The Persistent Racial Wealth Gap

The racial wealth gap persists—with little hope of narrowing anytime soon.

Today, the disparity in household wealth between whites and blacks is a national disgrace.

In 2013, the average household wealth of blacks was $85,000 compared to $656,000 for white households, according the “The Ever-Growing Gap: Without Change, African-American and Latino Families Won’t Match White Wealth for Centuries, a report by the Institute for Policy Studies (IPS) and Center for Expanding Economic Development (CFED). The Forbes 400 own more wealth ($2.35 trillion) than the entire black population in the United States.

A Growing Wealth Divide

The wealth gap has worsened over the past 30 years: The average household wealth of whites was $355,000 in 1983 while that of blacks was $67,00.

Between 1983 and 2013, the wealth of white families grew by 84 percent, or three times the rate of growth of the black population. If the wealth of the average black household grows at the same pace as it did during the past 30 years, it would take black families 228 years –or 17 years less than the 245 years of slavery in this country—to accumulate the same amount of wealth that whites own today.

Our national dialog on inequality usually focuses on differences in income. Yet it’s the wealth divide that best explains the social cost of inequality.

As noted by the IPS/CFED report, “While income is necessary to meet daily expenses, wealth helps families get through lean times and empowers them to climb the economic ladder. Wealth is money in the bank, a first home, a college degree and retirement security—it’s the countless opportunities afforded by having savings and investment.” Being born with a silver spoon in your mouth gives you a wonderful advantage in life.

Some say the racial wealth divide is rooted in individual choice and the African-American family structure, particularly homes headed by single mothers.

An example of this line of reasoning is the widely criticized report issued by Sen. Daniel Patrick Moynihan more than 50 years ago. The report, “The Negro Family: The Case National Action,” blamed racial inequality, poverty and crime on the black family structure.

In reality, the intergeneration transfer of wealth and other aspects of white privilege offer a better explanation about why wealth inequity persists, according to a recent report by Demos and the Institute on Assets and Social Policy (IASP) at Brandeis University.

The Roots of the Wealth Disparity

The report, “The Asset Value of Whiteness,” disputes the common perception that individual differences in education, family structure, full- and part-time work, and consumption explain the gap.

“In each case, we find that individual choices are not sufficient to erase a century of accumulated wealth: structural racism trumps personal responsibility,” the authors of the report say.

Thanks to inheritance and other factors, white families are able to accumulate much more wealth than black families.

In 2013, the median wealth of two-parent white households with children was $161,300. The median wealth of two-parent black family with children was $16,000. White single mothers are wealthier than married black couples because of white privilege and inheritance.

Educational attainment is often cited as a factor that levels the playing field between whites and backs. Yet the typical white adult who attends college has 7.2 times the wealth of the median black adult. Certainly, a college education isn’t enough to close the racial wealth gap.

Generally, black college students carry a higher debt burden than white students, who are more likely to come from wealthier families. Discriminatory practices in housing, banking and education prevent black graduates from accumulating wealth at the same rate as whites.

Working full-time also isn’t enough to close the wealth gap, according to the report issued by Demos and IASP. (The authors are Amy Traub of Demos and Laura Sullivan, Tatjana Meschede and Tom Shapiro of IASP.)

The wealth of the white family with a full-time worker is $82,400. The corresponding black family has $10,800 in accumulated wealth, according to the Survey of Consumer Finances data.

Blacks accumulate wealth more slowly because of their lower income. In 2012, the median weekly wage of full-time white workers was $792. The typical full-time black worker earned $621.

Can differences in spending habits explain the racial wealth gap? No.

Personal financial advisor typically recommend that to accumulate wealth their clients should spend less and devote more of their funds to savings and investments. But that strategy does not appear to have much of an effect on the wealth gap.

White families spend more than black families with similar incomes, yet those white families have greater wealth than the black families.

“While spending less and saving more may be excellent advice for individuals, the evidence suggests that personal spending habits are not driving the racial wealth gap and cannot succeed in closing it,” the Devos/IASP report says.

So, the racial wealth gap is rooted in years of discrimination and public policy that favor whites– not individual behavior.

“Building a more equitable society will require a shift in focus away from individual behavior towards addressing structural and institutional racism,” the report concludes.

The CFED/IPS study has a number of recommendations. They include conducting an audit to identify which federal policies exacerbate inequality. Reforming the tax code to use more than a half-trillion dollars spent on unfair taxes (the wealthy benefit disproportionately retirement, home purchasing and investment and saving policies) to address the wealth divide. The report also calls for more progressive taxation and a study of a wealth tax.

“By acknowledging the role that public policies continue to play in fueling the racial wealth divide and by fixing unfair wealth-building programs so that they expand opportunity for all, we can begin making the investment needed to close the racial wealth divide,” the report concludes.

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