Bootstraps vs. Blockades: Closing the Growing Racial Wealth Gap When Doing the “Right Thing” Doesn’t Work for Everyone

Conceptions of the American Dream often frame upward mobility as an ideal best accomplished through individual effort and perseverance. However, persistent racial disparities despite similar inputs demand a reconsideration of the story we tell ourselves about the degree to which success is available to everyone. A recent report using data from the Survey of Consumer Finances shows that, in 1983, white households held, on average, 5.3 times greater wealth than black households and 6.1 times greater wealth than Latino households. By 2013, those rates had increased to 7.7 and 6.7 times greater, respectively. This is a growth of 85 percent for white households, but only 27 percent for black households, and 69 percent for Latino households.

Source: CFED and Institute for Policy Studies. The Ever Growing Gap. August 2016

Source: CFED and Institute for Policy Studies. The Ever Growing Gap. August 2016

What is more striking, however, is that even if the wealth of black and Latino households had grown at the same rate as white households or even as drastically as those on the Forbes 400 list (a 736 percent increase in wealth between 1983 and 2013), their wealth would still not match the wealth held by white households. Black households would fall short by $181,000 and Latino households would fall short by $270,000. The report concludes that:

“If average Black family wealth continues to grow at the same pace it has over the past three decades, it would take Black families 228 years to amass the same amount of wealth White families have today. That’s just 17 years shorter than the 245-year span of slavery in this country.”

Catching Up: The Racial Wealth Gap is Unlikely to Narrow

In order to catch up to white families, black and Latino families would need to find a way to increase their wealth by over 700 percent. But traditional drivers of wealth creation do not produce as much value for people of color relative to their white counterparts (with the exception of Asians). For example, education has long been described as the great equalizer and, while there are significant economic returns to a college degree, there are large earnings and wealth gaps by race even among those who have earned postsecondary degrees. Similarly, homeownership is the largest expenditure for many families and represents a large portion of their total wealth, but non-whites are less likely to own their own home and, when they do, their property values are significantly lower. Given the extent to which homeownership is constrained by income and student loan debt (which is accumulated in larger amounts by non-white students), these racial disparities are not surprising.

Source: Georgetown University Center on Education and the Workforce. The College Payoff. 2011

Source: Georgetown University Center on Education and the Workforce. The College Payoff. 2011

 

Source: St. Louis Federal Reserve Bank. The Regional Economist. Unequal Degrees of Affluence: Racial and Ethnic Wealth Differences across Education Levels. October 2016.

Source: St. Louis Federal Reserve Bank. The Regional Economist. Unequal Degrees of Affluence: Racial and Ethnic Wealth Differences across Education Levels. October 2016.

Intergenerational transfers of wealth are another major contributor to wealth creation, but for black families, this strategy is much less successful. Black children born into moderately wealthy families (the middle wealth quintile), are more than twice as likely as white children to fall from the middle to the bottom quintile as adults (33 percent vs. 14 percent).

This trend is especially concerning in the South, with deep racial divides in economic opportunities and a long history of excluding racial minorities from sources of wealth accumulation. For example, the high degree of residential segregation found in the South further exacerbates the gap in wealth created by home ownership; neighborhoods with higher concentrations of non-white residents often have significantly lower property values. Coupled with lower rates of intergenerational income mobility, this suggests that an even greater challenge exists for black and Latino families hoping to build wealth and economic security.

New Outcomes Require New Systems

If black and Latino families are pursuing the same strategies for upward economic mobility as white families, why aren’t they reaping similar rewards? As we’ve written before, our history, particularly in the South, of economic dependence on forced and exploitative labor limited opportunities for wealth creation for those outside the economic elite, and particularly for people of color. Unequal investment in community resources that are beneficial to the entire population, like schools, transportation, and healthcare compounded these issues. This history and it’s continued legacy, apparent in current disparities, undermines a pillar of our proclaimed American ideal that upward economic mobility is available to all who are motivated, persistent, and hard-working. If we believe that closing the racial wealth gap is an issue best solved with strategies implemented at the individual level, what then, is a viable pathway for black and Latino families to catch up, if not through education, income, or homeownership? If we do not have a good answer to this question, we cannot continue to tell ourselves that the only thing standing between poverty and prosperity is a strong work ethic. Instead, we must commit to systemic changes at the institutional level, which focus on the racial disparities among major drivers of wealth creation and create an infrastructure of opportunity that is prosperous for everyone.