racial wealth divide: 'nothing short of shocking'

An interesting thing.

According to good sociology, one of the prime indicators of a child’s potential success in school and employment is the parents’s total assets. Homeownership is part of this, and many other things too. That is, the stability and resources that come from parents having those kinds of accumulated assets make a huge difference. (And it’s not necessarily money…you can, as many know, be house-poor and living on ramen but still own the house.)

In fact…

If you compare kids from the SAME general categories when it comes to this kind of asset wealth, they do equally well (or badly), regardless of race.

Kids whose parents (or parent actually) have asset wealth all do equally well, regardless of race.

Kids whose parents lack this do equally poorly, regardless of race.

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From Interview With Dalton Conley

PBS: http://www.pbs.org/race/000_About/002_04-background-03-03.htm

Dalton Conley is director of the Center for Advanced Social Science Research (CASSR) and an associate professor in the Department of Sociology at New York University. He is the author of Being Black, Living in the Red: Race, Wealth, and Social Policy in America.

What does the wealth gap have to do with race?

The one statistic that best captures the state of racial inequality in America today is wealth, or net worth. If you want to know your net worth, just add up everything you own, subtract all your debts and that’s your net worth.

Today, the average Black family has only one-eighth the net worth or assets of the average white family. That difference has seemingly grown since the 1960s, since the Civil Rights triumphs, and is not explained by other factors like education, earnings rates or savings rates. It is really the legacy of racial inequality from generations past. No other measure captures the legacy – the cumulative disadvantage of race for minorities or cumulative advantage of race for whites – than net worth or wealth.

The wealth gaps between blacks and whites aren’t explained by income. In fact, if you compare people at the bottom of the income distribution – say, a family that makes around $15,000 a year, you’ll find that the average black family that earns $15,000 year in income has $0 net worth, or is in debt actually. Compare that with the average white family that earns $15,000 a year, and they have a good $10,000 to $15,000 in equity. That means being poor, being at the bottom of the income distribution, really means two different things depending on whether you are black or white.

That white family has a little bit of a cushion. If unemployment strikes, as it does so often to people at the bottom of the economic distribution, they’ve got some means to ride out the storm. They might have a car that will increase the radius of their job search. They might have this money that they can spend in case of a medical emergency, even if they don’t have health insurance. But compare that to the situation for a poor black family with $0 or negative net worth. There is no cushion. There is nothing in between the paycheck and homelessness, so to speak.

The same kind of disparity emerges at the upper end of the income distribution. If you compare, say, a white family that earns $50,000 with an African American family that earns $50,000, you’ll find that the white family has about double the net worth – about $80,000 to $100,000 of net worth compared to about $40,000 to $50,000 of net worth for the African American family at that income level. So when you are talking about the difference between financing their kid’s college education, starting a new business, moving if they need to move for a better job opportunity – having $100,000 versus $50,000 in net worth might make the difference between upward mobility and stagnation.

How does wealth affect life outcomes?

The single largest item in most people’s nest egg is the family home. That has enormous consequences for the next generation. It means, for example, that if you own your home and have significant equity, you’re in a high-property tax district, and you’re going to a good, well-funded public school.

It means that when it’s time to go to college, if you don’t have money in the bank, you can always take a second mortgage and draw off the equity in your home to finance your kids’ college education. It means that you’re in a neighborhood, most likely in the suburbs, where jobs are on the increase, and not in the inner city where jobs are on the decrease.

It means that you’re in a neighborhood where your neighbors control information and access to jobs. So you’re getting the cultural aspects by virtue of living in a high property value area and you can get your kids better job connections. It means that if you want to finance your kids’ job search after school, you’ll have equity to support them for a while.

These are just a few of the ways that having wealth, or owning a home, has enormous consequences for the next generation, not to mention one’s own old age.

How does home ownership help you accumulate wealth?

There is this tendency for white Americans to see the structure of their aid in the form of tax credits and not as aid, or government assistance, or welfare. But they see other forms of assistance, like reduced rents or welfare benefits, as a direct handout from Big Brother.

Owning your home, first of all, gets you a big mortgage deduction. That means you pay less income tax than you would be paying if you were renting and making similar monthly payments. Second, it probably places you in a community that has higher property values than one where you were just renting. Owner-occupied communities tend to be valued more, and that means that the property tax base is higher. That means that local services, everything from garbage services on up to the public school system, most importantly, are going to be better off in that community. So, without even having to spend your equity in your home, you are getting benefits from it.

Third, there is the ability to borrow off that equity. You can finance starting up a business by taking a second mortgage. You can pay for your kids to go to college through a second mortgage. You can finance your retirement by selling your home. Since homes have increased so much in value over the course of the latter half of the 20th century, people can finance their retirements through the sale of their home and the capital gains they get from it. The home has been a central part of savings for most American families in the latter half of the 20th century. White Americans that is.

What role did the government play in shaping housing and wealth?

The American government provided low-interest loans to returning veterans and other white Americans after World War II. This created a boom in home ownership and helped suburbanize America, but blacks were excluded from participating. At this same time, the government was building high-rise public housing for minorities in inner cities. The segregation in America between a largely dark inner city and a largely white suburban community is not something that just magically happened from market forces. It is part and parcel government policy.

When the government instituted rental housing in inner cities, in the form of public housing projects, for poor minorities, and then developed home ownership in low-cost, suburban communities for low-income whites, where you could put almost nothing down, they created this incredible wealth gap.

