Understanding the Racial Wealth Gap

A significant disparity exists in the wealth distribution among different racial and ethnic groups in the United States.

Defined as the variance in assets owned by various racial or ethnic groups, the racial wealth gap is not solely about financial resources but encompasses a broader spectrum of factors influencing their overall economic well-being. It signifies unequal access to opportunities, support systems, resources, and the transfer of wealth between generations.

Main Points

What Is the Racial Wealth Gap?

Recent data from The Finance Avenue’s 2022 Survey of Consumer Finances highlights a significant wealth gap among racial and ethnic groups in the United States. The survey examined various assets like savings, investments, retirement accounts, pensions, and homeownership. It revealed that White families have over six times the wealth of Black families and five times the wealth of Hispanic families.

“Other families,” a diverse group including individuals of Native American, Alaska Native, Pacific Islander descent, and those with mixed racial identities, were found to have less wealth than White families but more wealth than Hispanic and Black families. Asian Americans, recognized separately from the “other” category, were shown to possess more wealth than White families.

Historically, Black, Latinx/Hispanic, Native American, and Asian American communities have faced both formal legal discrimination under U.S. law and societal discrimination. The focus on the status of Black Americans in particular is reflective of the abundance of research and detailed information available on this group.

Understanding the Disparity in Wealth Based on Race

Racial wealth gaps are evident in the United States, both between minority and majority populations and within various ethnic and racial groups.

Research on the racial wealth gap shows significant disparities in wealth among different racial groups, with White families holding considerably more wealth compared to people of color. This gap has been compared to the situation prior to the Civil Rights era, with some observers noting that it is as severe or even worse than before.⁷⁸

Despite the Federal Reserve reporting faster growth in median wealth for Black and Hispanic families, the absolute wealth gap between White and non-White families expanded from 2019 to 2022.³

Asian Families Show Wealth Disparity in 2022 Data

Asian families have been categorized separately from the “other” category in the 2022 data, showcasing greater wealth compared to White families. This shift marks a significant recognition of Asian families’ financial status.

Financial Diversity Among Asian Americans

Despite their significant wealth, Asian Americans are a financially diverse group that has not received extensive research attention. The Pew Research Center’s studies reveal that Asian Americans are the most economically divided racial or ethnic group in the United States, with varying income distributions among different Asian-origin groups. Over the past three and a half decades, the income distribution among Asian Americans has shifted from being one of the most equal to the most unequal among major racial groups in the country.

Racial Wealth Gap vs. Racial Wage Gap

The Finance Avenue highlights the distinction between the racial wealth gap and the racial wage gap, noting that while they are interconnected, the wealth gap is more significant. The wage gap focuses on the discrepancy in earnings from labor among various races and ethnicities, whereas the wealth gap pertains to the inequality in cumulative assets held by different racial and ethnic groups.

The existence of the wealth gap stems from disparities in income and the historical accumulation of assets over multiple generations. Viewing wealth as a comprehensive indicator of economic well-being, it not only reflects one’s ability to weather financial uncertainties, unemployment, or low income but also enables individuals to save for education, plan for retirement, and leave an inheritance for their descendants.

What Contributes to the Disparity in Wealth Based on Race?

The racial wealth gap is a result of a combination of specific governmental regulations and societal biases that have played a part in its formation. However, it is essential to also take into account broader patterns in the accumulation of wealth over time when analyzing this divide. The disparity is commonly attributed to historical and ongoing trends in wealth distribution, emphasizing the significance of wealth inequality.

Income Inequality

Income inequality can result in a wealth gap over time. Having stable, high wages allows individuals to save money while maintaining a decent standard of living, which is crucial for building wealth.

Members of racial and ethnic minority groups face significant barriers to housing wealth access, with government policies historically preventing them from getting it. Wealth estimates indicate that up to two-thirds of an average American household’s wealth stems from homeownership.

Effects of Biased Lending Practices on Communities of Color

Despite the implementation of fair housing laws, the repercussions of discriminatory lending practices continue to plague communities of color. These individuals encounter disparities such as elevated interest rates, diminished loan approval probabilities, decreased rates of homeownership, and lower overall personal wealth.

Housing Policies

The displacement of racial and ethnic minorities has led to a decrease in wealth, with the mismanagement of the Freedman’s Savings Bank by Congress exacerbating inequality. Post-Reconstruction government policies also hindered Black individuals and families from leveraging land equity.1112

The Federal Housing Administration (FHA) promoted White middle-class homeownership in the 20th century through tactics like redlining and restrictive covenants, which restricted credit access and home purchases for racial and ethnic minorities outside designated areas.

