What You Need to Know about the History of the Black-White Wealth Gap
According to the United States Census Bureau, the 2021 median household income across all races and ethnic groups was $70,784 (down from $71,186 in 2020, by the way). However, the Census clearly shows that median household income varies widely by race and ethnicity.
For non-Hispanic, white-led households, median annual income for 2021 came out to $77,999. But for Black-led households, it was a shocking $48,297. Other recent studies have highlighted various aspects of this discrepancy, including the fact that the typical white family’s overall net worth, at about $170,000 in 2016, was almost ten times that of a typical Black family.
Where did this huge gap in income and wealth—and therefore in purchasing power and political and social clout—come from? Studies show that raw income and educational differences don’t explain racial wealth gaps, which also seem to have nothing to do with the debt a family carries. White households have proportionally more debt than do Black ones.
As our country struggles with the legacy of the influence of structural racism on institutions and society, it’s undeniable that generations of bigotry and inequality have a lot to do with it. White and Black Americans’ experience of being able to access and hold onto resources, and therefore opportunities, in this country, have always been unequal. History matters nowhere more than here.
A bank failure echoes through generations
The 246 years of chattel slavery was the root of the tree, but its branches include the poor management of the Freedman’s Savings Bank. This institution was set up after the Civil War to provide formerly enslaved people with secure means to help them become independent businesspeople, property owners, savers, and investors. Instead, the poorly regulated bank went under in 1874 during a financial panic.
The situation was exacerbated by the carelessness or duplicity of members of its all-white board of trustees. Not even the last-ditch effort of bringing on Frederick Douglass himself as bank president could save the dying enterprise. Douglass said his service in the role was like being “married to a corpse.” Some 60,000 Black depositors lost an estimated $3 million. This long-ago bank failure remains one of the reasons Black Americans often don’t trust the banking system to this day.
Violence, exclusion, and omission
This history also includes the violent riot in which white neighbors effectively razed Tulsa, Oklahoma’s “Black Wall Street” to the ground in 1921. And it includes the countless obstructions put in place of Black entrepreneurship and investment by Jim Crow statutes, as well as good old-fashioned individual racism.
During Franklin Roosevelt’s New Deal, provisions of the Fair Labor Standards Act excluded domestic and agricultural workers. Black military veterans who otherwise might have taken advantage of the GI Bill after World War II couldn’t get low-interest home loans due to “redlining.”
Discrepancies and bias in home ownership
Most African American families lacked the wherewithal to live where they chose, or to build the generational wealth that has long fueled the American Dream lifestyle for white families. Black Americans who did manage to buy their own homes found their properties valued at far less than comparable ones in majority-white neighborhoods. Even by the year 2020, home ownership among Black families stood at about 44 percent, versus about 75 percent among white families.
A study published in 2021 showed that the median home valuation for properties in majority-Black Census tracts was about 55 percent that of the median valuation in majority-white ones. This in part stems from homes in predominantly Black communities tending to be smaller, older, more densely situated, and in lower-rated school districts. But some scholars who have crunched the numbers say this doesn’t account for the entire discrepancy. There is racial bias at work on the evaluators’ part as well.
Wage and asset valuation gaps
Over the past four decades, the racial wealth gap has become a chasm. First, there has been a slowing in the growth rate of the wages of African American employees. This is in contrast to previous decades, during which Black wages grew at a faster rate than whites which is.
In addition, the value of assets owned by white Americans has appreciated notably beyond that of Black-owned assets over the same roughly 70-year period. Since 1980, white Americans have realized a 0.65 percent greater annual accrual in capital gains than have their Black counterparts, whereas in the immediate post-war decades the two groups’ assets had appreciated at about the same rate.
Recent studies also show that stock ownership skews heavily white and higher income. About 24 percent of non-Hispanic white families’ assets are held in stocks, whereas only about 13 percent of Black families’ assets are similarly allocated. Over the past couple of generations, stock returns overall have soared in value to about five times the value of housing investments.
Tax-free generational wealth, no infrastructure to facilitate equality
Meanwhile, white families continue to pass down generational wealth tax-free. Black families that do receive inheritances generally receive smaller ones than their white counterparts. The fact that the US taxes inherited wealth so lightly has enabled the persistence of these historical gaps between Black and white households.
The problem is compounded due to low levels of investment in the kinds of public goods that otherwise could boost economic mobility and equity. There are plenty of experts who will tell you that fixing either of these problems would go a long way toward closing the Black-white wealth gap once and for all.
Educating for investment
There’s a huge appetite out there among Black Americans of all backgrounds for more information about investing in general as well as learning about new and potentially profitable investment vehicles. That’s good, but a lot of this interest revolves around untried investments like cryptocurrency. And at a time when all Americans could use more financial literacy in their lives, get-rich-quick schemes and unscrupulous grifters are running rife in the Black community.
Remember how the Freedmen’s Bank failure seeded a century and a half of Black distrust? Well, historically that kind of distrust in mainstream institutions makes people easier prey for scams. This is where experienced Black financial professionals and investors could have a big role to play, as educators, advisors, and role models. Another meaningful way of giving back, and of showing Black excellence at its finest.