United States racial wealth gap since emancipation

If you are walking down Oxnard street, situated in California, USA, you’ll come across “The Great Wall of Los Angeles” which can be seen in the image above. This half-mile-long mural depicts the history of California since the 1950s and is considered a monument to inter-racial harmony. The art was created through a collaboration between youngsters and their families from diverse social and economic backgrounds and artists, historians, scholars, ethnologists and community members. Despite the harmonious imagery among people from different ethnicities that The Great Wall of LA depicts, the reality is far from that image.

There is an obvious class divide in the United States of America, and all indications predict the divide will grow. It is no surprise either that there is a close relationship between the class divide and ethnic races.

The increasing wealth gap in the US is an alarming sign that millions of families around the country do not have enough resources to provide future generations with better opportunities. Wealth and assets enable families to invest in homes, education, stocks, bonds, emerging industries or entrepreneurship. Based on data gathered from the National Asset Scorecard of Communities of Color [NASCC], it is reported that wealth accumulation is highly uneven when analyzed by race. Researchers gathered comprehensive data on assets and debts among populations with regards to their race, ethnicity and country of origin. According to the Organization for Economic Cooperation and Development, the United States has the highest level of income inequality among G7 countries.

The colour of wealth, the divide

In a 2016 study by McKinsey & Company, it was found the black American family’s median wealth approximates to about one-tenth the median wealth of the average white American family, which is a total of $17,600 for the black American family as opposed to $171,000 for the white American family. This huge gap causes a large economic disadvantage for black households, with lower financial security, shorter life expectancy due to unaffordable healthcare costs and reduced abilities to take part in the nation’s economy. This also results in the black Americans being under-represented in the financial goods and services industry.

The present United States racial wealth gap is the outcome of the accumulating effects of centuries of exclusionary policies that the black families have been facing. The closing of such a gap requires a rapid collection of actions promoting financial inclusion and greater access to financial services.

Origins

The origins of the racial gap have been long-established for centuries now. The following timeline image shows select events, policies and practices that have contributed to widening the racial wealth gap which makes financial inclusion quite challenging for black Americans.

In the United States, the income gap between black and white households has been persistent since as far as 1970.

From restricted access to federal loans to geographical barriers to bank locations exclusionary policies and practices, all these factors have inhibited the well-being of the black American’s economy. For instance, almost half of the black American families are unbanked or underbanked, a biased discrimination which could cost around $40,000 in fees over a financial lifetime.

Basically, the rich have more financial opportunities to make more money from their money. In order to generate a greater return, stock or mutual fund earnings are reinvested. The amount invested grows rapidly over time. However, those who are not rich do not have the resources to strengthen their chances and their economic position. Instead, after payment of debts, poor households are forced to use their disposable income on items that do not generate wealth and decline in value over time.

The outcome

• The income gap is a consequence of racial economic inequality. Things such as the level of education, demand and supply of the labour market, gender inequalities, technological development and personal skills are contributing to this income gap. The level and quality of education that a person has also correlates to his level of competence and naturally, to his income.

Racial inequality of income adds to racial inequality of wealth. The process of wealth accumulation or debt is cyclical.  The wealthy use their money to earn higher returns, and the poor are unable to save an amount that can be used to produce returns or pay off debt. However, unlike income, wealth may be inherited. Wealthy families pass on their assets to enhance the prosperity of future generations and maintain inequality. On the other hand, the poor are less able to leave their children a meaningful inheritance, leaving them with little to no assistance when they enter the workforce. In fact, in some cases, future generations do inherit their parents’ debt. This is another reason why unequal wealth has aftereffects. Its accumulation has direct consequences for economic inequality among future generations. This is the main reason why racial wealth inequality in the United States continues.

• A study carried out in 2014 by scholars in Princeton and Northwestern concluded that government policies represent the wishes of the rich and that the majority of American citizens have negligible impact on public policy. When the majority of American citizens oppose and disagree with economic elites or organizations, the outcome is rarely in favor of the citizens.

In his magnum opus “Capital in the Twenty-First Century”, the French economist Thomas Piketty says:

“Extremely high levels of wealth inequality are incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies and that the risk of a drift towards oligarchy is real and gives little reason for optimism about where the United States is headed.”

• According to the 2019 World Happiness Report, the United States dropped to the 19^th place mostly due to the increasing wealth inequality, along with other factors such as increasing healthcare costs and rising addiction rates.

Black families face obstacles to financial inclusion from virtually every angle due to many institutional and social reasons: increased geographic isolation, fewer goods tailored for their economic capabilities, overt racial and prejudicial discrimination and more. This would mean that substantive modifications and measures need to be taken to tangibly enhance financial inclusion for black families in the commercial, governmental and social sectors.

Proposed solutions

Financial inclusion could be reached and established only if the private, governmental and social sectors are committed to apply persistent and corrective efforts. The process of breaking down specific and individual obstacles that exclude black Americans from the financial system must be done thoughtfully and sustainably.

• Private Sector: Bank leaders and other private sector institutions can make a huge difference by merely working on the geographic, process and economic barriers that their institutions have that make access to financial products and services for black families more difficult.
• Public Sector: To fulfill its role as a policymaker and the developer of the financial infrastructure, the public sector should recognize and endorse programmes such as student loan reform and create systems that support multidimensional credit scoring. (Black American bachelor degree holders with student loans have about $4,400 more debt than the average white American university graduate)

Moreover, policies relating to financial inclusion should be monitored and enhanced by the public. As an example, ensuring that real estate agents don’t discriminate against black families wishing to move to neighbourhoods and communities that are not inhabited majorly by black residents.

• Social Sector: The social sector, alternatively referred to as the not-for-profit sector, should help identify and develop innovative solutions that once proven, could be implemented on a large scale.

The United States must admit that worldwide redistribution of wealth is taking place. The Government should provide equal and fair access to education and job training. The best way to boost individual wealth and develop the workforce is by investing in human capital. Equity in education must attain a minimum standard for everyone.

The financial inclusion of black communities will bring significant benefits to black Americans, to American institutions and the entire economy. The public, private, and social sectors are all responsible and should collaborate to make tangible improvements for black families. The status quo maintains existing and contemporary disparities that affect black families disproportionately. It is a collective obligation to make financial integration a reality and thus to reduce the ongoing gap in wealth between black and white Americans.

The United States racial wealth gap builds on centuries of racist treatment of black Americans. It is incredibly shocking that change has been so slow. The United States racial wealth gap has its roots in the plantation economy that grew the US economy from 16^th century to recent memory.

References:

• Rugaber, Christopher S.; Boak, Josh (January 27, 2014). “Wealth gap: A guide to what it is, why it matters”. AP News. Retrieved January 27, 2014.
• Hurst, Charles E. (2007), Social Inequality: Forms, Causes, and Consequences, Pearson Education, Inc., p. 31, ISBN 978-0-205-69829-5
• McKinsey Global Institute reports : www.mckinsey.com/mgi/our-research/all-research
• Thomas Shapiro; Tatjana Meschede; Sam Osoro (February 2013). “The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide” (PDF). Research and Policy Brief. Brandeis University Institute on Assets and Social Policy. Retrieved March 16, 2013.