What does housing have to do with wealth?

Where one’s family lives in America is not just a matter of taste and preference. It has important consequences for the perpetuation of advantage or disadvantage across generations for a lot of reasons. First, you have the issue of housing and wealth. The majority of Americans hold most of their wealth in the form of home equity. So, that is their nest egg. It is their savings bank. They are living in their savings bank.

To make matters worse, the way that we finance education in America public schools is based on local property taxes. This means even if you never cash in the value of your home, just living in a high property value district or a rental and low property value district is going to affect what kind of school your kids go to.

Increasingly, there are lawsuits in various states against this way of financing, where school funding is based on local property taxes. But still, it’s the dominant form. We pay for our schools locally based on property taxes. So, in high value neighborhoods, which are predominantly white, you are getting well-funded schools. And in low-value neighborhoods, which tend to be predominantly minority, you are getting inadequately funded schools.

The constraints that minorities face in the housing market doesn’t just affect quality of life issues, you know, and the selection of homes and styles that people can live in. It really has enormous consequences for economic stability and upward mobility and the life chances of the next generation.

Because minorities have faced limited housing options in the past, now they are usually confined to areas that have worse environment conditions, have poor school funding, have increased risk of violent crime, have worse tax bases. Plus their homes have less equity value, so even if they want to move, they are less able to afford to. Therefore the whole economic structure of the next generation can be really readily viewed in the limited housing selections of the previous generation.

Didn’t the civil rights era fix everything?

The Civil Rights movement of the 1960s really marks both an opportunity and a new danger in terms of racial relations in America. On the one hand, the Civil Rights era officially ended inequality of opportunity. It officially ended de jure legal inequality, so it was no longer legal for employers, for landlords, or for any public institution or accommodations to discriminate based on race. At the same time, those civil rights triumphs did nothing to address the underlying economic and social inequalities that had already been in place because of hundreds of years of inequality.

The danger lies in the fact that many white Americans see the civil rights changes as having solved or addressed the racial problem, because it addresses the rules of the game. And many minorities recognize that because the starting line is so different for whites and blacks, it is almost irrelevant that the rules of the game were altered to be more fair. You really have this danger, where there is a complacency about issues of inequality, because we have addressed the official forms of segregation and discrimination.

How did the wealth gap come about?

There’s a lot of reasons why there are enormous wealth gaps between minorities and whites in America. The most simple answer is, it takes money to make money. Part of the reason that there’s this enormous gap is because whites have long had higher wages and wealth to pass on from generation to generation. And it’s like a snowball – it gets bigger and bigger as it gets passed on, and the interest gets compounded. That’s partly the reason why the wealth gap has actually increased since the 1960s, since the civil rights times.

But that’s not the whole story. There’s a long history of exclusion of minorities from wealth accumulation in America, going back to right after the Civil War.

First of all, during slavery, slaves were forbidden legally in most cases from owning anything, including their own bodies. After the Civil War, Jim Crow laws instituted policies such as the Black Codes, which required black entrepreneurs to pay, for example, a $100 licensing fee but required whites to pay nothing. Back in 1870, $100 was basically like a million dollars today. It would shut people out of business. So blacks in the 19th century through that mechanism, and through pure terror, threats of lynching, were precluded from becoming business owners, as one example.

By the 20th century, you had the institution of redlining as a policy in which banks rated neighborhoods for loans based on a four-tier system, red being the lowest ranking that a neighborhood could get. And African American neighborhoods were invariably given this red circle around them, and no loans from private banks would go into that system. That was a policy that was initiated by the federal government and adopted by private lenders.

Fast forward to the New Deal, when Roosevelt really cut a devil’s deal with white southern senators. He didn’t overtly exclude blacks from Social Security, but subtly did it by excluding agricultural workers and domestic workers, who were predominantly minorities, from receiving Social Security benefits. This was done explicitly to appease southern Senators, to exclude African Americans, who were disproportionately employed in those two sectors. It wasn’t until the Truman Administration that that got corrected. But there’s a whole generation of elderly African Americans that didn’t receive Social Security benefits, when in fact, it was the biggest giveaway of all, because no one had paid into the system yet.

So you had whites receiving this sort of windfall, and blacks not getting it. More poor black elderly not receiving Social Security means that working families in the African American community have to support them and pay for it. So it’s not only an issue of that generation. It trickles down through issues of inheritance and having to support the aged.

Fast forward again to after World War II when you have two separate American housing policies. You have this really pro home ownership policy where the government guaranteed low-interest loans for whites in suburban America and helped them obtain wealth. And for minorities you get rental, large-scale, inner-city public housing, which of course is a wealth destruction policy.

In the 1960s there were occasional efforts to foster minority asset accumulation, but they really focused on things like financial skills, and community benefit which was, by definition, nonprofit. These efforts really didn’t focus on rectifying the enormous wealth inequalities that had grown up to that point.

Until we correct the fundamental wealth inequalities, these little programs of financial education and other sorts of cultural issues aren’t going to make much of a difference, because the underlying economic structure is still unequal.

I also would like to mention, by the way, that savings rates are the same for blacks and whites. That’s a common stereotype, you know, of why these gaps exist – the idea that white people save more. And the data show that’s simply not true.

But aren’t there cultural factors that affect performance and have nothing to do with wealth?

