Policy Created The Black White Wealth Gap, Policy Can Fix It, Too
African-American families persistently have a lot less wealth than whites do. They have less to fall back on when things go wrong and they have fewer resources to shape their own future. This wealth gap stems from current and past policies that systematically discriminate against African-Americans. Eliminating the racial wealth gap will require an equally systematic policy approach to removing these barriers.
Families can use their wealth to help them pay their bills when things go wrong, for instance, when somebody loses their job or a family member falls ill. Wealth is also a tool for families to take control of their lives. It allows them to start a business, buy a house, move to a new job when new opportunities emerge, and retire in dignity.
Yet African-American families have consistently less wealth than whites. The median wealth, including the imputed wealth held in defined benefit (DB) pensions for African-Americans amounted to $24,560 in 2016, the last year for which these data are available (see figure below). In comparison, the median wealth for white families was $201,000. By this measure, the typical African-American family has never held more than 22% of the typical white family’s wealth over the past three decades (see figure below).
These wealth differences in large part reflect gaps in key assets. African-American families are much less likely to own a house, have a retirement account, own their own business and have a DB pension than is the case for whites. For instance, only 37.5% of Black families owned a retirement account such as a 401(k) or an IRA, while 65.9% of white families did in 2016 (see figure below). And only 41% of Black families owned their own home then, compared to 71.8% of whites. African-Americans often work in worse jobs with lower pay, fewer benefits and greater job instability than whites do due to occupational steering. Lower pay, fewer benefits and less job stability all make it harder to purchase any of these key assets.
Mortgage and housing market discrimination then further exacerbate these differences. When African-Americans own any of these assets, their assets have much lower values. For example, African-American homeowners had a median home equity of $45,000 in 2016, while white homeowners owned more than twice as much with $92,000 (see figure below). A range of obstacles, including outright discrimination and residential segregation, make it much harder for African-Americans to build wealth, even when they own such assets.
Different credit market experiences further exacerbate these asset gaps as African-Americans have less access to credit that makes it more difficult for them to invest in key assets like a house or a business.
Consider what happens to families with student loan debt. African-Americans are more likely to owe student loans and they owe more in student loans when they have such debt. Their families have less money to pay for their education and predatory for-profit colleges are more likely to target them. Worse, Black students still enter a labor market that consistently offers them fewer good jobs and careers than is the case for white students. The combination of lower pay and higher debt means that more African-American families fall behind in their student loan payments, hurting their credit scores. As a result, they have less access to credit. Almost a third – 31.3% of Black families with student loans – were denied a loan application or did not even apply for a loan out of fear for being denied because of their existing debt or their credit history (see figure below). In comparison, 18.5% of Black families without student loans lacked access to credit. For white families, the respective shares were much lower with 18.5% for those with student loans and 8.8% for those without student loan debt. Black families have less access to begin with and student loan debt worsens that lack of access more so than for whites. Lack of access to affordable and stable credit makes it harder for families to buy a house or start a business, for example.
The massive gaps in student loan debt between Black and white families spill over into asset ownership, widening the racial wealth gap over time. Wealth among Black families with a college degree that also owned student loans grows much more slowly as they get older than is the case for white families with student loans (see figure below). Student loan debt poses a greater obstacle for African-American wealth building than it does for whites.
African-Americans face many hurdles to building wealth wherever they turn. Outright discrimination coupled with less obvious systematic obstacles such as occupational and educational steering that drives African-Americans deeper into student loans all reinforce each other. African-Americans end up with less economic security and fewer opportunity. Eliminating the wealth gap between white and Black families will require an equally systematic policy approach in all aspects that that impact wealth building.