New Report Examines Racial Wealth Gap

Over nearly thirty years, American policies and institutional practices have created different opportunities for African Americans and whites, contributing to dramatic racial disparities in household wealth, a report from the Institute on Assets and Social Policy at Brandeis University finds.

Based on an analysis of the same 1,700 working households from 1984 to 2009, the study, The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide (8 pages, PDF), found that for a typical family, a $1 increase in average income generated $5.19 in wealth for a white household but only $0.69 in additional wealth for an African-American household. The report also found that over the 25-year period, the median net worth of white households rose to $265,000, compared with just $28,500 for African-American households, resulting in the dramatic expansion of the wealth gap from $85,000 in 1984 to $236,500 in 2009.

As part of the study, researchers validated five "fundamental factors" that accounted for two-thirds of the increase in the wealth gap between white and African-American households. They include number of years of home ownership; family income; employment stability; education level; and family financial support and inheritance. Marriage also was a factor, but not a significant one, the study found.

For each factor, the study highlighted specific reasons that whites and African Americans have accumulated wealth at different rates. For instance, home equity rose faster for whites because white families bought homes and started building equity eight years earlier, on average, than African-American families. The ability to make larger down payments also lowered interest rates for many white homeowners, while residential segregation placed an artificial ceiling on home appreciation in many non-white neighborhoods. Based on these and other factors, the study found that the home ownership rate was 28 percent higher for whites than for African Americans.

"The report shows in stark terms that it's not just the last recession and implosion of the housing market that contributed to widening racial wealth disparities," said Anne Price, director of the Closing the Racial Wealth Gap Initiative at the Insight Center for Community Economic Development. "Past policies of exclusion, such as discriminatory mortgage lending, which continues today, ensure that certain groups reap a greater share of all America has to offer while others are left out."

"Public Policy, Institutional Barriers Are Pushing Racial Wealth Gap." Institute on Assets and Social Policy at Brandeis University Press Release 02/27/2013.