The Racial Wealth Gap: Two Reports on Income and Asset Disparity

racial income disparity, racial asset disparity, asset disparity, What We Get Wrong, African-American businesses, African-American banking, institutional racism,.Closing the racial income gap Closing the racial wealth gap Racial Income Gap Housing Inequity Racial Wealth Gap Racial Wealth Disparity, black education, black banking, black banks, black-owned banks, black businesses, black-owned businesses, black home ownership, black families, white families, black one-parent families, black one-parent households, black single-mother families, black single-mother households,
This entry is part 4 of 5 in the series How Whites Hold Blacks Back

Two recent reports on racial income disparity and asset disparity address various reasons for the racial wealth gap. They look at black education, black housing disparity, black banking and black savings.

Institutional racism

racial income disparity, racial asset disparity, asset disparity, What We Get Wrong, African-American businesses, African-American banking, institutional racism,.Closing the racial income gap Closing the racial wealth gap Racial Income Gap Housing Inequity Racial Wealth Gap Racial Wealth Disparity, black education, black banking, black banks, black-owned banks, black businesses, black-owned businesses, black home ownership, black families, white families, black one-parent families, black one-parent households, black single-mother families, black single-mother households,(05-27-2018, updated 08-02-2018) The federal labor market and income were openly segregated until a few decades ago. Separate black unions in different sectors, which were often ignored. In the 1920s President Woodrow Wilson prohibited any black civil servant from being in a superior position to any white civil servant. Blacks only got the lowest-paying jobs. The New Deal labor standard laws, like those regarding minimum wageunionization, etc., didn’t cover jobs that were predominantly occupied by African Americans. The National Relations Labor Board tolerated private-sector unions that didn’t allow blacks until the 1970s. There were state and local governments with different income schedules for blacks until the late 1960s.

Okay, so segregation held African Americans back at almost every level until the Civil Rights Movement. But since then there has been no racial discrimination by the government–so they have no excuse for being less well off today, do they? And what about poor white people? Aren’t they just as badly off as poor black people?

Well, it just so happens that several studies were recently done on the subject, on which I will heavily rely for this post.

Yes, white people suffer poverty as well. but proportionately less than half as much. According to the Census Bureau, in 2016, 20% of blacks and 8.8% of whites lived in poverty. And in general, poor white folks have a bigger chance of escaping poverty. Recent studies found that in nearly every neighborhood across the nation, black boys earn less in adulthood than white boys, even when both groups come from comparable socioeconomic backgrounds. Two studies, What We Get Wrong About Closing the Racial Wealth Gap and Race and Economic Opportunity in the United States: An Intergenerational Perspective show that class is not the issue, race is. The big issue is racial asset disparity.

Almost half of all African-American families have lived in poverty over at least two generations, compared to 7% of white families.  Therefore, many more African Americans live around the poverty line and many African Americans have (had) a much longer, harder (and more recent) struggle to make it to the middle class. Even within the middle class, the median income of an African-American family is $20,000 lower than their white counterpart, which can be the difference between a down payment for a house in a middle-class neighborhood or staying in a lower-class neighborhood for longer, or renting. Even black people who come from very wealthy families and have stellar university degrees still have a much harder time getting the same kind of jobs as their white counterparts.

Because of the racist policies of the past and insidious, often hard to prove behavior still in the present, many poor black families are completely isolated from mainstream America.


Since in America the quality of one’s education depends on the quality of the neighborhood where one lives, there is definitely a vicious cycle of poverty caused by poor education, from generation to generation. A child also learns from its environment outside school, from the books its parents read at bedtime and the books that are available in the house, the level of complexity of the language it hears, and the enrichment challenges it’s exposed to after school, like being on a sports team or visiting a museum or planting a garden, and by what it’s exposed to at friends’ houses.  What We Get Wrong points out that focusing solely on education is not the solution.

