You would have to be living under a rock to have not noticed or heard of the racial wealth gap in the United States. This article will not address biases or racism, implicit or explicit. The focus of this article will be on high level ways to address the racial wealth gap. More specifically, what can minority groups do to increase their wealth.
Racial Wealth Gap Explained
The Federal Reserve reports that “In the United States, the average Black and Hispanic or Latino households earn about half as much as the average White household and own only about 15 to 20 percent as much net wealth.” White households hold 87% of the wealth and account for only 68% of the population. Blacks account for 16% of the population, but owns only 2.9% of the wealth. Hispanics hold about 2.8% of the wealth and accounts for about 11% of the population. These numbers are very telling.
A striking stat is that the 400 richest American billionaires have more total wealth than all 10 million Black American households combined.
On average, the net worth of a typical White family is about 10 times greater than the average net worth of a typical Black family. Based on some calculations, Black families are expected to have $0 net worth by 2053. The same is expected for Hispanic families just 20 years later.
All things being equal, we would expect the proportion of the population to equal the proportion of the wealth. This is however not the case.
Wealth Building
To really look at the wealth gap, let us take a look at the wealth drivers in the United States. Huge wealth generation traditionally comes from entrepreneurship, ownership of real estate and stock market returns.
To address the racial wealth gap, these three areas are prime targets.
Entrepreneurship
When we look at businesses, and entrepreneurship generally in the United States, Whites owns about 70% of businesses, Hispanics 14% and Blacks 6%. In view of the wealth statistics, this is not surprising. Additionally, for all the amazing work being done in the start-up space, less than 3% of total venture capital funding went to Black and Hispanic founders.
The industries that minorities operate in further exacerbates the racial wealth gap. Minorities generally own firms in the service and retail industry, many serving low-income and minority communities. Therefore, many minority enterprises have missed out and are missing out on the boom happening in the high skill sectors and the tech industry.
To combat the racial wealth gap, increase minority representation in entrepreneurship, the high skill workforce and the tech industry.
Stocks
On average, about half of Americans are investing in the stock market. For the most part, stock ownership is highly concentrated in the upper class and the highly educated. Greater than 90% of those in the top 10% based on income owns stocks. Looking at the top 10% in wealth, 94% of those individuals own stocks. Minorities are not well represented in the top 10% in wealth and income.
Looking at the racial breakdown, about 64% of Whites own stocks. Only 35% of Blacks and 24% of Hispanics owns stocks. Looking specifically at wealth, for Whites, 24% of assets are in the stock market. On the other-hand, only 13% of Blacks and 10% of Hispanics’ assets are in stocks. This have huge implications.
What this states is that over the past decades of growth in the stock market, minorities participated less and have less of their funds in the stock market. The end result is that minorities have reaped and continues to reap significantly less benefits from the stock market boom. The losses are significant.
Therefore, to close the wealth gap, increase minority participation in the stock market.
Real Estate
You cannot approach the effects of real estate on the wealth gap and not appreciate the effects of governmental policies such as redlining. The past policies of redlining have detrimentally affected the wealth of many in the United States to the benefit of others.
Today, Americans have a home ownership rate of about 65%. However, 73% of Whites own the home they live in. Only 48% of Hispanics and 42% of Blacks own their homes. But owning a home is not enough. Where you live matters. The value of the home you own matters. For minorities, it is a double whammy. Not only do minorities own less homes, minorities homes are less valuable.
It is no secret that home prices have been on an astronomical rise since the housing crash of 2008. Based on the above, this raise in prices and in turn equity benefits those who own, more specifically those who own high priced properties.
To close the wealth gap, increase real estate ownership in minority communities.
Conclusion
To close the racial wealth gap will take a multi-pronged approach and it is a more complex issue than we have addressed. We have not addressed the effects of slavery, and Jim Crow segregation. We however, identify three areas that are the foundation for wealth generation in the United States. These areas are entrepreneurship, ownership of real estate and participation in the stock market. By increasing minority participation in these areas, we can begin to address the racial wealth gap.
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