The Racial Saving Gap Enigma: Unraveling the Role

It has been well documented in the literature that ethnicity matters significantly in the deter-mination of savings. In particular, African-American saving lag far behind that of other ethnic groups. Similarly, the literature also provides evidence of the long-lived nature of institutions and the link between institutions and culture. In this paper, we provide an explanation for the savings gap that still exists between African-Americans and White Americans even after accounting for appropriate factors that can lead to savings differentials. We initially provide evidence that the savings gap exists and persists after including several control variables in a regression analysis. We then provide evidence that the persistent gap can not be attributed solely to racial discrim-ination but can be explained by the response of culture to institutional scaffolding erected many years earlier. Using a novel within-race decomposition we provide evidence that past institutions transmitted through culture can help to explain this persistent saving disparity. The authors would like to especially like to thank James Stewart and Harrold Cheatham for advice and useful comments.O