Many social observers point to outcome differences between blacks and whites, say in education, where the college graduation rate for whites is double that of blacks. Or in occupational achievement, where whites are twice as likely to have a white collar or managerial job as blacks. Or in income, where white family income is on average about double that of the African-American unit. Or family structure, where whites are much more likely than African Americans to delay childbearing past their teenage years and until marriage. In almost any realm of life you can think of, there are racial disparities.

Often when policymakers or social scientists want to compare the outcomes between black and white kids, they’ll look at kids who come from families with the same income level. And when you make that comparison, you’ll find that there’s still a racial gap. People often point to this as something cultural or innate.

But often when we’re talking about these racial disparities, we’re comparing apples and oranges, because there’s still an enormous wealth gap between those families with the same income level.

And I find that when you make the right comparison – when you compare a black kid from a family with the same income and wealth level as the white kid from the similar economic situation – rates of college graduation are the same; rates of employment and work hours are the same; rates of welfare usage are the same.

So when we’re talking about race in terms of a cultural accounting of these differences or a genetic accounting of these differences, we’re really missing the picture, because we’re making the wrong comparison. We’re not comparing blacks and whites on an equal footing if we don’t take into consideration these wealth differences in addition to the income differences.

So a lot of times when we’re talking about race it’s really indirectly race. It’s that race is associated with these vast income and wealth differences. And that’s what’s driving these seemingly cultural or behavioral differences in the next generation. The real issue is inequality.

Why don’t we just replace race with class then?

In the post Civil Rights era it’s very difficult to talk about race and class as two separate entities, because they overlap so much in our society. Many things that we associate with race on the surface, like differences in savings rates or differences in education and performance, are really class differences when you get the data and compare individuals coming from similar economic circumstances.

But the complicating factor is that those very economic circumstances are determined by race, through historical inequalities; through contemporary dynamics where whites get jobs disproportionately more than blacks do and other minority groups. So race matters, but it often matters indirectly through the class position, the economic situation of a family.

How does past wealth help the future generation?

As individuals, we like to think that our property is a result of our talent, hard work or even luck – that it’s our individual fruits of labor. But economists have shown that about 50-80% of our lifetime wealth accumulation is really attributable, in one way or another, to past generations.

Inheritance actually plays a small role in that. What’s more common is something like your parents financing your college education, supporting you while you’re in school or taking care of you, letting you live with them, while you’re looking for a job. It’s also little gifts along the way, co-signing the loan for a mortgage, that sort of thing.

All those kind of things lead to lifetime wealth accumulation. And it’s this enormous debt we have to our ancestors’ wealth that largely explains the perpetuation – in addition to discrimination and government policies – of racial equality in wealth over generations.

So a lot of our wealth comes from our ancestors. Since whites have wealth in their family histories to a disproportionate amount, they’re able to confer wealth upon their descendants, and this reproduces racial inequality.

Blacks, on the other hand, tend to have not had wealth accumulation in the past generations for a variety of reasons. But whatever those reasons, even if the current generation makes a lot of money – because there’s not also the past wealth to pass on, this racial inequity in wealth gets reproduced generation after generation, and maybe in fact gets worse.

How does the housing market continue to perpetuate disparity?

The housing market is a place where culture meets economics – where values about what people want and where they want to live actually influence prices. Whites control the market by virtue of pure numbers, being the largest group. So when whites want to live somewhere, prices go up, and when whites don’t want to live somewhere, prices go down.

If you compare housing in black and white neighborhoods that’s otherwise exactly equal – the quality of the housing is the same, the income level of the residents is the same, education system is the same, almost everything is the same – you’ll find that the white housing will be worth more precisely because it’s white. Because whites are the biggest group in the marketplace, their preferences count the most in terms of supply and demand. So wherever whites want to live, housing values will be high.

The flip side is that if whites don’t want to live somewhere, the value of houses in that neighborhood will be less. Think about it: if you have a group that makes up 12-14% of the population like African Americans do – or even 25% of the population if you take the entire non-white population of the United States – they can’t compare with the demand created by the other 75-80% of the population, so houses in neighborhoods where whites don’t want to live will be depressed by virtue of supply and demand.

The evidence shows that even if a house is in exactly the same condition – it’s been kept up at the same rate, the neighborhood is almost exactly the same, but it’s black racially – it’s going to be worth less money than a similar situated white neighborhood.

At one time we had explicit legal racial covenants and/or redlining policies on the part of banks. Today we don’t need those anymore, because once we’ve segregated the market, it becomes in whites’ interest to perpetuate the divisions. Whites get a boost in their property values by maintaining a segregation of the marketplace, maintaining their position as the dominant group in the housing market. So once you sort of have the initial push of racial covenants or redlining or any other policy that segregated the housing market, it becomes a self-fulfilling prophecy after that.

And in fact, there’s a vicious cycle here. Because when a neighborhood, a previously white neighborhood starts to integrate, even if individual whites don’t have personal or psychological animosity or racial hatred, they still have an economic incentive to leave. Because they recognize that others might make the same calculation and leave first.

And therefore, if there’s a rash of selling by whites, which are the biggest group in the marketplace, prices will go down, by virtue of the laws of supply and demand. So you get a vicious circle where whites calculate that other whites are going to sell when the neighborhood integrates. Therefore, they want to sell first to avoid losses, and they actually make it happen – they make white flight happen and drive down property values when the neighborhood becomes more integrated.

It’s obviously disadvantageous to African Americans who want to accumulate equity in integrated or in predominantly black neighborhoods. But people don’t talk about how it’s advantageous to whites.