You would think that the racial wealth gap has a lot, if not everything, to do with the level of education. Someone with a higher level of education has more opportunities for better-paying jobs. And families with college-educated heads seem to accumulate more wealth over a lifetime than families with lower levels of education. But education doesn’t reduce the racial wealth gap. If it did, blacks and whites with equal education levels should be earning equal incomes and accumulating similar levels of wealth. This isn’t the case. The figure below, from What we Get Wrong, shows the income disparity between whites and blacks with similar education levels.

As you can see, the median black household with a college-educated head has less wealth than the median white family whose head didn’t even finish high school. The median black family has to have the highest level of education to acquire just a little more wealth than the median white family with a head who dropped out of college or who has at most an associate’s degree.  That’s shocking.

chart income disparities whites v blacks by education level

And if a family is less wealthy, the next generation is either less likely to get a college degree or they will get a college degree along with the burden of a college debt that will follow them for decades. Financial concerns are also a common reason for dropping out. On the other hand, if a family has accumulated wealth due to the family head earning a considerable salary, the next generation is more likely to go to college without needing student loans. After college they can start saving right away, and thus build on their parents’ wealth.

A common misconception is that black families value education less than white families. However, research shows that African-American families, controlling for household type and socioeconomic status, give more financial support for their child’s education than their white counterparts. At every income level and education level of parents, black children get more years of schooling and more credentials than whites.

Home Ownership

Owning a home has always been the number one way to accumulate wealth in America. And wealth drives wealth. As we saw in the last post about housing discrepancy, public programs, starting with the New Deal in the 1930s, allowed many working-class families to move from rentals to their own homes — the American Dream. However, the FHA and VA kept it a Whites-Only Dream with their various ways of getting around the constitutional bans on racial discrimination.

It was the during post-WW-II period of the late 1940s and 1950s that America really grew a solid middle class — the GI Bill provided a relatively good, free college education that led to good, dependable, well-paying jobs that allowed folks to take out that mortgage and buy that new car. But again, this applied mostly to whites.

For blacks the 1940s and 1950s were not the boom times. African-American soldiers came back from fighting the Nazis to the same segregated life they had always led. Most returning black GIs didn’t even apply for VA mortgages, knowing it was pointless. They still had segregated education, segregated housing, no access to many better-paying jobs or the training that was required for those jobs.

 So even blacks who do own homes now still lag behind in asset-building because the earliest they could get started was the late 1960s. And because of segregation, redlining and discriminatory credit practices, the houses African Americans did own didn’t increase in value at the same rate as white folks’ houses did. Among households that own a home, the median white household has nearly $140,000 more in net worth than a comparable black household. So even though the wealth gap does narrow a little bit between whites and blacks who own their own home, there’s still a six-figure racial  asset disparity.

Also, in households who do not own a home, and where wealth levels are low for both white and black households, the median black household has a mere $120 saved up — not enough to even see the family through the week. The median white household has 31 times more wealth saved up or available in assets because whites have more asssets than home ownership.

Black Banking

There’s this myth that banking black will close the wealth gap. The argument is that people in an under-performing group are then not dependent for loans and help on people of the dominant group. Just work together to get yourselves up out of this hole. But this means that blacks do not make whites face their discriminatory policies and their consequences.

Also, President Richard Nixon quickly jumped on that, calling it Black Capitalism. American banks got plenty of government help, from the FHA and VA and Fannie Mae and Freddie Mac, but black banks would be on their own. How convenient for white politicians. And how unhelpful for African Americans and African-American businesses. The problem is also that black banks service a disproportionately high number of people with low incomes who live from paycheck to paycheck, rather than having savings accounts. Black banks also serve disproportionately few businesses, which makes it hard for black banks to make it. There are more than 250 million African-American banks in America right now, but collectively these banks, along with other black businesses, generate $150 billion, which is is a tiny sliver of the nation’s productive capacity. (Gorman, 2017) If banks and businesses are to be the solution for the wealth gap, they have to have a much higher rate of return than their white counterparts.  Obviously, that’s not going to happen.