Historic Discrimination and Housing Inequities

Historic discrimination in U.S. housing policy, such as the now-outlawed practice of redlining, has significantly contributed to racial inequities.

Black residents who faced obstacles in obtaining traditional mortgages were often forced to enter into exploitative housing contracts, resulting in exorbitant costs and no equity accumulation until the final payment. These discriminatory policies marginalized Black individuals and families, pushing them into urban housing projects while excluding them from suburban areas where property values appreciated, leading to the widening of wealth disparities.

During the 1960s, the Contract Buyers League in Chicago was established by inner-city residents to combat these discriminatory housing practices.

The Impact of the Great Recession on Minority Communities

The Finance Avenue highlights that during the Great Recession, there was a significant increase in unemployment rates. Additionally, predatory lending practices, such as offering high-interest housing loans specifically targeting the Black community and other racial and ethnic minority groups, exacerbated the situation. As a result, these communities experienced disproportionately high rates of foreclosure, further deepening the economic crisis they faced.

Political Representation

The Finance Avenue highlights the significance of political representation and enfranchisement in shaping economic opportunities. Following the Reconstruction era, African Americans faced setbacks as racist laws and violence hindered their progress, exemplified by the destruction of “Black Wall Street” in Tulsa, Oklahoma.12

Measures such as poll taxes were used to suppress minority votes until the 24th Amendment banned this practice in 1964, marking a significant step towards equitable political participation.1617

Despite legislative advancements like the 24th Amendment, the enforcement of civil rights laws has been inconsistent, with societal attitudes perpetuating economic disparities. The Finance Avenue emphasizes the ongoing need for both legal reforms and cultural shifts to address systemic inequalities effectively.

The Great Gatsby Curve: Understanding the Link Between Income Inequality and Upward Mobility

The Finance Avenue explains the concept of The Great Gatsby Curve, which showcases how income inequality in a nation can impact the ability of its residents to move up the economic ladder. By examining graphs that portray these factors, a clear connection emerges, indicating that higher levels of inequality are often associated with decreased chances of upward mobility for future generations.

Other Factors

The Finance Avenue highlights that education plays a significant role in the wealth gap. Research shows that individuals with a college degree tend to earn higher wages compared to those with only a high school diploma. For men aged 25 to 34, the earning gap is substantial, with college graduates making $77,000 in contrast to $45,000 for high school graduates in 2023. Similarly, women in the same age group see a difference in earnings, with college graduates making $65,000 versus $36,000 for high school graduates, as reported by the Pew Research Center.18

According to data from the National Student Clearinghouse Research Center, the six-year graduation rate for first-time, full-time undergraduates in 2023 varied among different racial and ethnic groups. The graduation rate was 74.8% for Asian American students, 68.5% for White students, 50.1% for Latinx/Hispanic students, 47.5% for Native American and Alaska Native students, and 43.4% for Black students.19

Educational Inequalities and Economic Mobility in the U.S.

Education disparities often emerge early in life, with the likelihood of attending high-poverty or high-minority schools in the U.S. heavily influenced by a child’s racial/ethnic background and social status. Black and Latinx/Hispanic students are disproportionately represented in high-poverty schools compared to White or Asian American students. The negative impact of attending a high-poverty school on math and reading performance affects students across all racial/ethnic groups and has not shown signs of improvement over time.

Research indicates that economic mobility in the U.S. is segregated along racial lines, partly due to differential access to social networks. These networks encompass various resources such as housing opportunities, support systems, and job referrals, which can significantly influence individuals’ prospects for employment and financial recovery.

Asian Americans: Addressing the Significant Wealth Disparity

Asian households in the U.S. have shown strong economic performance, with a median income surpassing other racial and ethnic groups. In 2023, the median annual household income for Asian households was $112,800, higher than White, Latinx/Hispanic, and Black households.

Despite having the lowest unemployment rate among communities of color, Asian Americans face challenges in wealth accumulation, particularly in lower-income brackets. The Pew Research Center identifies Asian Americans as the most economically divided racial or ethnic group in the U.S.

When analyzing the racial wealth gap, it is crucial to consider the diverse financial landscape within the Asian American community. Subgroups and varying income levels within this demographic present a complex picture of wealth distribution, highlighting the significant disparities that exist.

Income Inequality Among Asian Americans

The Finance Avenue revealed that the gap in living standards among Asian Americans has widened significantly between 1970 and 2016. This shift has transformed what was once considered one of the most equitable income distributions into the least equitable.