What’s in it for whites?

The strongest argument you can make to white people is that the current system is not in their own interest, in the long run. The fact is that homeowners and people who have a stake in the American dream are better citizens. So when you systematically shut out a group from wealth ownership, from their slice of the American pie, you’re creating an unstable and dangerous situation. You’re inviting civil unrest. You’re inviting crime. You’re inviting a situation where there’s incredible tension.

When you have an inclusive society, a republic of property owners where everyone has the opportunity and reality of owning, then you create a stable society where people care about their communities and have a stake in their future. And it’s in everybody’s interest for everybody in America to have a stake in the future in terms of asset accumulation and economic self-sufficiency.

What about affirmative action?

A lot of people say that affirmative action is problematic because it’s giving preference to a single group, but we’re doing that already all the time in our “colorblind” society. Take the example of college admissions. Sure, there are racial preferences, but those are only meant to countervail some of the more subtle preferences that tend to benefit whites. For example, look at legacies. Kids who have a parent who went to that college have an increased chance of getting into the college. It’s an explicit policy among admissions officers. Since whites, in the past, were more likely to have gone to college, especially elite colleges, that’s conferring racial advantage, without ever being an explicit racial policy. Affirmative action is one way to counteract that.

Another criticism of affirmative action is that it stigmatizes the group that’s receiving the aid. So if a white sees a minority kid in the hallways of Yale or Harvard, they always think, well, did he get in because of affirmative action or does he really “deserve” to be here? No one says the same thing about legacies, who get in at a much higher rate. Now, that’s because race is something that we can clearly mark or identify, in a way that you can’t see whether someone’s parent went to Yale or Harvard on their lapel when they’re walking down the hallway, as well.

So, it is true that affirmative action as it’s currently designed has some stigmatizing aspects, but it can be mended. I think it shouldn’t be eliminated, because the absence of it would mean that we’re doing nothing at all to level the playing field, when we recognize there’s enormous disparities.

Wealth is different from income. Wealth may not even appear as money in the bank. It includes what your house is worth for one thing.

It’s not what YOU can do, it;s what you had before you started.

So for example, if a child grows up in a bought and paid for house in a neighborhood that has good schools, that’s something substantial that the previous generation did for the individual child. It’s incalculable. And it;s not something that the individual child DID, he or she just simply benefits from that. And then the government handback on taxes for homeowners helped guarantee things like ordinary decent medical and dental care while growing up.

So the article is not about what WE do as individuals to build OUR worth. It’s about what WE got as a headstart before we even started doing that.

And of course behind the parents owning the house is a long series of policy decisions that made the house affordable to them. Before the 1940s, people typically had to come up with a 50% down payment, and before 1930 the mortgage would be 3 to 5 years to pay off.

The 30 year mortgage with an affordable down payment was a deliberate, direct, orchestrated shift in policies at the government level. (This all has to do with the history of the FHA.)

It’s not simply that our parents bought us cars and paid the college tuition. (I am talking in generalities here…I don’t know your history. My own parents did not pay college tuition. I don’t know anyone’s personal history. It’s just the sociological types I am talking about here.) Those who had all that were already ahead of kids who did not grow up in an owned house in a neighborhood where the schools were at least recognizably decent. None of those kids did that on their own. They grew up WITH that.

So even the kid who goes to a public university without a scholarship and pays his way through by working is starting off with enormous advantages just if their parents owned a house in a decent safe neighborhood with a decent school and who could afford to pay for basic medical and dental expenses while they were growing up. (Add to that the fact that until recently public universities were affordable in the first place because they were mostly tax funded…tuition is not the major financial force keeping those institutions going.)

This goes on and on and on. What did WE get to help us before we even started to make our own income as individuals.

That;s what the Conley article is about.

Bootstrap myth exposed: White inheritance key driver in racial wealth gap

http://www.channel3000.com/news/opinion/bootstrap-myth-exposed-white-inheritance-key-driver-in-racial-wealth-gap/369764533

Blacks/Latinos/non-whites don’t value education like whites do. They don’t work as hard as whites do. They spend more than whites do on junk,” says your standard white guy at the end of the bar dissecting the large racial wealth gap in the United States. “They just need to get off their butts and bootstrap it up like I did!”

However, the old tried-and-true American bootstrap lore took a big hit this month with a study that shows most families living with the material comfort and range of opportunities normally associated with middle-class status have obtained them the old-fashioned way: inheritance. The racial and wealth gap in the United States is as large as ever and “The Asset Value of Whiteness: Understanding the Racial Wealth Gap,” shows that inheritance plays a huge factor in that gap.

“For centuries, white households enjoyed wealth-building opportunities that were systematically denied to people of color. Today our policies continue to impede efforts by African-American and Latino households to obtain equal access to economic security,” Amy Traub, report co-author and associate director of policy and research at Demos said in a statement. “When research shows that racial privilege now outweighs a fundamental key to economic mobility, like higher education, we must demand our policymakers acknowledge this problem and create policies that address structural inequity.”

In short, the study found that white people inherit stuff and have inherited stuff for generations. And that gives them a supreme advantage. The report shows that typical markers of success in white households – and the chosen interventions in the lives of others – are not translating into lasting wealth and security in households of color.

