Did you know that white families have a median net worth that’s almost 10x higher than that of Black households? I’m embarrassed to admit that up until a few weeks ago, I didn’t. I’ve known for a long time about the wage gap, but I never knew about the racial wealth divide.
The numbers tell the story. According to 2016 data from the Federal Reserve, the median net worth for white households was $171k, compared to $17.6k for Black households and $20.7k for Hispanic households. Almost 19% of Black families (compared with 9% of white households) have zero or negative net worth. Taking a closer look at annual income, the median income for white households was $61.2k, compared to $35.4k for Black households and $38.5k for Hispanic households. That’s a difference of nearly 50% on an annual basis! Black and Hispanic households are also less likely than white households to hold assets (such as homes, vehicles, or retirement accounts) of any type. And early economic indicators signal the pandemic has only widened these disparities.
So what do we do about it? I don’t know about you, but when I see glaring statistics like this I have a tendency to want to jump to action to fill the gap as quickly as possible. As if one person, like me, could repair centuries’ worth of damage! I encourage you to join me in suspending your urge to fix the issue before you have a better understanding of it. It’s important to educate ourselves on why these disparities exist, to get to know the myths surrounding them, and then to begin to think about what change needs to happen.
Nikole Hannah-Jones, author of the Pultizer Prize-winning 1619 Project for The New York Times Magazine, reminds us in an interview with NPR, "Very few Americans have created all of their wealth on their own; it's passed down through generations and then built upon … Black Americans never really had a chance to do that." The racial wealth gap was formed by systemic injustices that barred the majority of Black Americans from accruing generational wealth. Hannah-Jones points to slavery as the root of the racial wealth gap, since enslaved people were not allowed to own property. She’s also eager to remind us that the legalized segregation and system injustices continued to create barriers to wealth creation for Black Americans even after slavery ended. While legalized segregation may be over, many of these systemic barriers live on. This gap has been built up over generations.
Let’s take a closer look at some of the myths associated with the racial wealth gap. I’m going to look specifically at a few of the most popular ones I’ve heard perpetuated, particularly as a part of the recent uprising after the murder of George Floyd. (If you want to go deeper, I recommend this Axios article on ten different myths around the racial wealth gap.)
Increased educational attainment will close the racial wealth gap. This myth follows from the idea that increased education means an increase in wealth. While it is true that more education does lead to increased net worth for both white and Black people, the difference in the net worth amounts across the two races is staggering. According to a research study by the Samuel DuBois Cook Center on Social Equity (referenced going forward as “the research study”), it takes a Black person’s attainment of post-college education (median net worth: $141.1k) to even begin to eclipse the median net worth of a white person with high school education ($118.6k) or some college ($135.4k). Bear in mind, however, that a white person with a post-college education has a median net worth of $455.2k — over three times as much as a black person with the same education. Needless to say, increased education may help to marginally narrow the gap, but it will not close it.
If more Black families owned homes, they could close the racial wealth gap. It’s important to recognize that while home ownership may help to generate equity and wealth, to buy a home you need to have wealth. As the research study notes, "Rather than homeownership creating wealth, having family wealth in the first place leads to homeownership, particularly high-equity homeownership." When Black families do buy homes, they generally start out with much less wealth and purchase homes at a lower price. Compared to white homeowners, Black homeowners own homes with lower property values and generate less equity. This disparity is rooted in historical and ongoing discrimination in housing and lending as well as segregation. Even if home ownership may help to reap some wealth benefits for Black families, remember this is only one area of wealth. This does not help address disparities in other areas, like vehicle ownership, family business wealth, retirement accounts, or stock portfolios.
A rise in Black entrepreneurship will close the racial wealth gap. Black entrepreneurs face many barriers to success and growth, beginning with their access to start-up capital. A 2010 study by the Minority Business Development Agency found that white business owners started their businesses with an average of $106,702 in capital, compared to $35,205 for African-American-owned businesses. Similarly, Black entrepreneurs face discrimation in obtaining additional financing. According to the Federal Reserve Bank’s 2016 report on minority firms, "40% of firms owned by people of color received the full amount of capital sought, compared to 68% of non-minority-owned firms." Lack of start-up capital is one of the primary reasons businesses fail, reinforcing the stereotype that “wealth begets wealth.” While entrepreneurship may help close the gap, it cannot be successful until access to start-up capital and financings is equalized.
Increased financial literacy will close the racial wealth gap. This argument emerges from Black families’ disproportionate use of payday lending and fee/interest laden check-cashing services when compared with white families. However, a 2017 report from the St. Louis Fed finds: "[M]eager economic circumstances — not poor decision making or deficient knowledge — constrain choices and leave asset-poor borrowers with little to no other option but to use predatory and abusive alternative financial services." Demos found that white families actually spend more and save less than Black families with the same income. Yet white families still have more wealth than Black families earning the same income. The use of payday lending and check cashing services is more likely due to the lack of financial and credit products available in many Black and brown communities, than to a lack of financial literacy.
What I continue to find most shocking about these myths (and most of the popular thinking about the racial wealth gap) is that it puts the onus on Black people to fix a problem they did not create. Underlying each of these myths is a belief that the problem is Black people — their habits, culture, and poor decision-making — and not slavery, discrimination, or white privilege. This is a problem created and substantiated by white people. It is our job to fix it.
So, what do we do with this glaring information?
I think it’s easy to jump to quick fixes as evidenced in the myths above. However, what’s required here is a broad shift in America’s economic system. The solutions need to be implemented at a national policy level, not an individual level. The Institute for Policy Studies lays out a list of ten solutions that would begin to close the racial wealth divide. One of the best things you and I can do is use our voice and our vote to advocate for policies and programs committed to doing this work on the local, state, and national level. At the same time, we can also advocate to end discrimination in the communities where we live and the industries in which we work.