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We are earning more money, but where is it?

CharlesSimsJr-160Since the 1960s, household-income growth for African Americans has outpaced that of whites. Median adjusted household income for African Americans is now 59.2 percent that of whites, up slightly from 55.3 percent in 1967 (though in dollar terms the gap has widened).

But those gains haven't led to any narrowing of the wealth gap between the races. In fact, after adjusting for inflation, the median net worth for African-American households in 2011 ($6,446) was lower than it was in 1984 ($7,150), while white households' net worth was almost 11 percent higher. High-earning married African-American households have, on average, less wealth than low-earning married white households.

Exactly why income gains haven't translated into wealth gains for African Americans is something of a puzzle. Researchers have identified several possible factors – less intergenerational inheritance, higher unemployment and lower incomes, differing rates and patterns of homeownership, marriage and college education – without reaching any consensus on their relative importance. There is little understanding of why the black-white wealth gap exists, despite an almost embarrassing number of potential explanations."

Value of primary residence was the single biggest asset for both groups, but much more so for African-American households: On average, housing wealth accounted for 49 percent of African-American household assets, compared with 28 percent for the average white household. But the average home value was far lower for African-American households: $75,040 versus $217,150.

Not only is home ownership lower among African Americans than whites, but that African-American-owned homes tend not to appreciate in value as much as white-owned homes, which is attributed to "residential segregation artificially lower(ing) demand, placing a forced ceiling on home equity for African-Americans who own homes in non-white neighborhoods." African Americans also tend to carry proportionately more mortgage debt, at higher rates, than whites. And the housing crash was harder on blacks than whites (though both groups fared better than Hispanics).

Beyond housing, one striking difference between African-American and white household assets was the role of business ownership. Equity in businesses was the second-biggest asset class among white households, accounting for 18 percent of average assets, and grew 106 percent in value between 1983 and 2010. Among African-American households, however, business equity accounted for less than 4 percent of assets on average, and actually lost value between 1983 and 2010. After primary residence, the single biggest asset type for black households was "other residential property," accounting for about 12 percent of average assets; but that asset class only grew 37 percent in value between 1983 and 2010.

Retirement accounts were the third-biggest asset class, on average, for both African-American and white households, and rose in value over the past three decades at similar rates. But African-American households, on average, started out with far less in their accounts: $1,496 in 1983, compared with $9,483 for white households.

But due to discriminatory employment patterns, "black workers predominate in fields that are least likely to have employer-based retirement plans and other benefits, such as administration and support and food services. As a result, wealth in black families tends to be close to what is needed to cover emergency savings while wealth in white families is well beyond the emergency threshold and can be saved or invested more readily."

Average household debt rose steadily among both whites and African Americans from 1983 to 2007. But while white households' debt continued to rise between 2007 and 2010, to an average $113,598, it fell among African-American households over the same period, to an average $53,199 – mainly because of a decline in home mortgage debt. Overall, though, African-Americans continue to carry more debt relative to their household assets than do whites: 34.5 percent of average assets, versus 14.5 percent for white households.

(Charles Sims Jr. is president/ CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com.)

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