Fellow White Folks and Personal Finance Nerds: We Need to Talk About the Racial Wealth Gap

We need to talk about the racial wealth gap — butch on a budget

I’m a firm believer that part of financial literacy also includes understanding the way that financial policies and economic systems affect individuals and society.

Because of this, we’re going to be talking about the racial wealth gap here in the U.S.

Now, to be clear, this is a topic that many books could be written about (and have been, here’s a good one to start with) and there are others who can talk about this much more eloquently than I can. But, while I have you here in my little corner of the internet, we’re going to do a quick overview that hopefully gets you thinking of some things in a new way, piques your interest enough to do some further self-education, and maybe even inspires some action.

So, what is the racial wealth gap?

The racial wealth gap between Black and white households is not a gap. It’s a staggering disparity.

Chart depicting the racial wealth divide using 1983 and 2016 comparison years. It is broken down by all, white, black, and latino. 

Total wealth all 1983: $84,111
Total wealth all 2016: $81,704

Total wealth white 1983: $110,160
Total wealth white 2016: $146,984

Total wealth Black 1983: $7,323
Total wealth Black 2016: $3,557

Total wealth Latino 1983: $4,289
Total wealth Latino 2016: $6,591

source: visual by Tableau, data by Institute for Policy Studies

In my last post, I made reference to the fact that if wealth accumulation remains at the same rate it has been among Black households, it is estimated that it will take 228 years for Black Americans to reach the same level of wealth white households enjoy today.

In 1863 (the year of the Emancipation Proclamation) Black communities owned less than 1% of total U.S. wealth. Now, it’s 157 years later and the Black community still owns less than 3% of the nation’s wealth, despite accounting for 13% of our population.

We often hear about the wage gap and how white men out-earn Black and Hispanic men (and women of all races). However, wealth is far more unequally distributed than income. While Black men earn 73 cents on the dollar, and Black women 65 cents on the dollar compared to white men, when it comes to wealth, Black households hold less than 7 cents on the dollar compared to white households.

See, wealth and income are separate from each other and don’t always correlate. Your income is what you earn while your wealth is your savings and assets minus your debts.

Net worth (wealth) = Savings + Assets – Debts

Someone could earn $30,000 per year but have incredible wealth from an inheritance. Another person could make over $100,000 yet have very little wealth because of negative financial decisions, having to take care of other family members, or high student loans.

(By the way, it’s a racist myth that Black families make worse spending decisions than their white counterparts. I’ll get to that below, but also wanted to clear that up right now).

Over the past century, the racial wealth gap has not only persisted; it’s grown. That’s precisely because “wealth is built primarily by the transfer of resources across generations, locking in the deep divides we observe across racial groups.”

Why does the racial wealth gap exist?

For centuries, white families have enjoyed the benefits of passing down wealth — and that wealth was often able to accumulate because of slave labor or massively underpaid labor off the backs of Black people, immigrants, and other people of color.

During those centuries, black folks were enslaved and then had their savings and property stolen while also being purposely excluded from wealth-generating programs backed by the government — the same programs that led to the rise of the white middle class.

Here are some quick excerpts from this article from the 1619 Project, which “aims to reframe the country’s history by placing the consequences of slavery and the contributions of Black Americans at the very center of our national narrative.”

  • “In 1865, following the legal ending of slavery, 40-acre plots across Florida, Georgia, and South Carolina were promised to Black families for settlement as compensation. A mere year later in 1866, President Andrew Johnson returned the land on which 40,000 black families had settled to white plantation owners.”
  • “In 1865 the Freedman’s Savings Bank was formed to help formerly enslaved people gain financial freedom. Over the next 9 years, 60,000 black people deposited over $1 million into the bank. This money was then used to issue speculative loans to white investors and corporations by its all-white trustees. Because of this, the bank failed and depositors lost their savings.”
  • “In 1921 a prosperous black neighborhood in Tulsa, Oklahoma was burned and looted. It is estimated that up to 300 black people were murdered and 10,000 were rendered homeless.”
  • “In the 1930s, FDR’s New Deal introduced Social Security and the minimum wage. However, the majority of black people at the time were agricultural laborers or domestic workers, occupations that were ineligible for those benefits.”
  • “The Federal Housing Administration and G.I. Bill, both of which were instrumental in helping millions of working-class white families enter the middle class, did not benefit Black families as they would only guarantee bank loans to developers who wouldn’t sell to black people.”

