THE RACIAL WEALTH GAP INCREASES FOURFOLD

ThomasM.Shapiro,TatjanaMeschede,andLauraSullivan
ResearchandPolicyBrief
May2010
New evidence
1
reveals that the wealth gap between white and AfricanAmerican
families has more than quadrupled over the course of a generation. Using eco
nomicdatacollectedfromthesamesetoffamiliesover23years(19842007),we
findthattherealwealthgainsandlossesoffamiliesoverthattimeperioddemon
stratethestampedetowardanescalatingracialwealthgap.Thisreportisthefirst
inaseriesthatauditsthegrowthoftheracialwealthgapoverthepastgeneration.

Wealth,whatyouownminuswhatyouowe,allowspeopletostartabusiness,buy
a home, send children to college, and ensure an economically secure retirement.
Without wealth, families and communities cannot become and remain economi
cally secure. Recognizing the importance of building wealth over a lifetime, our
nation has created public policies that provide incentives and subsidies for asset
buildingactivities.However,reformsareneededtoensurethatsuchopportunities
andrewardsaredistributedequitably.

AcceleratingRacialWealthGap
In23years,theracialwealthgapincreasedby$75,000,from$20,000to$95,000.
Figure 1 underscores the dramatic growth in financial assets (excluding home eq
uity) among white families from a median value of $22,000 to $100,000, while at
thesametimeshowingthatAfricanAmericanssawverylittleincreaseinassets(in
realdollars).Thegrowthoftheracialwealthgapsignificantlyaffectstheeconomic
futureofAmericanfamilies.Forexample,theracialwealthgapin1984amounted
to less than three years tuition payment for one child at a public university. By
2007,thedollaramountofthegapisenoughtopayfulltuitionatafouryearpub
lic university for two children, plus tuition at a public medical school. The gap is
opportunitydeniedandassuresracialeconomicinequalityforthenextgeneration.

KEY FINDINGS

Followingthefinancialtra
jectoriesofthesamecohort
offamiliesbetween1984
and2007:
Thewealthgapbetween
whitesandAfrican
Americansincreased
morethan4times,from
$20,000to$95,000.
Middleincomewhite
householdshadgreater
gainsinfinancialassets
thanhighincomeAfri
canAmericans;by2007,
theyhadaccumulated
$74,000,whereasthe
averagehighincome
AfricanAmericanfamily
ownedonly$18,000.
In2007,oneintenAfri
canAmericansowed
atleast$3,600,almost
doublingtheirdebt
burdensince1984.
Atleast25%ofAfrican
Americanfamilieshad
noassetsatalltoturnto
intimesofeconomic
hardship.

Thisresearchissupported,by
theJohnD.andCatherineT.
MacArthurFoundationand
fundingfromthePSIDsmall
grantcompetitionfromthe
SurveyResearchCenteratthe
UniversityofMichigan
TheHellerSchoolforSocialPolicyandManagement,BrandeisUniversity
Figure 1: Median Wealth Holdings 1984-2007
(Not including home equity)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
1984 1989 1994 1999 2003 2007
White Families Af rican American Families
$20,000
$95,000
WhatHappenedinthePast25Years?
Theracialwealthgapresultsfromhistoricalandcontemporaryfactorsbutthedisturbingfourfoldin
crease in such a short time reflects public policies, such as tax cuts on investment income and inheri
tances which benefit the wealthiest, and redistribute wealth and opportunities. Tax deductions for
home mortgages, retirement accounts, and college savings all disproportionately benefit higher in
come families. At the same time, evidence from multiple sources demonstrates the powerful role of
persistent discrimination in housing, credit, and labor markets. For example, African Americans and
Hispanics were at least twice as likely to receive highcost home mortgages as whites with similar in
comes.Theserecklesshighcostloansunnecessarilyimpededwealthbuildinginminoritycommunities
andtriggeredtheforeclosurecrisisthatiswipingoutthelargestsourceofwealthforminorities.
BrokenChainofAchievement
ForAfricanAmericans,thedatashowsthatincomeequalitydoesnRtleadtoracialwealthequality.
Figure2providesamorenuancedpictureofwealthholdingsbylookingatfamiliesbyincomegroupsin
1984(thebaseyearforfamilywealthdata).Householdsaredividedintoincomethirds:lowincome,
middleincomegroupandhighincome.Thisfigureshowstwoimportantfindings.

1. Thegreatwealthproducedinthisperiodaccruesprimarilytohighestincomewhites,and
2. Jobachievementscannotadequatelypredictfamilywealthholdingsgiventhehugedisparitiesin
wealthbetweenwhitesandblacksinthesameincomecategories.Whilethosewhobeginthepe
riod with roughly similar incomes would be expected to have the same opportunities to build
wealth,thedifferencesinaccumulationbyraceremainstarkevenaccountingforincome.

Mostnotableisthelargegapinwealthamongthehighestincomewhitesandblacks.By2007,theav
erage middleincome white household accumulated $74,000, whereas average highincome African
Americansownedonly$18,000.

Theresultisawealthgapof$56,000foranAfricanAmericanfamilyearningmorethan$50,000in1984
comparedtoawhitefamilyearningabout$30,000inthesameyear.

Figure 2: 1984-2007 Median Wealth Holdings by Income in 1984
(Not including home equity)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
1984 1989 1994 1999 2003 2007
2
0
0
7

D
o
l
l
a
r
s
High-lncome Whites
Middle-lncome Whites
High-lncome African Americans
Middle-lncome African Americans
DebtIncreasesforthePoorestAfricanAmericanFamilies
Economic stagnation and decline was experienced by both lowwealth whites and lowwealth African
Americans. However, AfricanAmericans were found to be more likely to have very low levels of
wealth.Infact,foreveryyearofthestudyatleastoneinfourAfricanAmericanfamilieshadnoassets
all.