From the report:

“Research probing the causes of the racial wealth gap has traced its origins to historic injustices, from slavery to segregation to redlining. The great expansion of wealth in the years after World War II was fueled by public policies such as the GI Bill, which mostly helped white veterans attend college and purchase homes with guaranteed mortgages, building the foundations of an American middle class that largely excluded people of color. The outcomes of past injustice are carried forward as wealth is handed down across generations and are reinforced by ostensibly “color-blind” practices and policies in effect today. Yet many popular explanations for racial economic inequality overlook these deep roots, asserting that wealth disparities must be solely the result of individual life choices and personal achievements. The misconception that personal responsibility accounts for the racial wealth gap is an obstacle to the policies that could effectively address racial disparities.”

Professor Thomas Shapiro, who directs the Institute on Assets and Social Policy and is the Pokross Professor of Law and Social Policy at The Heller School for Social Policy and Management at Brandeis University, has been studying this topic since the early 1990s. He was one of the co-authors of the study.

“We know, with a lot of empirical rigor, why the racial wealth gap exists in the United States,” Shapiro told Madison365. “We’ve got the dimensions down. We know that looking at different national databases that whites have about eight times as much financial wealth as African-American families and about eight times as much as the typical Hispanic family has, as well. And we know what the drivers of those things are.

“We know that it is the wealth that is produced through home ownership. We know it’s about the kind of work that people have that ties them into wealth escalators that is a robust pension benefit scheme,” he said. “In this piece, we were trying to say: Let’s take some of the so-called popular explanations and explore them.”

The report found, specifically, that:

◆ Attending college does not close the racial wealth gap.
◆ Raising children in a two-parent household does not close the racial wealth gap.
◆ Working full time does not close the racial wealth gap.
◆ Spending less does not close the racial wealth gap.

“The data says that African Americans and Hispanic families have the same amount of wealth as white families that are high school dropouts,” Shapiro said. “The racial wealth gap – that huge marker of racial inequality – cannot be closed by college going and college degree rates.”

Shapiro co-authored the report along with Laura Sullivan and Tatjana Meschede of Brandeis University and Traub of public policy nonprofit Devos. Issues of racial inequity are increasingly at the forefront of America’s public debate and probing the causes of the racial wealth gap has been becoming increasingly important.

“A lot of what drives the racial wealth gap is inheritance and the transmission of finances between generations,” Shapiro said. “Whites inherit five times more often than blacks and Hispanics. When money gets passed along to whites, it’s about 10 times as much.”

The term “racial wealth gap” is used to describe the difference in accumulated wealth that white households enjoy versus their counterparts of color. Researchers have long tried to attribute the contemporary differences — which are rooted in discriminatory legacies from slavery to housing segregation — to so-called life choices, including education and single parenthood. But this new study says that “individual choices are not sufficient to erase a century of accumulated wealth: structural racism trumps personal responsibility.”

“We hear that the racial wealth gap from people online and in comment sections who say ‘those people have children before they are married. If only, African Americans and Hispanics would have two-parent families, a lot of inequality will go away,’” he said. “How much wealth does a single-parent white family with children have compared to a two-parent family with children either African American or Hispanic? The answer is the white single-parent family has more wealth.”

So then the study looked at work and the narrative that African American and Latinos are lazy. “If only they would buckle down, as people sometimes say, racial equality would be greatly reduced,” Shapiro said. “Here’s what the data tells us: Whites working part-time under the age of 55 or unemployed have more wealth at the medium than African-Americans and Hispanics working full time, that’s 40 or more hours a week.”

The report looked at the last complaint: “If only ‘they’ would be thriftier and not waste money on clothes and sneakers….” And drawing on data from the 2013 and 2014 Consumer Expenditure Surveys, they found that the average white household actually spends 1.3 times more than the average black household of the same income group.

But don’t misinterpret the report, Shapiro said. Education does pay off. It just won’t come close to closing a racial wealth gap that is a century or two in the making.

“Having said this, there’s an important qualifier. For everybody, the lifetime earnings of a college-educated person versus a high school dropout is tremendous,” Shapiro said. “From an individual and ability point of view, it’s longstanding good advice to get the kind of education that will allow you to get the skills that will pay off in higher lifetime earnings.”

Still, white adults who drop out before finishing high school, have children out of wedlock and work part-time jobs have greater wealth (defined as assets minus debt) than black and Latino adults who completed more schooling, raise their families in a two-parent home and work full time.

“If we were trying to deconstruct ‘lift yourself up by your bootstraps,’ it’s really bedrock to the American ideology. That’s part of what we were trying to interrogate with this study,” Shapiro said. “At the end of the day, people who get an education do better, people who work two jobs do better than somebody working one job or part-time, being thrifty leaves more resources in the bank today. That person or family is undoubtedly better off than they would have been had they not done these things.”

But….

“But, while they are individually better off, it does not come close to closing the racial wealth gap,” Shapiro said. “The racial wealth gap goes back centuries and is reinforced by policies. It’s maintained by attitudes. There’s a lot about racial inequality that is in the picture here.”

So, that bootstrap we talk about is not the same bootstrap for people color at all.

“God, no. It’s not. There’s a study done by close colleagues of ours called, ‘Umbrellas don’t make it rain’ and in a different way they hit some of the same themes that we do in this narrative brief, as well,” Shapiro said.

To be sure, when we talk of inheritance, we are not always talking about huge sums of money. Even modest gifts at opportune moments can be huge – going to college, buying a first home, enrolling a child in private school. The previous generations have used the fruits of their own life’s work to safeguard a middle-class existence for offspring who have not yet earned it on their own.

