Wealth and assets are the building blocks of economic stability and mobility. Higher levels of wealth also benefit society as a whole. Unfortunately, wealth inequality in the United States is not only wide but growing — the wealthiest tenth of American households possess almost three-quarters of the country’s total net worth. The racial wealth gap is even worse. In less than a generation (from 1984 to 2007), the racial wealth gap has more than quadrupled, mostly as a result of rising white wealth. In terms of household net worth, for every dollar owned by a white household Latinos own twelve cents and African-American families own only ten cents. In fact, the median net wealth of white households is 20 times that of black households and 18 times that of Hispanic households. These lopsided wealth ratios are the largest since the government began publishing this data a quarter century ago and roughly twice the size of the ratios that prevailed among these groups for the prior to the Great Recession.
Early evidence is that the great recession has already significantly increased the racial wealth gap because of catastrophic losses in wealth amongst minorities. A recent report by the Pew Research Center estimates that from 2005 to 2009 the racial wealth gap doubled – so that median white families currently have as much as 20 times the wealth of black families, and 18 times the wealth of Hispanic families. These racial wealth disparities will rise further as the after-effects of the Great Recession continue. Although the recession affected all U.S. households’ wealth, through unemployment, falling stock prices, and huge losses in home values, it affected minorities more. In fact, the foreclosure crisis has caused “the greatest loss of wealth for people of color in modern U.S. history.”
In order to understand the persistence of this discrepancy, one needs to examine the country’s historical and current discriminatory practices and policies. Even when characteristics such as income, education, and other demographics are equal, minorities continue to have less wealth than similarly situated whites. Historically, legal, or de jure, discrimination, both by the government and by private actors, increased the racial wealth gap and created the opportunity for whites to build assets at the expense of minorities. Additionally, and perhaps more importantly, other facially neutral policies of the U.S. government racialized wealth acquisition, including the government’s promotion of white land acquisition, home ownership, retirement, and education, without explicitly delineating opportunities along the lines of race. Today, although racial discrimination is no longer legal, de facto discrimination still exists in terms of government and social priorities, principles, social norms, and the actions of individuals. Housing discrimination, unequal educational systems, disparate treatment in the realm of criminal justice, and disparate employment opportunities all continue the current advantages that whites enjoy.
Two critical public policy strategies in reducing this gap is identifying and eradicating current discriminatory government policies, whether de jure or de facto, and assisting racial minorities in developing assets. As advocates in the asset building field have explained, “public policies have and continue to play a major role in creating and sustaining the racial wealth gap, and they must play a role in closing it.”
At the moment, however, the federal government is actually exacerbating the racial wealth gap. Instead of subsidizing wealth creation mostly for the wealthy, the federal government must switch to supporting asset-building strategies for those who need it most. In 2009, the United States spent nearly $400 billion on asset building policies. These subsidies, however, overwhelmingly go to those who already have significant wealth. For example, those earning more than $160,000 received an average of $5,109 in tax breaks per taxpayer, while those earning less than $19,000 received an average of only $5 in tax credits in 2009. Shifting the government’s expenditures toward facilitating the asset-building of the poor and minorities would help alleviate the legacy of racial inequality and provide needed fiscal stimulus.
Multifaceted public policies and strategies to help individuals build their own assets are also needed. Specifically, we must identify strategies to (1) promote savings, (2) increase access to mainstream credit, and (3) improve and increase financial education. Only by acknowledging that the same social system that has, and continues, to foster the accumulation of private wealth for many whites while denying it to blacks and redirecting this focus will we, as a society, begin to decrease the wealth gap that has racially divided this country for centuries.
To read more about the causes of the racial wealth gap and asset building policy solutions to bridge this gap read the “Eliminating the Racial Wealth Gap: The Asset Perspective,” featured in the July-August 2011 issue of Clearinghouse Review.