This is by no means an exhaustive list of examples. It’s actually only the smallest tip of the iceberg. There are countless other examples of unjustified theft of wealth from the Black community and blockades on wealth accumulation.

There is also, of course, the long-lasting economic effects of disproportionate mass incarceration.

There is the fact that black families are often denied access to credit at higher rates, face higher costs for borrowing, and are targeted by predatory lending practices, all of which made them especially vulnerable to the 2008 housing crisis and resulted in them disproportionately losing their homes to foreclosure.

Again, there are entire books written about this.

And yet many try to explain the racial wealth gap away with myths about individual behavior. If you are a white person who thinks this can be solved by simple financial literacy and better savings on the individual’s part, you should know that when income is controlled for, Black families have a slightly higher savings rate than their white counterparts. And, at comparable incomes, white folks spend 1.3 times more than Black families.

If you’re a white person who thinks a college degree is a great equalizer, you should know that among college-educated folks there is a $200,000 difference between the median net worth of a white college grad and median net worth of a Black college grad.

And, that Black college grad’s household still has a median net worth less than the median white household who didn’t even obtain a high school diploma.

Chart showing median household net worth by race and education. 

Net worth (white) by education — 
post college: $455,212 
College: $268,028
Some College: $135,415
High School: $118,580
Less than high school: $82,968

Black net worth by education: 

Post college: $141,115
College: $70,219
Some college: $18,200
High school: $6,660
Less than high school: $2,775

Data from "What We Get Wrong About Closing the Racial Wealth Gap" Duke University 2018
Data from What We Get Wrong About Closing the Racial Wealth Gap, Darity et al, 2018

So, why does the racial wealth gap exist? Well, like much of the inequities we see today, it exists because it was designed to exist.  

I’ve been thinking a lot lately about a quote I referenced in my undergraduate thesis from Robert O’Meally and Genevieve Fabre’s History and Memory in African-American Culture:

“As Nathan Huggins has stated, altering American history to account fully for the nation’s black voices would change the tone and meaning — the frame and substance — of the entire story. Rather than a sort of Pilgrim’s Progress tale of bold ascent and triumph, American history with the black parts told in full would be transmuted into an existential tragedy, closer, Huggins says, to Sartre’s No Exit than to the vision of life in Bunyan. “

And another quote that oral historian Michael Frisch recalls his Nigerian friend saying:

“Why bother with history when you’re rich and powerful? All it can do is tell you how you climbed to the top…For the rest of us, it’s a lot different. We don’t have the luxury of ignoring history. History is a giant stone that lies on top of us; for us, history is something we have to struggle to get out from under”

We cannot continue to explain away the present without acknowledging and redressing our nation’s past.

I’m all for empowering individuals to believe in their own efficacy and agency in taking control of their personal finances to make a difference in their day-to-day lives (that’s why I love writing and talking about personal finance), but when it comes to the racial wealth gap, the conversation needs to be so much bigger.

When we talk about investing and building wealth here on the blog, we often talk about how the time that you have is more important and has an outsized effect compared to the amount you have to initially invest.

And that’s the problem — time to build wealth has been stolen from the Black community in this country over and over again and continues to be so.

We can’t give back time, but we can make reparations and make change for the future.

What can you personally do?

Support Black-owned businesses, artists, authors, etc. with your dollars.

Donate, donate, donate.

Keep learning. And learning. And learning. And learning.

Here’s the full episode that is linked behind the first “learning” link.

Vote. Just as I encourage each of us to align our personal budgets with our priorities, our local and national budgets should align with our priorities as well. It’s important that we vote for candidates who want to invest in marginalized communities, look different than ourselves, and support and fight for much-needed, large-scale, dismantling-the-status-quo structural change.

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