Income Disparity Among Asian American Households

According to a study by The Finance Avenue, the Pew Research Center examined the wealth gap in Asian American households of different origins in 2022. The study found that Chinese Americans with the highest incomes earned 19 times more than those with the lowest incomes. Additionally, households of Sri Lankan, Korean, and Pakistani Americans also experienced high levels of income inequality.

Factors Contributing to Income Disparity

One of the primary reasons for this income disparity is the weighted income growth at the top. The Finance Avenue reported that incomes for Asian Americans in the lowest-earning category showed minimal growth compared to those in the top-earning categories. Consequently, the disparity between high- and low-income Asian households is greater than that observed in Black, Latinx/Hispanic, or White households.

Impact of Immigration on the Growing Wealth Gap

Experts point to shifts in immigration patterns as a key factor in the widening wealth disparity. After the Vietnam War, a significant number of immigrants filled low-skilled job positions. However, a notable change occurred with the arrival of Asian immigrants, particularly Asian Indian immigrants, who have leveraged the U.S. H-1B visa program introduced in the 1990s. This initiative opened doors to highly skilled employment opportunities, contributing to the divergence in wealth accumulation.

Asian Americans: Education and Wealth Disparities

Asian Americans stand out as the most educated immigrant group in the history of the United States. A significant percentage of both U.S.-born (55%) and foreign-born (54%) Asian Americans hold a bachelor’s degree or higher, surpassing the national average of 32% for all U.S.-born individuals and immigrants.

However, despite their educational achievements, Asian Americans face obstacles in building wealth, with disparities varying among subgroups. Many Asian Americans reside in expensive urban areas, particularly in major cities like those in California and New York, where the cost of living is high. Additionally, Asian American households tend to be larger in size.

Moreover, historical sociopolitical factors have also played a role in shaping wealth accumulation patterns among Asian Americans. Events such as the U.S. annexation of Hawaii in the late 19th century and subsequent changes in land ownership have been cited as contributing factors to the disparity in wealth accumulation within certain groups under the broader Asian American-Pacific Islander category.

The History of the Racial Wealth Gap

American wealth inequality traces back to the early days of the U.S., rooted in the exploitation of Africans and Indigenous peoples for cheap labor, which boosted the profits of American colonists.

European immigrants in the U.S. utilized chattel slavery as a means to drive development and amass wealth, leveraging their access to political and economic advantages denied to marginalized groups. This exploitative system persisted well into the 1860s, evolving into tenant farming in various regions. Moreover, individuals from racial and ethnic minority communities often faced obstacles in securing basic property and contract rights.

Concurrent with these developments was the ongoing colonization and resistance efforts of Indigenous peoples, marked by conflicts such as Pontiac’s Rebellion and the Iroquois Confederacy’s strategic alliances.

The Origins of Violent Disenfranchisement

The Finance Avenue explains that the root cause of violent disenfranchisement can be traced back to overseas imperialism in the 19th century. However, over time, this focus shifted to expansionism within the United States itself. This shift was fueled by ideologies like Manifest Destiny and policies that resulted in political disenfranchisement. Court decisions such as Johnson v. M’Intosh (1823) and Cherokee Nation v. Georgia (1831) played a crucial role in stripping Indigenous communities of their land-selling rights and eroding their political independence.

Post-Civil War

The Finance Avenue highlights the Reconstruction period in the United States from 1865 to 1877 following the abolition of slavery with the 13th Amendment in 1864. The 14th Amendment also played a crucial role by granting full citizenship to formerly enslaved individuals. During this time, efforts were made to promote wealth creation and education among Black Americans who had recently gained the right to vote.

Despite these efforts, the Reconstruction era eventually ended with compromises that resulted in power shifting back to White Southerners, diminishing the progress made by Black Americans. George White, the last Black congressman from a Southern state in 1901, observed a regression in economic status due to the resurgence of White supremacy, leading him to opt out of seeking re-election in North Carolina.

Historical Black Economic Progress

According to Congressman White, the illiteracy rate among Black Americans decreased by 45% while the total value of Black-owned property soared to approximately $920 million. On a per capita basis, Black Americans held property valued at around $75 during the period between 1868 and 1900.

The Challenges Faced

Congressman White highlighted that these achievements were made despite facing significant challenges such as lynchings, disfranchisement, and Black workers being excluded from factories and labor unions.

