How We Can Close the Racial Wealth Divide

EDITOR’S NOTE: This content originally appeared in TalkPoverty

The racial wealth divide is bad and getting worse, and nowhere is this more evident than in the South.

This national trend is reflected in the wealth and earnings of Southern states like Georgia, where the median household of color has only $7,113 in net worth (compared to the $85,499 in net worth owned by white households). In Virginia, the median white household has a net worth nearly 12 times that of the median African-American household.

One of the more striking findings from the Corporation for Enterprise Development’s (CFED) 2016 Assets & Opportunity Scorecard is just how wide the economic disparity is between whites and African-Americans in the South. The data in the Scorecard reveal a twofold truth: that family financial security is worse in the South than in any other region of the country; and that these stark disparities are inexorably tied to the racial inequality that has defined life in this nation since its founding.

That’s why CFED is calling on the next President, in his or her first 100 days in office, to take executive action to conduct a racial wealth divide audit. To execute this audit, the President would direct every federal agency to review existing federal policies and how they contribute to or alleviate this economic wealth disparity.

Wealth is about more than just money in the bank—it’s about assets of every type. There are a range of economic inequities that work in concert to limit the ability of households of color in southern states to achieve economic security at almost every turn:

  • Savings: One reason for the low net worth of African-American households is their relative lack of savings. More than two-thirds (67 percent) of African-American households are liquid asset poor—meaning they don’t have enough savings to live at the poverty level for just three months if they lose a job or face another income loss—compared to 35 percent of white households. This includes 62 percent of African-American households in both Virginia and Texas, and over 80 percent in Alabama.
  • Housing: Without the ability or means to save, African-American households are effectively shut out of the home purchase market. Today, fewer than half (44 percent) of all African-American households in southern states own their homes, compared to roughly 72 percent of white households. As a result, the majority of African-American households are forced into the rental market, where they pay a far greater percentage of their income on housing costs than do white households.
  • Education: In four southern states—Alabama, Arkansas, Oklahoma, and Tennessee—fewer than 10 percent of all African-American eighth-graders tested at a proficient level or above on math exams. At 4.8 percent, Alabama’s abysmal proficiency rate is the lowest in the country. This achievement gap bleeds into higher education as white students in the South graduate high school at a rate roughly 10 points higher than African-American students, and white adults hold four-year college degrees at a rate over 12 points higher than African-American adults. But the racial wealth divide seen across the country is not merely a function of the achievement gap: even after graduating from college, African-Americans and Hispanics accrue far less wealth than do white households. In fact, the median white high school dropout has more wealth than the median African-American or Hispanic college graduate.
  • Jobs and Entrepreneurship: In the South, wage-earning African-Americans are unemployed at a rate (10.2 percent) more than twice that of white workers (4.6 percent). However, the disparities don’t end with unemployment as even African-American entrepreneurs in the South find themselves struggling to overcome sizable gaps in opportunity. On average, white-owned business in the southern states are worth 9.6 times ($694,877) that of the average African-American-owned business in the same southern states ($72,679).

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These racial inequalities are not new, but they are persistent and growing, aided and abetted by bad public policy. These policies are choices—choices that we need to stop making.

Historically, one of the greatest contributors to the creation and expansion of the racial wealth divide has been racially-biased federal policies. The federal government has played an important role in helping families build wealth. However, many of the federal initiatives used to expand economic opportunity for white families systematically discriminated against households of color. Past transgressions include the exclusion of farmworkers and domestic workers from the Social Security Act in 1935; the racially biased implementation of the GI Bill; and the widespread practice of redlining by the Federal Housing Administration which shut out entire communities of color from purchasing a home. This discrimination continues to have an impact today, as white families transferred their wealth to successive generations, while families of color were denied that same opportunity. The result is a racial wealth divide that has left white households with nine times more wealth ($110,637) than households of color ($12,377).

Moreover, these types of bad policies are not just historical relics. Today, for example, tax policies such as the Mortgage Interest Deduction and reduced tax rates on capital gains not only overwhelmingly benefit wealthy households, but they also disproportionately concentrate benefits in white communities. And because states are allowed to opt out of expanding Medicaid, a new health care coverage gap has emerged for a great number of the country’s most vulnerable communities, including 1.7 million adults of color.

In order to address widespread wealth inequality in the South and elsewhere, policymakers have to intentionally address the policies that continue to leave communities of color behind. A racial wealth divide audit conducted by every federal agency will help us create policies that will ultimately help to close the racial wealth divide.

With the new knowledge provided by an audit, federal policymakers will be able to take—and citizens will be able to demand—the actions necessary to rectify racial economic inequities that have been fueled by generations of discriminatory policies.

Emanuel Nieves is the Government Affairs Manager for the Corporation for Enterprise Development (CFED). Lebaron Sims, Jr. is the Research Manager for CFED.