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Wealth gap grows between black and white in U.S.

Kai Ryssdal Feb 27, 2013
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Like the income gap between rich and poor, the wealth gap in America is growing larger. New research out from Brandeis University shows that white families are getting wealthier at a much faster rate than black families.

Wealth is defined as all assets a family holds (home equity, retirement accounts, savings, etc.) minus debt.

Tom Shapiro, director of the Institute on Assets and Social Policy at Brandeis, says that equal achievement between whites and blacks has had unequal results in the 25 years that he’s been following his study subjects.

“For a typical white family, a $1 increase in average income over the 25 years returns about $5 of wealth,” Shapiro says. “For [the] typical African-American family, that same $1 average increase in income returns only 69 cents in wealth.”

Shapiro says it boils down to where a family starts when it comes to wealth. Most white families already have a leg up in the wealth game. They have a familial structure of support — whether it’s an inheritance or help with the first downpayment on a house — that many black families don’t have.

And just as equal income gains have different results, similar achievements in education also won’t bridge the wealth gap.

When Shapiro first started the study in 1984, the total wealth gap between blacks and whites was $85,000. In 2009, that gap had tripled to $236,500.

And the largest single factor that’s led to the gap? Home ownership. 

Shapiro says that blacks take longer to save up enough money to buy a home. They may also face discrimination when it comes to financing. And where you end up buying a home is a major factor as well. Shapiro says that homes in traditionally white neighborhoods appreciate in value at a much faster rate than homes in more diverse or racially segregated neighborhoods. 

“As homes are bought a little lower down in the socioeconomic ladder, housing wealth does grow,” Shapiro said. “But the point is it doesn’t grow nearly as much or as fast.”

Unemployment has had a devastating effect on the wealth of black families as well. The unemployment rate for whites is 7%, while the black unemployment rate sits at nearly double that, 13.8 percent.

Shapiro tells the story of a college-educated black couple that started off making nearly $100,000 a year. They both lost their jobs during the recession and had to eat into the retirement savings to get by.

They went from planning for the future — saving for a new car, putting money away for their kids’ education — to living day by day. Just one example of how unemployment can lead to massive depletion in wealth. And with unemployment disproportionately affecting African Americans, there’s also been a disproportionate hit to their accumulated wealth. 

It’s not all bad news, says Shapiro. He says that the wealth in the African-American community has gone up tremendously over the past 25 years, just not at the same rate as white wealth. “We need to keep growing in a way that bring the African-American, or the communities of color, line closer — that is, put it on the same trajectory of growth and prosperity as that of the white wealth growth line.” 

And if we don’t, Shapiro says, “I fear. I know what toxic inequality looks like. Shared economic prosperity needs to be spread much more broadly for the United States to compete globally as an economy.”

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