For individuals of color, even personal finance can be a heartbreaking reminder of racial inequality.
Almost any way you slice it, White households have amassed more riches than their counterparts of color, leading to a racial wealth gap. White Americans hold eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic household, the Federal Reserve estimated in its 2019 Survey of Consumer Finances . White families also had the highest median level of wealth at $188,200, the survey found, compared with $24,100 for Black families and $36,100 for Hispanic families.
By the time White individuals reach their 60s, they’re expected to have accumulated $1.1 million more than Black Americans, according to an analysis from the Urban Institute .
Individuals of color often end up accumulating less wealth because they earn significantly less than their White counterparts. White men’s median real weekly earnings averaged $415 in 2021, compared with $308 for Black men, according to data from the Bureau of Labor Statistics.
That all comes at a cost, affecting things like homeownership, investing and educational attainment – the traditional pathways for building wealth. Along the way, prudent financial steps, from saving for emergencies and retirement to investing, are all the harder.
“For a person of color, you’d still have the same challenges that everyone else has: Live within your means, manage a budget, think about your own financial future and that of your family,” says Stephanie Yates, professor of accounting and finance at the University of Alabama at Birmingham. “You’re just being held back at the starting line compared to maybe a counterpart who is not a person of color.”
Experts say pinpointing the wealth gap’s long-lasting prevalence in the U.S. is complicated. Yet, while there’s no one answer to eliminating the divide, individuals can still take steps to mitigate these inequalities. Here’s what you need to know about combating the racial wealth gap, according to experts, so you can meet your financial goals. From slavery to redlining: Causes of the racial wealth gap
The racial wealth gap’s roots span hundreds of years’ worth of social and political events – from slavery, the Tulsa Race Massacre, discriminatory GI bills and Jim Crow-era “Black Codes” to race-based life insurance, gentrification and redlining. All have limited Black Americans’ opportunities to accumulate wealth – impacting generations long after the passage of the Civil Rights Act.
For Black Americans, racist policies and practices are often hiding in plain sight – in the form of racially biased hiring and lending.
Naseema McElroy, founder of Financially Intentional, recalls receiving two drastically different mortgage rate offers when trying to buy a home in 2020, one of them significantly higher than the industry standard based on her excellent credit score and ability to make a down payment.
“When I called them out on the rate – with an approval for a far lower rate in hand – they tried to say they would match the rate, only to add more fees they thought I wouldn’t notice,” she says. “Even with Fair Housing laws in place, lenders still have a lot of discretion on who they waive fees for and what rates they charge individuals. More often than not, they don’t work in the favor of people of color.”
Even worse, well-intentioned policies meant to bridge the divide have sometimes worsened the issue, Yates says. The Social Security Act of 1935, for example, excluded farm workers and domestic workers from obtaining benefits, jobs that included at least 60 percent of Black workers, according to the Social Security Administration .
“If you administer a relief system through a network that already has racial disparity, the end result is going to be more racial disparity,” Yates says. “You have to understand how we got here in order to figure out how to fix it.” Generation after generation, Americans of color play a game of catch up
Those events all matter because they’ve set individuals of color further back for decades. That gap has thus been perpetuated for generations, as each individual tries to catch back up and boost their inheritance.
Data also tells that story. Of the average Black and Hispanic households, just 10.1 percent and 7.2 percent, respectively, received an inheritance, according to the Fed, compared with 30 percent of the average White household.
“The majority of my White clients have others in their families contributing to their finances starting in their 20s and 30s,” says Andrew Tudor, CFP, founder of Alchemist Wealth, which specializes in helping Black families eliminate the racial wealth gap. “For […]
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