Shapiro has a book coming out next month called “Toxic Inequality” that he hopes will break new ground as it follows a set of nearly 200 families between 1998 and 2011, following the kids from kindergarten to high school graduation. “About half black, half white. Half middle class, half working class, half urban and half suburban …. And seeing what happens to them over these 12 years,” Shapiro said. “There’s a lot of those stories that I will pull out in the book ‘Toxic Inequality.’”

What would Shapiro recommend for the city of Madison, a city dealing with a large racial wealth gap of its own? (Note: Originally from southern California, Shapiro is an alumnus of UW-Madison. “I was a buddy of Mayor Soglin when he was still a graduate student,” he laughs.)

“I think on a local, regional, and state level, there are different levers that we have to work with. I think on a local level, housing markets are the real key. I think attempting to break down racial segregation as much as possible in a community really serves the sustainable long-term interests,” Shapiro said. “It’s residential segregation that really drives the way that housing equity is color-coded and it’s abundantly clear from any study that’s ever looked at data.”

The study closes with a push for policymakers to evaluate proposed policies for their potential to shrink the wealth gap between races in America. Shapiro said he is optimistic about the progress he has seen recently.

“Five years ago, there were five people in the world that when you said ‘racial wealth gap’ that they would know what you meant,” said Shapiro, admitting that he might be going over the top a little bit with his numbers. “That’s no longer the case. There’s been a lot of empirical work about what the racial wealth gap is. There are a lot of folks who are working on it, studies on it. I dare say that the phrase ‘racial wealth gap’ has been sort of branded, at least in some of the public’s mind. They know what it is already.

“There was a certain symbolic value when at the 50th anniversary of the March on Washington for Justice and Freedom, President Obama got up there and said, ‘We know a gap between African Americans and whites exist,’” Shapiro said. “You can’t say that unless there is enough consciousness and pressure and staff knowing about it. While I’m not going to say it came from one of our studies, it certainly came from a study of people working in the same circle I am. Several universities and advocates of grassroots organizations across the country have been involved in a movement called ‘The Initiative to Close the Racial Wealth Gap.’ So that was kind of cool that the president said that.”

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THE ASSET VALUE OF WHITENESS: UNDERSTANDING THE RACIAL WEALTH GAP

http://www.demos.org/publication/asset-value-whiteness-understanding-racial-wealth-gap

Issues of racial inequity are increasingly at the forefront of America’s public debate. In addition to urgent concerns about racial bias in law enforcement and the criminal justice system, activists highlight deeply connected issues of economic exclusion and inequality. No metric more powerfully captures the persistence and growth of economic inequality along racial and ethnic lines than the racial wealth gap. According to data from the Survey of Consumer Finances, the median white household possessed $13 in net wealth for every dollar held by the median black household in 2013. That same year, median white households possessed $10 for each dollar held by the median Latino/a household.

Research probing the causes of the racial wealth gap has traced its origins to historic injustices, from slavery to segregation to redlining.1 The great expansion of wealth in the years after World War II was fueled by public policies such as the GI Bill, which mostly helped white veterans attend college and purchase homes with guaranteed mortgages, building the foundations of an American middle class that largely excluded people of color. The outcomes of past injustice are carried forward as wealth is handed down across generations and are reinforced by ostensibly “color-blind” practices and policies in effect today. Yet many popular explanations forracial economic inequality overlook these deep roots, asserting that wealth disparities must be solely the result of individual life choices and personal achievements. The misconception that personal responsibility accounts for the racial wealth gap is an obstacle to the policies that could effectively address racial disparities.

This paper explores a number of these popular explanations for the racial wealth gap, looking at individual differences in education, family structure, full- or part-time employment, and consumption habits. In each case, we find that individual choices are not sufficient to erase a century of accumulated wealth: structural racism trumps personal responsibility. Drawing on data from the 2013 Survey of Consumer Finances, we find that white adults who don’t graduate high school, don’t get married before having children, and don’t work full time still have much greater wealth at the median than comparable black and Latino adults—and often have more wealth than black and Latino households that have married, completed more education, or work longer hours. Differences in consumption habits also cannot explain the wealth gap; we look at academic research finding that white households spend more than black households of comparable incomes, yet still have more wealth.

The racial wealth gap matters because of the central role wealth plays in enabling families to both handle current financial challenges and make investments in their future. Families that have accumulated some wealth are better equipped to manage unanticipated expenses like an emergency medical bill, or disruptions in household income such as a layoff, without falling into debt or poverty. Over the longer term, wealth can expand the prospects of the next generation, helping to pay for college, provide a down payment for a first home, or capitalize a new business. As long as a substantial racial wealth gap persists, white households will continue to enjoy greater advantages than their black and Latino neighbors in meeting the financial challenges of everyday life and will be able to make greater investments in their children, passing economic advantages on. We can only create a more equitable future by confronting the racial wealth gap and the public policies that continue to fuel and exacerbate it.

This report analyzes data on white, black, and Latino households. The terms black and white are used to refer to the representative respondents of a household who identified as non-Latino black or white in the Survey of Consumer Finances (SCF).2 Latinos include everyone who identified as Hispanic or Latino and may be of any race.

Throughout this report, we use the term “racial wealth gap” to refer to the absolute differences in wealth (assets minus debt) between the median black and white households as well as between the median Latino and white households. All dollar figures are in 2013 dollars.

