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Historically, African Americans have faced discrimination and oppression in one form or another. Today, however, it is easier than ever to overlook the discrimination faced by marginalized groups. Consider the following question: the median household income for white families is how many times greater than the median household income for black families?

Assuming you are not extremely well versed in the struggles of black Americans, you probably guessed that the ratio is somewhere around 2:1. However, according to the Forbes article How Home Ownership Keeps Blacks Poorer than Whites, the actual ratio is closer to 20:1; in other words, the median white household makes 20 times as much as the median black household. That simple fact should be enough to prove–beyond a shadow of a doubt–that a wealth gap does exist between blacks and whites. Thus, the real question is, what is causing the wealth gap?

The Possible Causes

The racial wealth gap between blacks and whites cannot be attributed to one single factor; rather, it should be attributed to a multitude of interrelated factors, beginning with racism.

Racism today is different from racism in prior years in that it is subtler. White people may not come out and say directly that they do not want black people living near them, yet they consistently move into primarily white neighborhoods. Another possible reason for the wealth gap is that blacks do not tend to invest in the stock market as much as whites do. This is largely attributed to the fact that blacks tend to be much less uninformed about investments in general. Additionally, blacks who do make it into the middle and upper classes tend to find themselves playing the role of family financier. This lending to family and friends obviously eats into the funds black families have available for investments.

Additionally, according to blacknews.com, 72% of black children are born out of wedlock, leading to the children eventually being raised by single mothers. In these situations, where single mothers have to work to provide for their families all on their own, it may seem unnecessary to invest in the stock market.

The REAL Cause

Without delving too deeply into the analysis, the facts ultimately show that the primary cause of the racial wealth gap is, in fact, plain old racism. Every other potential cause we have mentioned thus far can eventually be traced back to racism. Although some may argue that the reason why whites do not purchase houses in black neighborhoods is due to the fact that these houses have not grown in value over the years, the underlying truth is that the houses have not grown in value simply because whites do not want to live in neighborhoods with large black populations. This is the plainest possible example of racism.

Jim Crow laws are enforced laws of racial segregation, which were imposed until 1965. It has been more than five decades since the repeal of Jim Crow laws; however, the racial separation is still evident. The residual trace of Jim Crow laws has significantly impacted the nonexistence of interracial neighborhoods.

Lack of financial capacity

African Americans face socioeconomic disadvantages because the corporate world does not seem to welcome them. Most of the time, African Americans are minimum wage earners–or even below-minimum-wage earners. Moreover, they are not able to make money to save for their retirement or they do not have an employer-based retirement plan. They also find it difficult to build up their own community and prosper economically due to poor participation in entrepreneurial markets. This makes the pursuit of owning a home for African-Americans limited–or nil. That being said, they tend to settle on homes that are underrated and not appreciated by white Americans, thus reinforcing the separation of white and black neighborhoods.

Inadequate recognition of interracial marriages

The Jim Crow laws established “separate but equal”, giving a mindset to Americans that it is not normal to marry a white person if you are black and vice versa. Black people find their significant other in the black community because that is who surrounds them and they rarely mingle with white people. These results in them starting and building a new family in the same neighborhood.

Specifications when acquiring a real estate property

White people have a common belief that the integration of black neighborhoods with white neighborhoods would lead to properties in a particular area decreasing in value. In addition, they associate the occurrence of blacks in the neighborhood with a heightened number of crimes. The same goes for schools and hospitals. Schools split the two races because of the level of education the schools within the vicinity of a black neighborhood can provide. The main reason is the shortage of funding provided. Also, since most black people have a low income, they are unable to shell out for the improvement of school facilities. This is also true for hospitals.

Discrimination in housing

Housing discrimination is illegal, but in the process of acquisition for a real estate property, it may be excruciating for black people. It is because the real estate agents or brokers often assume that if you were black then you would prefer to purchase a house in a black neighborhood. Or if you are dealing with an individual home seller, they may bend the terms and conditions, revise the payment scheme, or just not offer or not confirm the availability of the property.

The Solution

The government started creating laws to reciprocate the growing issue of the division of white and black neighborhoods; however, the efforts appear to be immobilized unless they propose more robust regulations to diminish or eliminate this division. This is a complicated problem that does not come with a clear solution which will erase the wealth gap overnight. Racism has been an issue for centuries, and although it has improved greatly, there is still a long way to go. It is crucial that we remember this moving forward: although we may not personally feel or see the subtle effects of systemic racism, we must take a thorough, analytical look at the facts before dismissing the existence or effects of racism in our culture.

Eric Lawrence Frazier, MBA
President and CEO
NMLS #461807 CalBRE #01143484

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