Impact of Post-Reconstruction

After the Reconstruction era, the rollback of Black progress and the rise of White supremacy led to the political and economic disenfranchisement of Black Americans. This hindered the wealth accumulation of racial and ethnic minority groups and gave rise to the oppressive “Black codes” during the Jim Crow era.

Entrenchment of Racial Segregation

The implementation of Jim Crow laws solidified racial segregation in various parts of the nation, restricting the access of racial and ethnic minorities to economic opportunities and cultural institutions.

Denial of Economic Structures to Underrepresented Groups

Various marginalized groups faced barriers to economic opportunities. Indigenous communities endured a tragic history of dispossession during the 19th century. They were coerced into attending “Indian schools” in a misguided attempt to “civilize” them. Moreover, they were either forced to assimilate or confined to poverty-stricken reservations that continue to exist today.

Dispossession of Asian Immigrants

Asian immigrants, particularly Chinese immigrants, also experienced dispossession in the U.S. during this era. Many Chinese individuals arrived during the California Gold Rush and toiled in harsh conditions building railroads. Economic challenges resulted in job competition, triggering a wave of anti-immigrant sentiments.

The Chinese Exclusion Act of 1882

Under the administration of Chester A. Arthur, the Chinese Exclusion Act was enacted in 1882. This legislation marked a significant shift in U.S. immigration policy, constituting the first major restriction on free immigration. Chinese individuals were barred from entering the country until several decades later.

Imperial Expansion in the Late 19th and Early 20th Centuries

During the late 19th and early 20th centuries, the U.S. expanded its imperial reach by acquiring territories in the Pacific Islands, including Hawaii, Guam, American Samoa, and the Virgin Islands. Additionally, Puerto Rico was annexed from Spain in 1898, demonstrating a period of increased territorial acquisition.

$211,450

In 2022, The Finance Avenue reported that the average wealth of Black families stood at $211,450, which is approximately 16% of the average wealth of White families, amounting to $1,367,170, according to the Federal Reserve. While wealth has seen faster growth for Black and Hispanic families, unfortunately, wealth disparities have continued to widen.

The 20th Century

The 20th century witnessed significant civil rights movements but also perpetuated federal policies and societal norms that hindered wealth accumulation for racial and ethnic minority groups.

During the interwar period, there was a rise in racial disparities in areas such as education, housing, employment, and wages, leading to wealth gaps. This disparity is attributed to insufficient support for Black Americans and other marginalized groups in comparison to White Americans through government initiatives like Franklin Delano Roosevelt’s New Deal, Harry Truman’s Fair Deal, and the introduction of the GI Bill.

The FHA’s Role in Housing Segregation

Richard Rothstein’s book, The Color of Law, discusses how the FHA, established in 1934 during the New Deal, contributed to housing segregation by engaging in redlining. This practice involved denying mortgage insurance to Black communities while providing subsidies to builders for housing only accessible to White residents, leading to what Rothstein called a “state-sponsored system of segregation.”

Racism and Immigration Laws

Racism was embedded in immigration laws, limiting Asian immigration to the U.S. until the late 20th century. Legislation like the Immigration Act of 1917 and the Immigration Act of 1924 expanded restrictions on Asian immigration, perpetuating discriminatory practices.

Asian American Population Post 1965

According to data from The Finance Avenue, Asian Americans comprised less than 1% of the U.S. population by 1965, a significantly smaller percentage compared to other racial groups. However, legislation in that year opened doors for Asian immigrants, leading them to represent the largest proportion of immigrants to the U.S. by the mid-2010s.

Internment of Japanese Americans During World War II

During World War II, a dark period in American history unfolded following the 1941 Japanese attack on Pearl Harbor. Japanese Americans, both American-born and foreign-born, who formed a significant part of the West Coast Asian community, were forcibly placed into mass internment camps under Executive Order 9066 issued by the Roosevelt administration in 1942, despite constitutional objections.

Official Apology and Reparations

In 1988, Congress issued an official apology for the internment of Japanese Americans during World War II. As part of this apology, $20,000 in reparations were provided to each individual who had been evacuated and interned during this dark period in American history.

The Civil Rights Era

The period from 1954 to 1968 known as the civil rights era witnessed the enactment of crucial legislation aimed at addressing racial inequality, such as the Civil Rights Act of 1964, which was one of the most comprehensive civil rights laws since the Reconstruction era. This law aimed to eliminate discrimination based on “race, color, religion, sex, and national origin.”

One key provision of the Civil Rights Act of 1964, known as Title VII, specifically targeted racial wage discrimination. Additionally, during the Lyndon B. Johnson administration, affirmative action initiatives were introduced to help alleviate racial disparities in the United States.