Exactly how tiny a sliver of the national business pie are black-owned businesses? I’m just going to quote from What We Get Wrong:

In 2016, the top 100 black-owned firms identified by Black Enterprise collectively grossed $24 billion and employed 73,940 workers. In contrast, Walmart, the top firm by revenue in the U.S., grossed more than twenty times as much in revenue and employed 2.2 million more workers than the entire top 100 black-owned firms combined in the same year. In fact, Walmart’s annual revenue – the largest private employer in the U.S. — also exceeds those of all 2.58 million black-owned businesses combined.

And what about black banks? Recently J.P. Morgan had about $2 trillion in assets.  The top five black-owned banks had $2.3 billion, which is 0.1 percent of J.P. Morgan’s assets. Their assets depend on the wealth of their clients, and their clients are African Americans, who have significantly less wealth than whites. So black-owned banks simply don’t have the capacity to play a significant role in increasing African-American wealth. Again, racial asset disparity is the problem.

What We Get Wrong also discusses the notion that blacks have a collective $1 trillion in buying power. That sounds like they have $1 trillion dollars that they misspend somehow. But buying power just means the amount of money consumers have to spend on available products. It’s a marketing term. It doesn’t mean that blacks have oodles of money and no idea how to budget. Anyway, even if it were a valid measure of total African-American wealth, it’s still only 60% of J.P. Morgan’s total assets. And that’s just one of the enormous, globally operating banks.

Black Savings

There’s this idea that African Americans don’t know how to manage their budget, that they lack self-control, that they’re compulsive buyers, that they should save more and that that would close the wealth gap. However, research shows that blacks typically have to help more low-income relatives, which reduces their ability to save. A study using the 2013 Survey of Consumer Finances found that, when controlled for income, whites actually spend 1.3 times more than blacks and that blacks have 401(k)s and contribute about the same percentage of their incomes to them as whites do.

Another myth is that African Americans have less financial management skills. “Proof” for this notion is that blacks have proportionately too much of their wealth in their house and not enough other assets. Well, blacks understand the importance of home ownership in asset-building. Historically, a home is the first major asset most American families buy. But whites have more assets because they start off with more wealth to invest. And with less assets, African Americans are more prone to turn to pay day loans and predatory lenders. Not because they don’t know any better, but because they have no choice.  And these are often the last resort, after even asking family and friends for loans. Wealth begets wealth, and African Americans have not had the same opportunities to acquire that wealth to begin with in previous generations.

As mentioned before, African American college students are more likely to have student debt than white college kids, and are more likely to drop out due to financial problems. And as for mortgages, black homeowners experience higher rates of foreclosure and housing distress than white families, in part because they are systematically offered riskier loans. Also, black homeowners often have homes in neighborhoods where the value hasn’t recovered at the same rate after the housing bust as in white neighborhoods. But even so, African Americans are not significantly deeper in debt than whites.

Black Celebrities

America gets its positive image of African Americans largely from black celebrities. More so than with other minorities.  All the attention paid to the exceptions, to the relatively few blacks who have succeeded distracts from the typical situation. Federal Reserve data from 2016 shows that the median black family has a net worth of about $17,600, while the median white family has a net worth closer to $170,000. That is the reality.

Just because Bill Cosby did well with the Bill Cosby Show, and just because some NFL players make millions and just because Oprah gives away cars and just because we’ve now had a black president, that doesn’t mean racism and wealth disparity are over. What We Get Wrong  quotes Will Smith as saying, when Barack Obama was elected president of the United States,

[All] of our excuses have been removed. There’s no White man trying to keep you down, because if he were trying to keep you down he would have [also tried to keep] Obama down.

Which is nonsense. No white man tried to keep Obama down? Does Will Smith suffer from amnesia? Because I remember quite clearly all the racist garbage that bubbled to the surface when Obama ran from president. Obama was elected president despite tremendous racist vitriol and that was a great victory. But that doesn’t mean that we now live in a post-racist society.

