Economy

3 Obvious Reasons for the Racial Wealth Gap in America—It's Time to Fix Them

It turns out that college is not so important in understanding racial wealth inequities.

Owning a home, then equal pay for equal work, and then having a college degree are the three factors that can make the biggest difference in closing the racial wealth gap, which is how non-whites in America are vastly less wealthy than most whites. 

If blacks and Latinos owned homes as widely as whites, then median black household wealth would grow by $32,113, and median Latino wealth would grow by $29,213, a new study by Demos, a progressive think tank, and the Institute for Assets and Social Policy at Brandeis University has found.

Similarly, if non-whites were paid the same as whites, they would yield another $11,488 for blacks and $3,528 for Latinos, the groups reported. In contrast, graduating college would only yield $1,313 more for blacks and $3,528 for Latinos, they said.

These figures begin to shed light on how economic class divides endure over time.

“The typical black household has just 6 percent of the wealth held by white households and Latino households have just 8 percent,” said Tamara Draut, Demos vice-president of policy and research. “But what is less understood and less talked about, frankly, is the underlying racial divide that the undercuts so much of the inequality that we have in this counrtry.”  

It is not a surprise that home ownership remains the single best way for most Americans to set aside a wealth-accumulating asset, as buying a home is the largest investment that many people make. While historically, there have been many barriers for minority home ownership—such as redlining, reduced access to credit and lower incomes—the figures generated by Demos and Brandeis IASP further quantify those disparities. The groups hope that their  new tools measuring the racial wealth gap will help government assess whether existing or proposed programs will help or hurt economic inequalities.

One of the most disturbing consequences of the Great Recesssion was how it wiped out the wealth of many households, especially in communities of color, which had some of the highest foreclosure rates after being targeted by predatory lenders.

“In 2011 the median white household had $111,146 in wealth holdings, compared to just $7,113 for the median Black household and $8,348 for the median Latino household,” the groups reported. “From the continuing impact of redlining on American homeownership to the retreat from desegregation in public education, public policy has shaped these disparities, leaving them impossible to overcome without racially-aware policy change.”

Demos and IASP are trying to push elected officials to recognize the role that race plays in creating and solving economic problems. The finding about how home ownership—or the lack of it—is the most significant factor in generating wealth underscores that point.

“While 73 percent of white households owned their own homes in 2011, only 47 percent of Latinos and 45 percent of Blacks were homeowners,” the wrote. “In addition, Black and Latino homeowners saw less return in wealth on their investment in homeownership: for every $1 in wealth that accrues to median Black households as a result of homeownership, median white households accrue $1.34; meanwhile for every $1 in wealth that accrues to median Latino households as a result of homeownership, median white households accrue $1.54.”

Their report, which they said was the first of many to come on the topic, did not address how women in each of these ethnic groups are worst-positioned of all, when it comes to wealth accumulation and retirement security. That’s because women live longer than men, and earn 78 cents for every dollar paid to men for the same work—before racial disparities are factored in.    

 

 

Steven Rosenfeld covers national political issues for AlterNet, including America's democracy and voting rights, campaigns and elections, and many social justice issues. He is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).

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