Attending college does not close the racial wealth gap.

Higher education is associated with greater household wealth for Americans of every race and ethnicity, yet going to college isn’t enough to overcome racial disparities in wealth.3 Among households under age 55, the median white high school dropout has similar wealth to the median black adult who graduated high school and attended at least some college, according to data from the Survey of Consumer Finances.4 Similarly, the median Latino adult who attended college has similar wealth to the median white high school dropout.

In effect, to gain wealth comparable to white high school dropouts, black and Latino students must not only complete high school, but also attend college.5 Higher education is valuable—but when it comes to wealth, white privilege is equally, if not more valuable.

Attending college is associated with wealth in a number of ways. A college education has long been heralded as a ladder of social mobility: graduates who earn a bachelor’s degree or other college certification are more likely to be employed and generally have higher earning power than high school graduates or dropouts; they can use their higher incomes to build savings and wealth.

Indeed, research consistently finds that college graduates of every race and ethnicity have greater income and wealth than their counterparts who did not graduate college.6 Yet wealth also plays a role in determining who attends college in the first place, and how much debt students must take on to get a degree.7 In effect, education can generate a “wealth feedback loop,” as parents’ level of education and wealth significantly predicts the level of education their children will complete.8 Thus, the educational and wealth-building opportunities directly denied to people of color in past generations continue to reverberate in the lives of their children, even those whose educational achievements open up opportunities for well-paid employment opportunities.

Having left high school without a diploma and never pursued further education, white dropouts do not gain the wealth-building opportunities offered by a college education. Yet, advantages such as greater access to gifts and inheritances offer white households more opportunities to gain and build wealth, even when they have completed less education. Because white families accumulated more wealth over a history in which black and Latino families were excluded from many wealth-building opportunities through discriminatory policies in housing, banking, education and other areas, white families today have, in general, greater resources to pass on to their offspring. As a result, white families are 5 times more likely than black or Latino families to receive large gifts and inheritances, and the amounts they receive are far greater.9 An analysis of data from the Panel Study of Income Dynamics finds that white recipients collect $5,013 more than black families on average over a two-year period.10 Not only do these funds add up to a substantial amount over time, but they can also be used to jump-start further wealth accumulation, for example, by enabling white families to buy homes and begin acquiring equity earlier in their lives and to make larger down payments on a first home, reducing interest rates and lending costs.11

For black and Latino households with at least some college education, the high cost of college is another reason why pursuing higher education—and even attaining a degree—is not more effective at reducing the racial wealth gap. Our earlier research finds that even if black and Latino students graduated college at the same rate as white students, the reduction in the racial wealth gap would be modest: cut by just 1 to 3 percent at the median.12 Because of the existing racial wealth gap, white college students disproportionately come from wealthier family backgrounds than black and Latino students. As a result, the research finds that black students borrow at much higher rates, and in higher amounts, to receive the same college degrees as their white counterparts.13 The higher rate of borrowing may in turn contribute to other disparities, including college dropout and completion rates. With less student loan debt to pay off over their working years, the typical white college graduate has a head start on building wealth compared to their black peers. The picture is different for Latino households, which attend and graduate from college at lower rates than both black and white households. Evidence suggests that Latino students may be more averse to taking on student loans even when they face substantial financial need for school.14

The result is that whites with little formal education still benefit disproportionately from social networks that help them to attain jobs, and inheritances and gifts that help them to build wealth. Black and Latino households that have pursued higher education often lack access to these networks and resources, but black college- goers in particular carry a disproportionate burden of student loan debt that saps their resources and diminishes their ability to build wealth. While attending and graduating college is associated with greater wealth for all American households and is a boost to lifetime earnings and wealth, it’s not enough to overcome historic and accumulated white advantages in building wealth. An individual’s striving to get a degree is not sufficient to close the racial wealth gap.

Raising children in a two-parent household does not close the racial wealth gap.

Raising children is expensive. The high cost of child care and difficulty of supporting a family on a single income make it particularly difficult for single parents to get by, much less build wealth. Not surprisingly, single parent households have much higher poverty rates and significantly lower wealth than two-parent households. Yet, raising children in a two-parent household isn’t enough to overcome racial disparities in wealth. According to data from the Survey of Consumer Finances, the median white single parent has 2.2 times more wealth than the median black two-parent household and 1.9 times more wealth than the median Latino two-parent household.

In 1965, Senator Daniel Patrick Moynihan’s report, The Negro Family: The Case for National Action, attributed racial inequality as well as poverty and crime in the black community to family structure, particularly the prevalence of families headed by single mothers.16 Not only did research at the time cast doubt on this causality, but evidence over the last the 50 years demonstrates that rates of child poverty, educational attainment, and crime do not track rates of single parenthood.17 Thus, even though the share of children living with a single mother rose for all racial and ethnic groups through the mid-1990s and has remained high since then, school completion and youth arrests for violent crimes have declined significantly, while poverty rates have fluctuated according to economic conditions. Family structure does not drive racial inequity, and racial inequity persists regardless of family structure. The benefits of intergenerational wealth transfers and other aspects of white privilege discussed above benefit white single mothers, enabling them to build significantly more wealth than married parents of color.

Working full time does not close the racial wealth gap.

