According to a new report from the Pew Research Center, white Americans now hold thirteen dollars of wealth for every dollar held by black Americans. The median net worth of white households in 2013 was $141,000, while the median net worth of black families rang in at only $11,000.
This wealth gap has widened since the recent Great Recession, and is the highest it’s been since 1989, a period during which whites held 17 times more wealth than African-Americans.
Everyone suffered during the Great Recession, but white wealth has begun to recover and improve in the aftermath of our recent national economic downturn. Black and hispanics, on the other hand, are continuing to fall behind in the wealth game.
The Institute on Assets and Social Policy has studied wealth inequality and points to the following as among the biggest drivers of this inequality: housing and the length of homeownership, income, employment, college education, and inheritance.
While racism and discrimination will also always play some role in wealth inequality, recent research has illustrated some ways in which African-Americans can improve their wealth and help narrow the staggering wealth gap.
Our sacrifices and savvy financial moves today should, not only help us, but also be designed to help our children and grandchildren, so that we leave behind a financial legacy.
Diversify our wealth building strategies.
African-Americans have traditionally been leery of the stock market. But, according to the Pew Research Center, one of the reasons white households have been so much quicker to recover from the Great Recession is that a larger percentage of their wealth was tied to stock. When the stock market recovered, their wealth recovered as well.
Blacks tend to tie up their wealth in real estate and other conservative wealth instruments. According to the Pew Research Center, 49% of black household wealth was accounted for by housing assets, while only 28% of white household wealth was attributable to home ownership.
Despite commonplace worries about stock market crashes, over the long haul, stocks generate one of the greatest returns on investment, even outperforming real estate in many instances.
Purchase real estate smarter
One of the reasons that the Great Recession wiped out black home ownership wealth to a greater extent than white home ownership wealth, is that blacks often paid higher mortgage interests rates than whites with comparable credit scores. In addition, many African-Americans were steered toward adjustable rate mortgages and other high risk mortgages instruments when they could have qualified for safer, more conventional mortgages.
High interest rate mortgages are a cancer, destroying the ability to build wealth through home ownership. As African-Americans, we must shop for our home loans as rigorously as we shop for our homes.
Start our own businesses
According to the Pew Research Center, among white households, equity in businesses was the second biggest source of wealth, accounting for 18% of total assets. These assets grew 106% in value between 1983 and 2010.
Starting your own business or investing in a business with partners is a lesson that many wealthy African-Americans have learned as well. According to research by Credit Suisse, the top 5% of the richest African-Americans are more likely to be involved in business ventures. More than 23% of the top 5% richest African-Americans are either self-employed or are involved in a business partnership. This compares to only 6% of the African-American population as a whole who are self-employed or in a business partnership.
Create a financial legacy
One notable contributor to the wealth gap in American is the role that inheritance plays in creating wealth. White households are more often the recipients of financial aid from relatives. This enables them to more easily purchase homes and other financial assets. According to Credit Suisse, over the twenty five years of data collection, 36% of white households benefited from inheritances compared to 7% of African-American households. Furthermore, the inheritance left to white families was on average ten times larger than that left to black families.
Consequently, as African-Americans we must realize that as we build wealth, it’s not just for our own enjoyment. We must think the long game. Our sacrifices and savvy financial moves today should, not only help us, but also be designed to help our children and grandchildren, so that we leave behind a financial legacy.
BMWK, Are you in a position to leave an inheritance behind to your children?