top of page

#StayWoke : The Racial Wealth Gap

Kriti Sarav. 15yo. Chicago,IL

Last week, I wrote about privilege, oppression and intersectionality, and how it affected the lives of people living at the intersection, with a focus on black people, and also how it affected their financial well-being.

Let’s keep the conversation going.

Today, I want to address the Racial Wealth Gap.

Financial security does not mean being rich, but being financially stable. This is an extremely important goal of many people in the world, but for most black people living in America, it is a goal far out of reach.

To be honest, I am a big advocate for equal pay for equal work (eg., the Gender Pay Gap), but the Racial Wealth Gap is a relatively new concept for me and the more I learn about it, the more provoked I become.

So, it’s important for us to understand Racial Wealth Gap because we need to become better citizens of the world on our path to financial independence.

Defining the Wealth Gap

The wealth gap is the difference in the median wealth between groups of people. The gap is calculated by adding up all the assets and subtracting the liabilities, which results in a person’s net worth. Assets can be home ownership, stock investments etc, and liabilities are mortgage, student-loan debt, credit-card debt etc.

Understanding Racial Wealth Gap: Not-so-fun facts

The racial wealth gap is the difference between the median wealth of the races. The Racial Wealth Gap affects Latinx, Black people, Native American people and certain ethnic groups of Asian people. Today I am focusing on the way it affects black people.

Whites on average have a net worth of around $171,000 while blacks have a net worth around $17,600 (White have approximately 10x more net worth than blacks), according to 2016 data from the Brookings Institute. Interestingly, the wealth gap continues to grow to this date.

The Era of Slavery

The precipitator of the Racial Wealth Gap for black people, started a long time ago in American history, with the institution of slavery. For 246 years, black people were the wealth of America, as much of the economy was based off of the products of slavery such as tobacco-farming and cotton picking. So right from the start, black people were at a disadvantage at obtaining wealth in the U.S, while on the other hand, white people benefitted and built wealth as a result of slavery.

After Slavery

Then in 1865, with the 13th amendment, slavery was abolished. Under the Lincoln administration, more policies favoring black people were constructed. Black people sought after land and property ownership. This is because land has always been one of the biggest factors to grow wealth. But a lot of white people were having the ‘what about me’ syndrome and there was a lot of white back-lash. Though not in the form of slavery, black people continued to be treated unjustly, through the Jim Crow laws and they faced legal discrimination.

Black families lag behind in home ownership

As a result of policies and legal and social discrimination, black families lagged behind home ownership.

Black people are less likely to own homes, therefore they are not able to take advantage of these wealth building opportunities. And even if they owned homes, they would be in less desirable neighborhoods. This impacted their ability to have good access to education safety, job opportunities, and what stores they could shop at.

According to the Urban Institute current population survey, in 1976 68% of white people owned homes, compared to 44% for blacks. By 2016 this homeownership gap has widened.

Income Inequality

Racial income inequality is an ongoing problem.

An income gap is important, but the income gap is a tiny hill compared to the gigantic mountain called the wealth gap. Having a good income does necessarily mean financial stability. Wealth is what protects families in emergency situations such as COVID-19.

According to the Urban Institute Current Population survey, the wealth gap is much greater than the income gap, about three times greater. However, overtime, the income gap adds to the wealth gap.

Federal policies contribute to the Racial Wealth Gap

Federal policies discourage asset-building for low-income families.

According to a 2014 article by Steuerle et al., many low income families benefit from food and cash assistance. While these programs focus on income and help them survive, they do not encourage gaining wealth and financial freedom. In fact, if a person has a few thousand dollars in assets, they will not qualify for many of these benefits.

In addition, the federal government spends billions of dollars to support asset-building and this primarily benefits the high-income families. Furthermore, any tax or retirement benefits typically goes to the top 20% of taxpayers based on income. In this situation, the mindset of asset-building and generating wealth is indirectly not-encouraged for low-income families. And the rich keep getting richer. This further exacerbates the racial wealth gap.

Other issues affecting the wealth gap

According to the Urban Institute Black people have more student loan debt. Black people have less retirement savings, and even if they do have access, they have lower participation rates.

Understanding 155 years of Racial Wealth Gap

Did you know that $100 invested in 1865, when slavery was abolished, can become more than 4 million dollars today simply by the magic of compound interest? So even if we solved issues such as homeownership, income inequality, legal discrimination, student-loan debts etc, we would be far from closing the Racial Wealth Gap.

And why is this? It is because of the 155 years of time that has been lost during which black people could have gained wealth.

Think of it like this: “It’s like a basketball game, except your team arrives in the 4th quarter and the opponent team has been scoring for a while!”


37 views0 comments


bottom of page