Full-time work is critical to the economic security of most American households. Full-time jobs generally pay more per hour than comparable part-time work and are more likely to offer benefits such as employer-provided health coverage, paid sick time, and workplace retirement plans that can provide greater opportunities for employees to build wealth. At the median, households in which at least 1 member works full time (35 or more hours per week) have greater wealth than households where the only jobs held are part-time positions (less than 35 hours per week). But working full time isn’t enough to close the racial wealth gap. According to data from the Survey of Consumer Finances, the median white household that includes a full-time worker has 7.6 times more wealth than the median black household with a full-time worker. The median white household that includes a full-time worker also has 5.4 times more wealth than the median Latino household with a full-time worker. Even white households that include only part-time workers—with at least 1 person in the household employed but not working more than 35 hours a week—have statistically indistinguishable levels of wealth as black households with a member employed full-time.18

Americans of all races and ethnicities work hard: among working white, black, and Latino households with a head under age 55, all work at least 40 hours a week at the median and 80 percent or more have an adult employed full-time.19 Yet work effort does not pay off equally: in 2012, white workers employed full time earned a median wage of $792 a week, compared to $621 for African Americans and $568 for Latinos. Considering gender makes the pay disparities even more glaring: Latina women employed full time earned median weekly wages equal to just 59 percent of the wages earned by white males, while black women earned just 68 percent as much.20 However, even if households earned the same income, the racial wealth gap would persist. Previous research from Demos and Institute on Assets and Social Policy at Brandeis University finds that if the distribution of incomes for black and Latino Americans was similar to that of white households (with a median equal to $50,400 in 2011), the wealth gap between black and white households would shrink just 11 percent at the median and the wealth gap between Latino and white households would shrink just 9 percent. An individual’s striving to get a higher paid job or work more hours is not enough to close the racial wealth gap.

Spending less does not close the racial wealth gap.

Personal finance experts abound with advice on how to build wealth by moderating personal spending and shifting a greater share of income into savings and investment. Yet, evidence from a recent Duke University study suggests that reduced spending is not enough to close the racial wealth gap between black and white households. Drawing on data from the 2013 and 2014 Consumer Expenditure Surveys, researchers find that the average white household spends 1.3 times more than the average black household of the same income group.21 In general, little research has been published on racial and ethnic differences in spending patterns and no findings were available on consumer spending among Latino households.

The Duke study divided households into low-, medium-, and high-income groups and found that white households in every income group spent more on average than black households in the same group. On average, white households spent $13,700 per quarter, compared to $8,400 for black households. Even after accounting for factors such as family structure, income, occupation, and geography, as well as wealth and homeownership, white households at all income levels continued to spend more than comparable black households, with low-income white households spending $1,200 more per quarter than low-income black households and high-income white households spending $1,400 more than their black counterparts.

The study also looked at specific categories of spending, finding that white households spend about twice as much as black households on entertainment among all income groups and that white households, especially those with low incomes, spend more than black households on cars. The researchers note that “for clothing, jewelry, personal care, entertainment, eating out, and other non- essential spending, our findings show that black consumers in fact spend the same or much less than whites, at all income levels.”22 The only category in which black households were found to consistently spend more was for utilities, including payments for electricity, heating fuel, water, sewer and telephone service; this may be due to the common utility company practice of risk-based pricing, which requires a deposit or other form of additional payment from customers with low credit scores, without stable employment, or with criminal records. While technically color-blind, risk-based pricing can have a disproportionate impact on black consumers, causing them to be charged more than white households for the same service.23

Differences in spending habits cannot explain the racial wealth gap: white households spend more than black households with similar incomes, yet also have more wealth. While spending less and saving more may be excellent advice for individuals, the evidence suggests that personal spending habits are not driving the racial wealth gap and cannot succeed in closing it.

Conclusion

In order for our nation to begin addressing disparities in wealth and opportunity, we must recognize that the racial wealth gap exists and clearly understand its causes. Public polling data suggest that there remains much work to be done. When asked in a 2016 opinion survey to assess “the financial situation of blacks compared with whites today,” just half of Americans (including 47 percent of white respondents, 58 percent of black respondents, and 49 percent of Latino respondents) recognized that white households were better off financially.24 No comparable question was asked comparing the finances of Latino and white households. Similarly when the same survey asked about “reasons why black people in our country may have a harder time getting ahead than whites,” majorities of black, white and Latino Americans endorsed explanations such as “lack of motivation to work hard” and “family instability”—factors which the data reveal cannot account for the growth and persistence of the racial wealth gap. Although 77 percent of respondents also identified “racial discrimination” as a reason that black Americans might have a harder time economically, 66 percent asserted that “discrimination that is based on the prejudice of individual people” was a greater problem than “discrimination that is built into our laws and institutions.”

Racial inequality in wealth is rooted in historic discrimination and perpetuated by policy: our analyses show that individual behavior is not
the driving force behind racial wealth disparities. Typical black and Latino households that attend college and live in two-parent households still have much less wealth than similarly situated white households. Black and Latino households that include a full-time worker have much less wealth than white households with a full-time worker, and only slightly more wealth
at the median than white households where the only person employed works part time. Differences in spending habits also fail to explain wealth disparities between black and white households.

Building a more equitable society will require a shift in focus away from individual behavior towards addressing structural and institutional racism. To aid in that effort, the Institute on Assets and Social Policy developed the Racial Wealth AuditTM as a framework to evaluate public policy proposals for their potential to reduce the racial wealth gap. When policymakers explicitly consider the racial wealth gap in developing policy, the Racial Wealth Audit can provide information to achieve greater racial wealth equity.