While the solution and causes behind the racial wealth gap are complicated, the problem itself is simple. The fact is, Black families in the U.S. hold about 15% the wealth of white families. Because it takes wealth (or capital) in this country to create more wealth, it has become mathematically impossible to catch up. One is unable to participate in the main three avenues for building wealth – investing in stocks, building businesses, or buying real estate – if one doesn’t already have the capital needed to engage in these activities. This creates a tale of two peoples where one group has the resources available to participate fully and grow their wealth while the other group simply doesn’t.
How Did We Get Here
This wealth gap originated with chattel slavery where Black people not only had absolutely no access to capital but, instead, were actual capital. White Americans started to earn incredible wealth – based on the labor of Black people – while Black people were intentionally left out of the wealth building system. From there, the mismanagement of funds in the Freedman’s Bureau Bank during Reconstruction, the extreme violent backlash against successful Black enterprises post-Reconstruction – such as the destruction of homes, businesses and lives in Tulsa, Oklahoma – and the unequal distribution of benefits within the New Deal have given Black people little to no resources from which to create wealth. (And this is a small and general historical sampling; I could go on.)
As white people were given free land, favorable credit terms, free education, and resources to start businesses, Black people were largely left out. When Black Americans found avenues through which to gain prosperity, their homes and businesses were burned down and they were killed. From the beginning, Blacks weren’t viewed as people but as property. There was never an intention for Black Americans to own land, generate wealth or have equity.
How Might the Racial Wealth Gap Affect Me
While this is a large, systemic problem affecting a lot of families, the impact for Black Americans is profound. Here are the various ways it’s affecting you.
Income levels
Black Americans earn a median $40,300 income, compared to white Americans, who earn $69,000. Even if you control for education level and geography, these disparities still exist.
Home ownership and home valuations
As homeowners, Black families’ homes are valued 35% lower than homes owned by white families. Further complicating this problem, Black homeowners take on larger and more expensive mortgages ($90,000 vs. $75,000 on average), meaning that despite our lower homeownership rates, when we do purchase homes it actually helps to increase the racial wealth gap.
Student loan percentages and amounts
While there is a national student debt crisis, Black students take on 25% more student loans than our white counterparts. Additionally, the loans we take out are 10% more than those of our white counterparts.
Business ownership and capitalization
Black women are starting more businesses than any other demographic in this country, yet they only receive a mere .27% of venture capital funding. All Black-owned businesses in this country account for a scant $150B worth of revenue, 1.3% of sales, and 1.7% of employment. When Black businesses do receive start-up capital, it averages out to $35,000 compared to $106,000 for white businesses. In 2016, of the $23.09B of Small Business Administration (SBA) loans awarded to small businesses, only 1.7% went to Black-owned businesses.
Emergency savings
Almost all families have some liquid assets in case of an emergency, but, once again, we see a disparity between the races. Black families maintain an average of $1,500 in savings compared to the $8,100 held by white families4 (though both amounts are likely well below the 3-6 months of expenses experts advise American families should have saved for emergencies).
Retirement programs
While nearly 70% of white families have access to an employer sponsored retirement plan, less than 60% of Black families have similar access. And, while 60% of white families participate in these plans, only 45% of Black families do.
Stock/equity ownership
Black Americans save at a slightly higher rate than white Americans, but our savings tend to be in more conservative accounts. While 20% of white families own stock at average holdings of $50,600, only 2% of Black families do, with average holdings of $14,400.
Generational wealth
Nearly triple (17%) the number of white Americans expect to receive an inheritance in their lifetime, while only 6% of Black Americans can make the same claim. When we do receive an inheritance, it’s half as much. White Americans expect to receive $195,500 while Black Americans expect to receive $100,000 in inheritance.
It’s this inability to pass on intergenerational wealth that is the linchpin in this problem. The main ingredient in wealth building is wealth. Without a financial foundation to build from, it is literally impossible to create more true wealth. The difference between how Black and white Americans have been able to build and maintain generational wealth is the key factor to the continuing racial wealth gap.
The Next Steps
In the second half of this series, I will explore the current proposed solutions to this problem and what we can do as individuals to help unravel this knot. While this is a complex and systemic issue that has taken centuries to create, there are some things we can do to decrease its effect on our individual lives.
As Black people, our mere survival is revolutionary. We are consistently required to think globally, but act locally. In order to move past this challenge, we will have to continue to hold our politicians accountable, challenge the system we live in and push back when we see that we’re being treated unjustly. However, we also have to acknowledge the challenges we face in this system while working within it for the benefit of ourselves and our families.
Stay tuned for part two to see how we can turn this tide.
Bevin Morgan is a Financial Trainer at The Financial Gym who has paid off over $200K in debt to become debt free. She is a real estate investor and self-proclaimed personal finance nerd. She specializes in helping Black female entrepreneurs and creators gain confidence in their financial futures with a touch of woo woo. She is on a personal mission to help bridge the racial wealth gap in this country. Black families hold less than 10% the average wealth of white families. Instilling financial confidence in Black women is one small step she’s taking to help change that.
Find her at www.bevinmorgan.me or on Instagram, @bevinmorgan.
How the Racial Wealth Gap Affects Me: Part I appeared on Wealth Noir.