We talk a lot about gaps—achievement gaps, wage gaps, opportunity gaps. When it comes to economic mobility, one that has major implications for equitable mobility for young people is the racial wealth gap. A true infrastructure of opportunity gives reliable options to all young people regardless of race and ethnicity, gender, class, or neighborhood. As data show, that is not currently the case, and race specifically remains a significant factor in the economic outcomes of individuals across the South:
- An analysis of income mobility by Brookings found that more than half of black children raised in the lowest quintile remain there as adults. Only 23 percent of white children do.
- More distressing, the Brookings data show a third of black children raised in the middle income quintile—not a bad place to be—end up in the lowest quintile as adults. Another third end up in the second lowest quintile. Only 14 percent of white kids slide from the middle to the lowest quintile.
When we talk about economic mobility, we aren’t just talking about income: wealth building is critical to improving intergenerational economic mobility. Wealth builds across generations, so family wealth is a key predictor of the economic success of children, including educational attainment, earnings, and how early those children begin to invest in their own assets. Families with wealth are better able to remain economically stable during unexpected events, such as a layoff or a health crisis, and they have resources to prepare their children for education and employment. As the costs of higher education increase, a family’s ability to financially support a student is even more important for postsecondary success and completion.
The racial wealth gap is huge, and we aren’t making progress in narrowing it. According to a Pew Research Center analysis of the Survey of Consumer Finances, the racial wealth gap is higher now than at any time since 1989. The median net worth of white households is 13 times greater than that of black households and 10 times greater than that of Hispanic households.
CFED’s Assets & Opportunity Scorecard, which examines national, state, and local data on economic insecurity, displays the disparity between the assets of white households and households of color in the South. Asset poverty rates, or the percentage of households that don’t have enough of an asset base to cover living expenses for three months, are high for white households in the South, but they are significantly higher for households of color:
The racial disparity also shows up when looking at how well households are able to weather an emergency with liquid savings:
This gap persists even when controlling for income or education level—it can’t be explained only by educational attainment or income levels. An analysis of the Survey of Consumer Finances data by Matt Bruenig for Demos found that, when controlling for income, a white family has, on average, substantially more wealth than a black family at the same income level—three times more, in fact. Bruenig also found that white households have a higher net worth than black or Hispanic households at every education level, and that the median net worth of a white family with an education level below high school is actually greater than the median net worth of a black or Hispanic family with a college degree. Even with a good education and a good job, young people of color are in a far worse economic position than their white peers.
At the same income level, there are not significant racial differences in saving rates, so this isn’t about different financial behavior. The causes of the racial wealth gap are complex but well-documented. Our national economy was built on a racialized system that advantaged white families, and so they have had many more opportunities to accumulate wealth over the last few centuries. Access to those opportunities was narrowed by structural and institutional racism, evident in policies which excluded occupations that were primarily filled by people of color from employment protections and benefits, and by discriminatory housing and homeownership loan policies and practices. A recent Urban Institute report on wealth inequality showed that federal tax subsidies intended to encourage asset-building primarily benefit upper-income households, with two thirds of homeownership and retirement subsides going to tax payers in the top 20 percent of the income bracket. Until we rethink current wealth building policies and remedy our racist history, there’s not much hope of narrowing the racial wealth gap.
The 77 percent of Alabama households of color that don’t have sufficient savings to make it through a layoff or health crisis are not well-positioned to invest in their children’s futures. To eliminate racial and ethnic disparities in economic mobility, Southern leaders must work to eliminate structural and institutional racism in current policy and address the effects of longstanding policies that are—thankfully—no longer in place. We must invest particularly in wealth building opportunities for people of color. Check back to the blog on Thursday to learn about one organization’s strategies to do just that.