According to a recent report released by the Institute on Assets and Social Policy (IASP), when it comes to building wealth, black folk are falling way behind.
In 1984 the wealth gap between African-American families and white families stood at $85,000. Twenty-five years later that wealth gap ballooned to $236,5000. In 2009 the average white family possessed nearly a quarter of a million dollars more wealth than the typical African-American family.
But despite popular myth, the wealth gap has less to do with poor spending habits and more to do with policy decisions and racial barriers that make it difficult for black families to accumulate wealth.
According to the IASP:
“Our analysis found little evidence to support common perceptions about what underlies the ability to build wealth, including the notion that personal attributes and behavioral choices are key pieces of the equation. Instead evidence points to policy and the configuration of both opportunities and barriers in workplaces, schools, communities that reinforce deeply entrenched racial dynamics in how wealth is accumulates and that continue to permeate the most important spheres of everyday life.”
Simply put, the IASP report seems to suggest that the deck is stacked against African-Americans. In particular, the IASP identified a few of the systemic drivers of wealth inequality:
Homeownership
The number of years a family owns their home is a major factor in accumulating wealth, but as the IASP report illustrates, home equity often rises faster for whites because of the large degree of residential segregation. Home prices simply appreciate faster in predominantly white residential areas than in non-white areas.
In addition, the report found that whites are far more likely to benefit from inheritances or significant family assistance when purchasing their first home. This financial assistance also allows these families to leave higher down payments, resulting in lower mortgage interest rates and significant financial savings over the life of the mortgage.
Finally, due to mortgage discrimination, blacks are much more likely to be charged higher mortgage interest rates significantly increasing their cost of home ownership. Bank of America, for instance, recently agreed to pay $335 million dollars to settle allegations that it’s Countrywide Financial unit charged minority home buyers higher mortgage rates than similarly qualified white borrowers.
Work and Unemployment
The IASP points to discrimination in hiring, training, promoting, and access to benefits that make it harder for black families to save and build wealth. Blacks often have less access to employer based retirement plans and other benefits. Furthermore, unemployment often hits black families harder and longer than white families, decimating any chances of creating wealth.
Family Financial Support and Inheritance
White families often are given a significant head start in accumulating wealth. According to the IASP, whites are five times more likely to receive an inheritance than blacks. They also inherit ten times more wealth than those blacks who do receive inheritances.
College Education
Finally, the IASP argues that a college education is the key to substantially greater lifetime earnings and wealth creation. Unfortunately, due to lower quality K-12 education, blacks are less prepared for college and therefore less likely to graduate. In addition, the lack of financial resources forces blacks to drop out of college at much higher rates than their white counterparts.
Clearly, if you are to believe the IASP report, blacks have it hard when trying to build wealth. But, I believe there is also a danger to such reports. Often they paint a picture that suggests we should just bury our heads in the sand, give up, and claim the system is rigged against us. Whatever we do, the “man” will keep us down.
Don’t get me wrong, I do believe the system does make it hard for black families to create financial security. But as my mother told me, “You have to be twice as good to get half as far.” I believe this is especially true in the financial arena. Because of the obstacles we face, blacks have to be twice as good and knowledgeable about how they spend their money in order to get ahead in the game. It can be done, despite the obstacles.
BMWK — What do you think? Do you agree with the IASP findings? Do you think institutional barriers will always keep blacks from building wealth, or do you think we can find ways to overcome systemic obstacles to create financial security for our families and communities?