A number of years ago, I was asked to write an article for an online publication about how to close the racial wealth gap in America.
Being new to this particular subject and coupled with the many years that I have worked in the investment industry as a financial advisor, I concluded that education is the great equalizer that would effectively close the wealth gap. In my article -and subsequent blog post- I argued how the Jim Crow era has contributed to the wealth gap through its racist and discriminatory policies from housing, access to loans, voting rights, and jobs.
One of the points that I raised in my initial blog post about financial literacy being essential for wealth creation among African Americans, is that for many years brokerage firms were less likely to hire African-Americans as Stock Brokers. This resulted in fewer people from within the African-American community who were either qualified or able to bring the knowledge of “Wall Street” back to the communities where African-Americans were raised. Since publishing this blog post entitled, “Financial Literacy: Key to Creating and Sustaining Wealth for African Americans,” I have read numerous studies about the socio-economic impact of racism in America, including the disparities in wealth resulting from Slavery and Jim Crow.
Public Policy Can Close The Wealth Gap
As a result, my understanding of the cause of the wealth gap has become clearer. I was wrong. Financial literacy is immensely important, but it will not reverse the damage done by more than 90 years of Jim Crow discrimination and 246 years of slavery; while also effectively closing the wealth gap. Financial literacy can help someone to achieve better personal stewardship. It could lead to accumulating wealth on an individual level, but it will not equalize the disparity in wealth between White and Black Americans. Public policy can be a lot more useful in closing the wealth gap than financial literacy.
New data from the 2019 Survey of Consumer Finances (SCF) show that long-standing and substantial wealth disparities between families in different racial and ethnic groups were little changed since the last survey in 2016. The typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.
I became convinced in the potential of public policy to improve the economic status of African-Americans while working on my Master’s Degree in Commercial Real Estate Finance at Georgetown University. That is where I researched topics such as state and federal housing policy that was negatively influenced by racism and discrimination, e.g., the former practices and procedures used by the Federal Housing Administration called “Redlining.” There are numerous books written on this subject, such as Richard Rothstein’s “The Color of Law: A Forgotten History of How Our Government Segregated America.”
Lastly, I can attribute my enlightenment to an article written in The Atlantic by my fellow Howard University alum, Ta-Nehisi Coates entitled, “The Case for Reparations.” For which, he was invited to testify before Congress on the day of Juneteenth 2019 in a House Hearing on H.R. 40 about Reparations. Watch his opening testimony.
Facts and Figures on Racial Wealth Disparity
- According to the 2019 Survey of Consumer Finances, White families have the highest level of both median and mean family wealth, $188,200 and $983,400, respectively.
- Black median and mean wealth is less than 15% of White families at $14,100 and $142,500, respectively.
- Hispanic median and mean wealth is $36,100 and $165,500, respectively.
From 2007 – 2019, the median wealth for all racial groups in the U.S. declined approximately 30%. For African American and Hispanic families’, wealth declined an additional 20% from 2010 to 2013; meanwhile, White families’ wealth was essentially unchanged, and the wealth of all other races fell a more modest 10%. Even though the median wealth for all racial groups rose after 2013, the typical Black family has yet to recover to their pre-2008 levels of economic wealth.
The racial wealth gap will be fixed through the enduring work of political advocacy. In 2018, the Samuel DuBois Cook Center on Social Equity published a study entitled, “What We Get Wrong About Closing the Racial Wealth Gap,” written by William Darity Jr., Darrick Hamilton, Mark Paul, Alan Aja, Anne Price, Antonio Moore, and Caterina Chiopris. They wrote,
“We challenge the conventional set of claims that are made about the racial wealth gap in the United States. We contend that the cause of the gap must be found in the structural characteristics of the American economy, heavily infused at every point with both an inheritance of racism and the ongoing authority of white supremacy. Blacks cannot close the racial wealth gap by changing their individual behavior –i.e., by assuming more “personal responsibility” or acquiring the portfolio management insights associated with “financial literacy” – if the structural sources of racial inequality remain unchanged. There are no actions that black Americans can take unilaterally that will have much of an effect on reducing the racial wealth gap. For the gap to be closed, America must undergo a vast social transformation produced by the adoption of bold national policies, policies that will forge a way forward by addressing, finally, the long-standing consequences of slavery, the Jim Crow years that followed, and ongoing racism and discrimination that exist in our society today.”
Closing The Racial Wealth Gap Is A Public Policy Issue
It will take a good public policy to close the wealth gap; after all, it was a bad public policy that created it. Reparations are probably the most controversial topic to be debated on Capitol Hill. It is the one issue that many people believe has the potential to divide America further, and they’re probably right. Despite the countless articles, periodicals, books, and studies written in support of Reparations, the simple fact is many White Americans are turned off by the idea of their tax dollars being used to pay descendants of enslaved Africans, for slavery and nearly a century of Jim Crow racism.
Public policy was the culprit, and therefore it must also be the solution. Furthermore, a 2019 study by McKinsey revealed that closing the racial wealth gap results in $1.5 trillion in incremental GDP to the economy, or by 4% to 6% if closed by 2028. A CNBC article dated September 24, 2020, referenced a study by Citi stating:
- Citi has put a number to at least one aspect of social injustice, finding in a new study that $16 trillion has been erased from U.S. GDP over the last two decades due to discrimination.
- The study also found that if the racial divide were addressed today, $5 trillion could be added to the economy over the next five years.
What Impacts Wealth Across Races
Wealth is the difference between a families gross assets and gross liabilities
The Board of Governors of the Federal Reserve System has examined the policies that impacted “Black Wealth” since Reconstruction. What they have found – which is addressed in their study entitled, “Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances”- are five areas that wealth is impacted across races:
- Inheritances and other family support: White families are considerably more likely to receive an inheritance or gift, including large estates.
- Housing: 46% of White families own their homes, compared to 17% of Black families. Parental wealth may be an indicator of this difference as Black families are less likely to receive down payment assistance from their parents.
- Retirement accounts and plan participation: 65% of White families have at least one retirement account, compared to 44% of Black families and 28% of Hispanic families. Impacting these statistics is having access to additional funds to save for retirement, financial literacy (understanding the importance of retirement savings) access to full-time vs. part-time work.
- Emergency savings: Black families have $2,000 or less in savings, compared to White families that typically have four times that amount. Equity investments among African American families is 34% (or $14K) to 24% for Hispanic families (or $14.9K), compared to $50,600 for White families.
- COVID-19: The 2019 SCF data was compiled prior to the start of the pandemic, where these gaps were already significant among Black, White, and Hispanic families. Now, imagine the impact that Covid-19 will have on families of all races, from job loss to interruptions in business income. Without the COVID Aid, Relief and Economic Security (CARES) Act, there would be even greater disparities by race for various families who may or may not be able to recover if they became unemployed for six months or longer.
Everyone should share the burden of advocating for closing the racial wealth gap because, according to the 2019 study by McKinsey, it impacts the U.S. economy. Furthermore, there is a moral imperative for closing the wealth gap. The insidious effects of racism and discrimination are that it will eventually catch up with either those who are sponsors of it or their progeny.
Financial literacy is one side of the coin. The importance of being educated about personal finances cannot be overstated; however, every coin has two sides. Restorative public policy must accompany adequate financial education in credit management, investments, debt management, estate planning, retirement, and financial planning. Essentially, everything that we teach at Wealthcare Financial Group, Inc.
- Financial and Retirement Planning
- Portfolio Management and Investment Allocation (401K, IRA, Brokerage)
- Estate Planning
- Retirement Income Planning
- Insurance and Annuities