WASHINGTON, D.C. – Why have middle-income African Americans and Hispanics seen little, if any, improvement in their economic status relative to whites?
New research from the Urban Institute's Opportunity and Ownership Project points to an ever-widening wealth chasm.
In 2010, white families averaged six times the wealth of African-American and Hispanic households ($632,000 versus $98,000 and $110,000, respectively), up from a 5-to-1 ratio in 1983. Wealth is total assets, such as bank and retirement accounts and home value, minus debts, including mortgages, student loans, and credit-card balances.
The income gap, by comparison, is much smaller. In 2010, the average household income for whites was $89,000, about twice the $46,000 average for African-American and Hispanic families and roughly the same ratio as in 1983.
As whites, African Americans, and Hispanics age, their wealth trajectories – in absolute and relative term – diverge sharply. Early in their wealth-building years (ages 32–40), white families in 1983 had an average net worth of $184,000. In 2010, near their peak wealth-building period (ages 59–67), their net worth was up to $1.1 million. In contrast, average African-American wealth rose from $54,000 to $161,000, while Hispanic wealth increased from $46,000 to $226,000.
Propelling this growing wealth wedge is the lower likelihood that blacks and Hispanics own homes and retirement accounts. For instance, in 2010, fewer than half of African-American and Hispanic families owned homes, while three-quarters of white families did.
Between 2007 and 2010, Hispanic families' wealth plummeted 44 percent, due largely to falling home prices. African-American wealth dropped 31 percent, a product of hits to their retirement assets and high rates of unemployment during the Great Recession (2007–09). White wealth skidded 11 percent.
"Wealth isn't just money in the bank, it's insurance against tough times, tuition to get a better education and a better job, savings to retire on, and a springboard into the middle class. In short, wealth translates into opportunity," Signe-Mary McKernan, Caroline Ratcliffe, Eugene Steuerle and Sisi Zhang wrote in "Less than Equal: Racial Disparities in Wealth Accumulation."
Because Hispanics and African Americans are disproportionately low income, the researchers said, their wealth prospects are strongly affected by safety net policies aimed at low-income families. These policies emphasize consumption, such as having enough food to eat, and often discourage saving by making families ineligible if they have a few thousand dollars socked away. At the same time, most wealth-building policies are of limited benefit to families of color, who are less likely to tap into tax subsidies for home mortgages and retirement accounts.
"Reforming policies like the mortgage interest tax deduction so it benefits all families, and helping families enroll in automatic savings vehicles, will help improve wealth inequality and promote saving opportunities for all Americans," the researchers concluded.
"Less than Equal: Racial Disparities in Wealth Accumulation" was funded by the Ford Foundation, the Russell Sage Foundation, and the Annie E. Casey Foundation. The researchers used the 1983 to 2010 editions of the Federal Reserve Board's Survey of Consumer Finances.
The research brief, a video elaborating on the racial wealth divide, interactive graphics, and a commentary by Signe-Mary McKernan and Caroline Ratcliffe are here.
The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance challenges facing the nation. It provides information, analyses, and perspectives to public and private decision-makers to help them address these problems and strives to deepen citizens' understanding of the issues and trade-offs that policymakers face.
(Source: Urban Institute Research of Record. For more information, visit http://www.urban.org/changing-wealth-americans/.)