new ways that extend beyond income.

Choudhury, the San Antonio school official, created a way of measuring economic disadvantage at the neighborhood level. It includes not just median income but family structure, average education levels, and home ownership rates, with that last dimension designed to capture community wealth. The approach has since been taken statewide as part of Texas’ school funding formula.

“When we rely on a single measure, we wash poverty in one shade,” said Choudhury.

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