Also, the corporate success of African-American celebrities is often greatly exaggerated. For instance, Magic Johnson doesn’t own the Los Angeles Dodgers; he invested $50 million, which comes out to 2.3 percent of the team. What We Get Wrong refers to  data from Thomas Piketty’s book Capital In the 21st Century when it mentions that of the top 0.1% of the income bracket between 2000 and 2010, only 5% were “athletes, actors and artists of all kinds”.

Black Single-Parent Families

Finally, the fact that many African-American kids grow up in single-parent households is often blamed for the wealth disparity between blacks and whites. Studies show that children benefit from living in two-parent households, and it’s true that a much larger percentage of African-American families are single-mother households than white families: 72% of white children live with two parents, while only 31% of African-American children do. In 2015, according to the Pew Research Center, 54% of black kids were raised in single-parent households.

One explanation for the higher number of single-mother black families is the unavailability of “marriageable” black men compared to black women in school and in the workforce. Many more young black men are incarcerated than white young men and many more black young men are killed than whites. But racially biased policies have led to this situation, which I will discuss in a next post,

Also, research shows that the median single-parent white family has twice as much wealth as the median black two-parent family. So having two-parent black families will not close the wealth gap.


Controlling for income levels and considering education and family structure, blacks consistently have less home ownership, less other assets and less wealth in general than whites. African Americans with high education levels make less than whites who dropped out of high school; among home owners, whites have a median net worth of $140,000 more than blacks; and among non-home-owners — controlling for income and education levels — whites have 31 times as much wealth as blacks. The median lower-income black family make less than the median lower-income white family and the median upper-income black family still makes considerably less than the median upper-income white family.

Financially blacks are not doing anything wrong. Black banks are no solution simply because banks depend on their clients’ assets and nationwide black assets do not amount to the assets of Walmart alone. So black banks cannot compete with white banks and black businesses can’t get decent loans from black banks. African Americans can’t save if they don’t have the income and the assets to save. For instance, if black families have few assets to start with, their children will need student loans to go to college. Those kids won’t be able to save once they have jobs, because for the first couple of decades they’ll be paying off their student loans.

What it comes back to every time, when looking at the reasons for wealth disparity between blacks and whites in the present, is the ubiquitous, institutional  racism that held African Americans back until a few decades ago, and that therefore still affects black families today.

The researchers behind What We Get Wrong conclude that:

The linchpin for wealth accumulation is the transfer of resources across generations, maintaining higher wealth positions among parents and grandparents for their children and grandchildren. Earnings and other types of income are derivative from opportunities created by the wealth position of one’s parents (and grandparents).

So wealth is primarily transferred from generation to generation. Because of America’s history of slavery, black codes and Jim Crow, whites were able to accumulate their wealth across generations for over four centuries before blacks could even get started around the late 1960s, when the last sections of the Civil Rights Act passed. It’s time to acknowledge that and to stop blaming African Americans for this disadvantage.

This post is Part 4 in the series: How Whites Hold Blacks Back. Here is the next one.

(This post was first published on the blog Resident Alien: Being Dutch in America, under the title: “But That Was Then, This Is Now: Part 4: The Racial Wealth Gap”



  • Income and Poverty in the United States: 2016 Current Population Reports / Jessica L. Semega, Kayla R. Fontenot, Melissa A. Kollar. – Suitland MA: Census Bureau, September 2017. -
  • Race and Economic Opportunity in the United States: An Intergenerational Perspective / Raj ChettyNathaniel HendrenMaggie R. JonesSonya R. Porter. – ISSUELAB, Apr 9, 2018. –
  • The Triple Package: How Three Unlikely Traits Explain the Rise and Fall of Cultural Groups in America’ by Amy Chua and Jed Rubenfeld / Colin Woodard. – The Washington Post. – February 7, 2014. –
  • What We Get Wrong About Closing the Racial Wealth Gap / William Darity Jr., Darrick Hamilton, Mark Paul, Alan Aja, Anne Price, Antonio Moore, and Caterina Chiopris. – Samuel DuBois Cook Center on Social Equity Insight, Center for Community Economic Development. – April 2018. –
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