Financial inequality is only growing in the United States. White Americans averaged a total of $134,200 in wealth for 2013 while African American families had only $11,000, with Hispanic American families showing $13,700 in wealth (CNN, 2016). This discrepancy is only growing. In 1995, white families had six times as much wealth as Hispanics, but today it is almost ten times. In comparison to black American families, the spread has gone from seven times to twelve times the wealth of black families. (Whites have 12 times the wealth of blacks, February 2015)
Reasons Behind the Widening Gap
Two strong factors which increase wealth are purchasing a home and participating in retirement accounts. The disparity between races in both of these areas is great. Most federal government programs which assist people in buying a home are designed to provide tax breaks, benefiting whites more than other races. Both Hispanics and African Americans have lower incomes and receive fewer subsidies.
Higher incomes also allow white Americans to be able to save more money for retirement. In fact, according to a study, the average family who is now in their 60s has approximately $285,000 more in accumulated wealth than a typical black family in the same age range. These families can help their kids get a good start on life while purchasing their own homes or going to college.
Debt and Income
The difference in income adds to the issue. African Americans and Hispanic Americans have been able to put away less money than their white counterparts. Because the income is lower, they do not have as much left over after paying bills. Since these plans are now replacing pensions of the past, the families without adequate funds in retirement accounts do not have a solid plan for their later years. (Whites have 12 times the wealth of blacks, February 2015)
Lower incomes impact blacks and Hispanics in how much debt they carry. Blacks have higher student loan debt than either of the other races. Approximately forty-two percent of African Americans carry student loan debt while only twenty-eight percent of whites have college loans. Much of this discrepancy is due to the fact that white families can often afford to contribute more to their children’s education. (Whites have 12 times the wealth of blacks, February 2015).
Unfortunately, African Americans also have lower rates for graduating, which means they must pay back the loans while earning a lower income. Overall, student debt is climbing for all races. The average amount of student debt in 2013 for blacks was $10,295 while the average for whites was $8,020 (Whites have 12 times the wealth of blacks, February 2015).
Surviving the Great Recession
The recession of 2008 was hard on everyone with job losses, foreclosures, and increased debt. As the economy has begun to recover, not everyone experiences the same kind of change. In fact, the wealth inequality between the races has only widened after the recession.
The trend towards more wealth for whites versus blacks has been growing since 2007 when the recession was in its early stages. The gap experienced now is at the highest level since 1989. Wealth differences between whites and Hispanics has also been growing since 2001.
While the impact of the recession was felt on everyone, it was not felt at the same level. For example, according to the Federal Reserve, median income for minorities decreased by nine percent while it only decreased by one percent for whites. (Wealth inequality has widened along racial, ethnic lines since end of Great Recession, December 2014)
Stocks increased more quickly than other assets, such as homes. Since whites are more likely to invest in stocks, they are the ones benefiting from this improvement. The widening gap is cause for concern not just for the races it impacts, but for the economy in general. When an entire segment of society fails to thrive, it causes repercussions for the entire economy.
How can we, as Americans, say that the American Dream is open to all when in actuality many minorities are put at a fierce disadvantage? After all, African American homeownership is currently sitting at a frightening forty-two percent (NAREB, 2015). Your home is your largest source of wealth, so how are African Americans and other minorities supposed to rise up? Programs have been implemented nationwide to attempt to shorten the gap between white and black Americans, but until the homeownership rate rises dramatically, the disparity continues. Look into programs around you, like the Sapphire Lending program, with The Power Is Now that allow you to buy a home with little to no down payment and with lower interest rates. Get invested, get involved. The power is now!
Eric Lawrence Frazier, MBA
President and CEO