Why the Black-White Wealth Gap Is So Big

THE typical black family has 11 cents of wealth for every $1 owned by the typical white family.

That huge gap has been somewhat of a puzzler for economists, partially because the black-white difference in income (as vs. wealth) is far smaller. Since 1960, the average incomes of blacks have hovered around 60 percent of those of whites.

There has been much speculation on why the big wealth gap. Economists agree that proportionately more broken black families and discrimination have contributed to the gap. Now new studies cast more light on the mystery, light relevant to the current public discussion of the merits of affirmative action.

Sociologists Melvin Oliver and Thomas Shapiro have found that even middle-class blacks - ''people who have made it'' in the professions or other white-collar jobs - are far poorer than their white equivalents. The median black family in this group has zero net financial assets while the median white family has $12,000. (The median is the point at which the number of wealthier households is the same as the number that are poorer.)

If housing and vehicles owned by this group are included to reach ''net worth,'' the median middle-class black family has $8,300 in assets compared with the white family's $56,000.

''That is really a strong indicator that wealth is not only a function of income,'' says Professor Shapiro of Northeastern University in Boston.

Other statistics for an even more well-to-do group - those making $50,000 or more per year - indicate the same. The median black household in this group has $7,200 in financial assets compared with $31,700 for the equivalent white household - or 23 cents to $1. Adding in housing and vehicles, the ratio improves: $61,000 to $119,000 or 52 cents to $1.

If both groups had the same income, education, jobs, and family status, the white family would have $25,000 more in financial assets and $43,000 more in net worth than the black household.

According to Shapiro, the accumulation of black wealth has been limited by several factors:

* African-American families inherit less wealth. This inheritance is not only of stocks, bonds, houses, etc. when parents die. It includes what economists term ''human capital'' - that is, many black parents are less able to afford private schools, trips to museums, travel, college, and other educational opportunities. Many live in areas where schools are likely to be of lower quality.

Further, black parents often can't give their offspring as much money as whites at ''milestone events'' - weddings, graduation, birth of children, and the purchase of a first house.

* Middle-class blacks have been hit by institutional discrimination. They were less likely to get government-backed home loans. Social Security, when set up, purposely left out domestic workers and farm workers, jobs that blacks held in great numbers. Mortgage lenders reject similarly qualified black applicants more often than they reject white applicants and charge successful black applicants 1 percent more interest, on average.

* Many blacks live in areas where home equity accumulates more slowly than in white suburbs, where schools are often better. The average difference in value for a home of equal size and character between a black and white community is $31,000.

Baby boomers, it is estimated, will inherit $7 trillion from their parents. One third of this will go to only 1 percent of heirs, amounting to an average of $6 million each. Blacks will benefit less than proportionately. The parents and grandparents of any black over 40 years old likely suffered financially from segregation in education, jobs, and wage restrictions, Shapiro notes.

''You see the presence of the past today,'' he says.

Shapiro and Professor Oliver, of the University of California at Los Angeles, use a detailed federal survey conducted every four months since 1984 of 12,000 households. Their findings will be published in September in a book, Black Wealth/White Wealth: A New Perspective on Racial Inequality (Routledge Publishers).

A study of wealth released Monday by the RAND Corp. in Santa Monica, Calif., differs from the Oliver-Shapiro study on the importance of inheritance. The RAND study uses a survey that looks only at households with a member aged 51 or older. But it does agree that marriage encourages saving and wealth creation.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.




Save for later


Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items


Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items


Failed to save

You have already saved this item.

View Saved Items