Theincreaseinnegative
wealthexperiencedbymany
householdsatthelowestpo
sitionsonthewealthdistribu
tionrevealsanewdepend
enceoncredittomakeends
meet.Amongthosewithno
financialassets,creditisof
tenanemergencyresource.

Summingallassetsanddebt,
oneintenAfricanAmericans
oweatleast$3,600(seeFig
ure3),whiletheirdebtbur
denin1984atwasabouthalf
ofthisinrealtermsin1984($2000).Insum,manyAfricanAmericansholdmoredebtthanassets.
WhyDoPeopleofColorRelyonDebt
Thegrowthofdebtcomesafteryearsofderegulationofthelendingmarket.Thesegmentationofthe
mortgage lending market highlights a general trend in lending in which lowincome people and con
sumersofcolorpaymoreforaccessingcredit.Increditstarvedminoritycommunitiesacrossthecoun
try,thederegulatedmarketbroughtaproliferationofhighcostlending,includingsecuritizedsubprime
andpredatoryloans,paydaylendingandcheckcashingstores.Withgreaternumbersoffamiliesstrug
glingwithevergrowingdebt,thatfaroutstripstheirincomeandsavings,manylowincomeandminor
ity households must turn to costly lending products because they have no other options. Minorities
and lowincome consumers resort more frequently to credit card debt and other forms of high cost
debtintheabsenceofassets.AConsumerFinancialProtectionAgency thatensuresfairnessforcon
sumers of all financial products would help equalize and regularize the terms on which cashstrapped
familiesareborrowingtomakeendsmeet.
ClosingtheRacialWealthGap
Efforts to increase assetbuilding opportunities for low and moderateincome households have ex
pandedastheimportanceofassetsforeconomicstabilityandmobilitybecomesmorefullyrecognized.
But,asthedatashow,theseeffortsarenotyetstrongenoughoratscaletomakeasignificantdiffer
enceinpeopleRslives.
The data presented here reveal that income alone does not tell the story of economic security or fu
tureopportunities.AfricanAmericanswhohaveworkedhardatwellpayingjobstoachievetheAmeri
canDreamarestillnotabletoachievethewealthoftheirpeersintheworkforce,whichtranslatesinto
very different life chances. We can do much more to support wealth building for vulnerable families.
Universalpoliciesalonewillnotaddresstheracegap;wealthbuildingopportunitiesmustbetargeted
tofamiliesofcolorwhoselivesaremadeevenmoreprecariousbynothavingenoughassetstomake
endsmeetwheneconomicchallengesarise.
AUTurnisneeded.Publicpolicieshaveandcontinuetoplayamajorroleincreatingandsustaining
theracialwealthgap,andtheymustplayaroleinclosingit.
____________________________________________________________________________________
Endnotes
1 DatafromthePanelSurveyofIncomeDynamicsprovideinformationonchangesinwealthoffamiliesheadedbyanadult
(age2555)in1984.
2 Homeequitywasnotincludedintheseanalysesashousingisnotafinancialassetthatcanbetappedintowithoutre
placingit.
Figure 3: Bottom 10 Percent of Wealth Holdings
1984 and 2007
$0
$100
-$2,000
-$3,600
($4,000)
($3,000)
($2,000)
($1,000)
$0
$1,000
White Families
Af rican-American Families
1984 2007
RelatedResources:

Chang,Mariko(2010).Liftingaswe
Climb:WomenofColor,Wealth,
andAmerica'sFuture.InsightCen
terforCommunityEconomicDe
velopment.
Draut,Tamara;Garcia,Jose;Lardner,
James;andZeldin,Cindy(2008).
Uptooureyeballs:HowShady
LendersandFailedEconomicPoli
ciesareDrowningAmericansin
Debt.NYC:Demos

Lui,Meizhu(2009)LayingtheFounda
tionforNationalProsperity.The
ImperativeofClosingtheRacial
WealthGap.InsightCenterfor
CommunityEconomicDevelop
ment.

McGhee,Healther,andDraut,Tamara
(2010).WhyWeNeedAnInde
pendentConsumerFinancialPro
tectionAgencyNow.BriefingPa
per.NYC:Demos.

Oliver,MelvinL.,andThomasM.
Shapiro(2006).BlackWealth/
WhiteWealth,2nded.NewYork,
NY:Routledge.

Shapiro,ThomasM.(2004).TheHid
denCostofBeingAfricanAmeri
can:HowWealthPerpetuates
Inequality.NewYork,NY:Oxford
UniversityPress.

Formoreinformation,please
contact:

TatjanaMeschede,Ph.D.
ResearchDirector
InstituteonAssetsandSocial
Policy
meschede@brandeis.edu

The Institute on Assets and Social Policy (IASP) is a re

search institute at the Heller School for Social Policy
and Management at Brandeis University, dedicated to
promoting a better understanding of how assets and
assetbuilding opportunities improve the wellbeing
andfinancialstabilityofindividualsandfamiliesleftout
oftheeconomicmainstream.IASPpursuesitsmission
through original research, policy analysis, program
evaluation, technical assistance, community engage
ment, organizational capacity building, and leadership
development.IASPBsworkincludes:
CreatingNewMeasuresandEvidenceofAssetWellBeing
AnalysisofAssetFormationOpportunities
EvaluationofScopeandDeliveryofAssetBuildingPrograms
andServices
FormationofPartnershipsandCollaborationswithPolicy
Makers,ConstituencyOrganizations,andCommunities
DisseminationResources,Tools,andProductstoExpand
Knowledge,Practice,andAction
TrainingofFutureLeadersinAssetDevelopment

http://iasp.brandeis.edu