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How the Wealth Gap Impacts African Americans and Other People of Color

June 5, 2020

2020 has been a year of trauma for many, which will hopefully result in growth and resilience on a societal scale. It is saddening that it has to take so many sacrifices to affect change, but we must take on the process of recognizing our internal biases and the role we can play in bringing about a more fair and equitable society.

One of the ways African Americans and People of Color (POC) have been disadvantaged historically is by being locked out of accessing the immense wealth and economic fortune in the US. From institutionalized slavery, government policies that limited opportunities for black people, and discriminatory laws and practices to the unseen hand of white privilege, African Americans have not had the same opportunities to build wealth as other groups.

Recognizing the problem and discussing it is the first step in coming up with a long term and sustainable solution. Looking at the statistics and the factors holding back black families will help guide us in learning our role in the movement and in the future.

At DiversyFund, we stand for equal opportunity, access and education for all. We want to do our part in educating ourselves and others on racial inequality, particularly in the wealth distribution and wealth building opportunities. In this article, we highlight some of the factors that contribute to the racial wealth gap.

Income Inequality

Based on data from the Federal Reserve’s Survey of Consumer Finance, the typical black family has only 10% of the wealth held by the median white family. The net worth of a typical white family was $171,000,  nearly ten times greater than that of a black family ($17,150) in 2016.

This divide has only gotten worse over time. The median income for black households is a little less than 60% of that of white households. Since white households earn more, they have more opportunities to save and invest leading to compounding returns over time. And it seems like white households have continued to earn more than their black counterparts in recent years. A 2018 State of Working America Wages report found that at every level of the wage distribution, the gap between black and white wages was larger in 2018 than it was in 2000. Meanwhile, a larger share of black population lives in poverty. The poverty rate for black Americans is more than double that of whites at 20.8%, compared to 8.1% for non-Hispanic whites in 2018.

When you look at two young adults between 18-34 years of age who start off with very low resources, there isn’t a large difference in wealth due to racial factors. But the wealth gap grows quickly and irrevocably. By the time they reach 65-74 years of age, white people accumulate $300,000 in median wealth while black people accumulate 15.7% of that with $47,000 median wealth.

Despite the systemic odds stacked against them, black people have come a long way in acquiring wealth and progressing financially. However, there is a lot of work to be done before African Americans can have the same opportunities for building and growing wealth as the average white household.

Opportunities for Education and High-Paying Careers

There are racial inequalities in educational opportunities for African Americans, starting from early education years and going on to college acceptance rates, graduation rates and beyond. Non-black teachers have lower expectations of academic success for their black students and are more likely to see behavioral issues in their black students. This underlines the importance of having black and other POC teachers. At the college level, African Americans end up with lower education levels by their mid-20s.

POC who are just as educated and experienced as their white peers do not have the same opportunities when they start looking for jobs. Candidates who ‘whitenheir resumes are more than twice as likely to get a call back from an employer, no matter how diverse and inclusive the company claims to be.

Artificial Intelligence is becoming increasingly important in finding the right candidate for a job, but this development will not eliminate discriminatory hiring practices. AI learns from existing data–so a computer program that analyzes names of people with the highest hire rates may erroneously infer that people with white sounding names are better candidates and thus more desirable hires. To this day, the government has not expressed much interest in ensuring that any future AI technology developments be unbiased and fair.

Generational Wealth

In 2020 Americans are projected to inherit about $765 billion in gifts and bequests. Unfortunately, most of this wealth is controlled by a small percentage of families, mostly white.

It has been historically difficult for black families to build wealth, largely due to government policies and structural discrimination. More recently, this was seen in the 2008 Great Recession where black customers, regardless of income, were encouraged to take on riskier subprime loans and consequently faced a higher foreclosure rate than white borrowers.

Many black adults currently in the workforce are first-generation wealth builders, which means they are succeeding in growing their family wealth, savings and investments. Many black millennials are the first in their family to go to college, earn a high salary or have some disposable income. 

Safety Nets During Tough Times

The current pandemic has exacerbated the issues mentioned above. African Americans have been hit particularly hard – minority groups are more likely to lose jobs or income, and with fewer resources and wealth built up, are going to have a steeper climb back to ‘normal’. According to this New York Times article, less than half black adults have a job right now:

With little government support, it is probable that black families who have lost income and jobs will turn to credit cards and other debt to survive, thereby perpetuating the debt cycle many lower-income households are currently stuck in.

Even if they are deemed ‘essential’ and are still employed, black people and other POC are more likely to be front-line workers. This means they are exposed to the coronavirus and are more at-risk than other groups.

All these factors lead to less of a safety net for minority households, with many unable to pay for necessities during extended economic recessions. According to a 2019 Fed survey, black households were about twice as likely as white households to say they would have trouble covering their bills if hit by an unexpected $400 expense.

In Closing

These statistics may seem daunting but taking stock of reality is a step in the right direction. There is a lot of work left to be done to bring about true racial and economic equality in this country. The average black household earns less, has less wealth, has more barriers to entry in employment and education, and cannot build generational wealth. By taking the step to educate ourselves and others on racial inequality, we can begin the journey toward wealth equality for African Americans and other people of color.

To our black readers, customers, colleagues, friends and community: we hear you, we see you and we are with you.



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