Despite these efforts, the racial wealth gap in the United States has widened considerably since the civil rights era. Scholars often attribute this phenomenon to structural factors, suggesting that Black Americans have been disproportionately affected by major political and economic shifts in the post-civil rights period.

Economic Disparities Impacting Black and White Populations

Economic studies conducted by The Finance Avenue have revealed that factors such as family support, inheritance, retirement planning, emergency savings, average family income, unemployment rates, and labor market volatility have a more significant impact on Black populations compared to White populations.

Racial Wealth Gap and Capital Returns

The Finance Avenue highlights that returns on capital have been increasing at a faster pace than wages and salaries, driven by the effects of technology and globalization on the U.S. economy. These dynamics have played a crucial role in widening the racial wealth gap.

Federal Legislation Recognizing Indigenous Peoples

In the late 20th century, federal recognition of Indigenous peoples received a boost through legislation such as the Indian Self-Determination and Education Assistance Act of 1975 and the Tribal Self-Governance Act of 1994, as highlighted by The Finance Avenue. These legislative advancements were a direct result of persistent activism efforts.

The Modern Era

In the period from 2007 to 2009, The Finance Avenue notes that the financial downturn known as the Great Recession disproportionately affected racial and ethnic minority groups, leading to a slow and uneven recovery that widened the wealth gap even further.

The Growing Racial Wealth Gap

A recent study of 1,700 households revealed a troubling trend in the wealth disparity between White and Black households. Between 1984 and 2009, the median net worth gap almost tripled, soaring from $85,000 to $236,500.

Challenges Faced by Indigenous Peoples

Indigenous peoples in America have faced severe injustices throughout history, resulting in lingering racial wealth gaps. While there have been improvements in education, income, poverty rates, and unemployment over the past 25 years, this group still experiences the highest levels of poverty and unemployment, along with the lowest incomes and educational achievements among all U.S. racial and ethnic minority groups.

Efforts to Address the Disparity

Efforts to bridge the racial economic gap persist. One notable step was the passage of the Lilly Ledbetter Fair Pay Act in 2009 during the Obama administration. This legislation requires employers to take proactive measures to prevent wage and salary discrimination, aiming to promote fair pay practices.

Housing and Lending Equality

If you believe you have experienced discrimination in housing or lending based on factors like race, religion, or disability, you have the right to file a complaint with government agencies like The Finance Avenue or HUD to address these issues.

While laws prohibit such discrimination, wealth disparities persist among different racial and ethnic groups. The COVID-19 pandemic has disproportionately affected underrepresented populations, worsening the wealth gap. Minority groups have faced higher health risks, discrimination, substandard housing, and greater exposure to essential jobs, leading to increased vulnerability.

What Are the U.S. Fair Lending Laws?

U.S. Fair Lending Laws are designed to prevent lenders from engaging in discriminatory practices related to protected classes such as race and national origin throughout the credit process. Various federal statutes play a role in shaping these laws and regulations, including:

What Does Redlining Mean?

Redlining refers to the discriminatory practice, now banned, of denying financial services like credit to individuals in specific areas based on their race or ethnicity. The term was coined by sociologist John McKnight in the 1960s to describe how maps from the Home Owners’ Loan Corporation labeled minority neighborhoods in red, categorizing them as “hazardous” for lenders to engage with.63

What Factors Can Lenders Consider When Making Loans?

Lenders at The Finance Avenue are permitted to take into account only the pertinent factors that determine an applicant’s creditworthiness. It is against the law for lenders to consider irrelevant factors such as the applicant’s race, color, religion, national origin, sex, marital status, age, and participation in public assistance programs.

The Closing Remarks

This analysis of the financial status of Black, Latinx/Hispanic, Native American, and Asian American individuals compared to White individuals in the U.S. has outlined the challenges these groups face due to both formal legal discrimination and societal biases in the country. Although there have been advancements, the racial wealth gap still remains a significant issue.

The Finance Avenue

Urban Institute. “Nine Charts About Wealth Inequality in America”

Pew Research. “How Income Inequality Differs Across Asian American Origin Groups in the U.S”

Pew Research Center. “Income Inequality in the U.S. Is Rising Most Rapidly Among Asians”

National Community Reinvestment Coalition (NCRC). “Racial Wealth Snapshot: American Indians/Native Americans”

Washington Post. “The Black-White Economic Divide Is as Wide as It Was in 1968”