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Financial Capability, Cumulative Advantage and Racial Inequality in Wealth

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  • Alair MacLean
  • Piotr Paradowski

Abstract

This paper develops a model of financial success that draws on theories of financial capability, as well as those of cumulative advantage and the racial sedimentation of wealth. It uses data from the Survey of Consumer Finances accessed through the Luxembourg Wealth Study to estimate structural equation models that predict participation in a range of financial outcomes as well the value of the assets. It finds that those who have higher financial literacy, financial confidence, and consult with financial advisors are more likely to hold all types of assets, and have a greater dollar amount saved or invested. Net of these individual characteristics, people with fewer socioeconomic advantages have less financial capability, as well as lower financial success. In addition, there remain direct pathways between race/ethnicity and wealth.

Suggested Citation

  • Alair MacLean & Piotr Paradowski, 2024. "Financial Capability, Cumulative Advantage and Racial Inequality in Wealth," LWS Working papers 44, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:lwswps:44
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    References listed on IDEAS

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