The Racial Wealth Gap

Article by Jessica

Data from the Federal Reserve’s Survey of Consumer Finance shows that the average African American family makes just 10 cents for every dollar a white family earns. But what is the cause of this statistic? It’s called the racial wealth gap, and it’s an issue that isn’t new. Historically, African Americans were barred from obtaining wealth through slavery and Jim Crow laws. Doctrines such as the Land Act of 1785 prevented non-whites from acquiring land. Before the Fair Housing Act of 1968, African Americans were often turned away from selling or purchasing property. Between the 30s and early 60s, the Federal Housing Administration signed the New Deal that created “loan programs to help make home ownership accessible to more Americans” (Forbes). Within this process, color-coded maps were used to specify good and bad neighborhoods for living. The bad neighborhoods were purposely occupied by residents of color. This was a system referred to as redlining, which prevented Black people from homeownership and permitted many “developers in green areas to explicitly discriminate against non-whites” (Forbes). Because such a large amount of home loans was granted to white families during this time, it gave them the ability to accumulate wealth and better their quality of life, including things like attending college. As an outcome, wealth in these white communities was passed onto forthcoming generations. This is considered generational wealth. Explicit racism and years of historical oppression is the main cause of the large racial wealth gap between Black and white communities (McIntosh). White families are more likely to amass much larger inheritances on average in comparison to their Black counterparts. Because of the wealth that is largely gained over time, white individuals have a safety net that accounts for financial stability, social networks, and resources such as better schools and secure neighborhoods that many Black people don’t have access to (Hamilton). The following diagram is a representation of accumulative wealth over a span of 53 years that is measured by race and ethnicity.


Taken from the Urban Institute

From the following data, in 2016 the average wealth of white families was 10 times the wealth of Black families and 8 times the wealth of Hispanic families, putting them at around $700,000 more than the average Black and Hispanic family. Studies at the Economic Policy Institute found that “…more than one in four Black households have zero or negative net worth, compared to less than one in ten white families that are without wealth” (Forbes).The major racial wealth gap effects many aspects of African American livelihood including homeownership and student loan debt. Homeownership is a huge wealth-building tool that provides tax advantages by the government. Blacks and Hispanics are less likely to own homes, thus less likely to gain accumulate property wealth. The following statistic shows the homeownership rate by race/ethnicity between 1976 and 2016. 

Taken from Urban Institute

In 2016, 68 percent of white families owned homes and 46 percent of Hispanic families owned homes, while only 42 percent of Black families owned homes.

Student loan debt is also a huge factor. “According to the data from the 2014 Survey of Household Economics and Decision-making (SHED)...Blacks are most likely than whites to have student loan debt...” (Urban Institute). There are a couple explanations to these findings, the main being the significant disproportion among whites and Blacks in homeownership and wealth asset. Student loan debt differs among race, but Black individuals are statistically known to have the most student loan debt. For individuals between the ages 25 and 55, Black individuals reportingly have 39.2 percent of student loan debt, in comparison, whites have around 30.5 percent. The following data represents this finding. 


Taken from Urban Institute

 The African American and Latino unemployment continues to worsen. A constant economic trend is showing that the racial wealth gap is growing due our current political state. The racial wealth gap is also exceedingly prevalent in our education system. Black individuals that graduate from college obtain less wealth in comparison to white individuals that drop out of high school, as the following statistic shows. 


Taken from Insight CCED

It is thus evident that African Americans will inherently obtain less wealth regardless of their education level. This is a clear issue that has been observed though the lens of systemic racism and income inequality towards marginalized groups for centuries. The U.S Federal Reserve Board, Survey of Consumer Finances states that if Black and white households earned the same income since 1962 and onwards, the racial wealth gap ratio would have reached only 0.9 by 2007. Implemented policy changes on the local level will help improve the nature of these income gaps. Ways these issues can be addressed are through programs that develop better living conditions for particular racial subgroups and increased funding for schools in lower-income communities. A huge portion of the racial wealth gap stems from homeownership. A couple ways to improve this issue could include, expanding access to homeownership to lower-income individuals by enforcing lower down payments, making sure that strict enforcement of anti-discrimination housing laws is put into place, and providing loan modifications for struggling homeowners. Another large issue is education. It is crucial that school boards make K-12 funding more impartial, so that Black and Latino children can attend schools that are properly funded. In universities, proposing that our state officials establish an affordable college compact ensures that marginalized students can attend college without needing to face debt. On the federal level, it is important to vote for representatives that will fight for increased taxation on the wealthy, in order to provide funds for programs to help struggling communities. A lot of reform has already taken place, but there is still much more to be done to ensure that the government revenue from taxes is used toward decreasing the racial wealth gap that is causing this economic divide. 

Sources

https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/

https://www.forbes.com/sites/brianthompson1/2018/02/18/the-racial-wealth-gap-addressing-americas-most-pressing-epidemic/#3a8d8f217a48

https://www.marketwatch.com/story/heres-why-black-families-have-struggled-for-decades-to-gain-wealth-2019-02-28

https://www.federalreserve.gov/econres/notes/feds-notes/recent-trends-in-wealth-holding-by-race-and-ethnicity-evidence-from-the-survey-of-consumer-finances-20170927.htm

https://www.visualcapitalist.com/racial-wealth-gap/

https://tcf.org/content/report/attacking-black-white-opportunity-gap-comes-residential-segregation/

https://apps.urban.org/features/wealth-inequality-charts/

https://www.urban.org/urban-wire/five-point-strategy-reducing-black-homeownership-gap

https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2019-economic-commentaries/ec-201903-what-is-behind-the-persistence-of-the-racial-wealth-gap.aspx

https://www.demos.org/sites/default/files/publications/RacialWealthGap_1.pdf

https://www.urban.org/sites/default/files/publication/82896/2000876-Racial-and-Ethnic-Differences-in-Family-Student-Loan-Debt.pdf

https://www.thebalance.com/how-home-equity-drives-the-racial-wealth-gap-4178236

https://www.forbes.com/sites/laurashin/2015/03/27/10-proposals-for-eliminating-the-racial-wealth-gap/#28b203367ead

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