“A rising tide is lifting all boats as our country is doing better, but some a lot more than others,” said Signe-Mary McKernan, a senior fellow at the Urban Institute and co-director of the institute’s opportunity and ownership initiative. “Black and Hispanic families are not on the same wealth building paths as white families.”
The Urban Institute on Thursday released a set of stunning charts to illustrate the problem.
White families are five times more likely than black or Hispanic families to inherit money. That translates into opportunity — a down payment on a home, tuition to go to school, capital to build a small business, savings to retire on.
“Wealth is not just money in the bank. It’s insurance against tough times,” McKernan said “These are stepping stones to the middle class. Wealth translates into opportunity.”
Homeownership has traditionally been the primary way Americans build wealth. But the black homeownership rate is lower today than it was 40 years ago, with 42 percent of black families owning homes in 2016 compared to 44 percent in 1976.
Black and Hispanic homeownership has always lagged significantly behind whites because of discriminatory practices like redlining and a diminished likelihood of nonwhite families to pass on wealth from one generation to another.
White homeownership has hovered steadily around 70 percent over the last four decades, while less than half of black and Hispanic families owned homes.
The percentage of black families owning their homes dipped even lower over the last decade because they were hardest hit during the 2008 housing crisis. African Americans, including those in upper-income black communities such as Prince George's County, were disproportionately targeted by predatory lenders during the housing boom and faced foreclosure at greater rates.
Following the recession, stricter restrictions on accessing credit made it tougher on black families, who have less wealth, to qualify for mortgages.
Disparity in income, too, plays a role and can impact future generations.
“The more earnings you have, the easier it will be to save from those earnings,” McKernan said. “When you look over a lifetime, there are big differences.”
Women have it even worse. A white woman, on average, earns $1.5 million, compared to $1.3 million for a black woman and $1.1 million for a Hispanic woman.
This leads to the racial wealth gap widening as people age, because white families accumulate more wealth over their lives than black and Hispanic families.
Black and Hispanic families are also less likely to participate in automatic savings plans such as employer sponsored retirement accounts.
And lastly, Hispanic student loan debt more than doubled between 2013 and 2016, from $3,200 to $7,500 per family for Americans between 25 and 55 years old. The share of Hispanic families with education debt increased by more than a third during that time; nearly a quarter of Hispanic families now have student debt. However, the reasons for this are still unclear.
McKernan said all hope is not lost for the racial wealth gap to narrow in the future. Barring national policy shifts away from tax subsidies that most favor the wealthy and safety net programs that discourage poor families for saving money, she said meaningful changes can be made on a personal level. Everyone should enroll in an automatic savings plan and sock away 2 percent of earnings, she said, as well as save, rather than spend, any bonuses to avoid getting into a cycle of debt with payday loans.
“The cards are stacked against lower income families and families of color, but there are things people can do before policies change,” she said. “Even if you are poor, research has shown that you can build wealth. It's not easy, but it's possible.”