By Bryan Mapenzi
The racial wealth gap has a profound impact on communities of color. There are vast disparities in the attempt to achieve wealth, the American Dream and the pursuit of happiness. All three have paved the way for America being the wealthiest country in the world based on nominal GDP. Although this holds true, there is another stark truth. The distribution of wealth across America is vastly unequal across racial lines.
According to the 2019 Survey of Consumer Finances (SCF), white households had a median and mean family wealth of $188,200 and $983,400, respectively. This is six times larger than that of Black families and five times larger than that of Hispanic families. Those that self-identified as Pacific Islander, Asian, American, Indian, Native Hawaiian or multiple races have lower wealth than White families. However, they reported more wealth than Black and Hispanic families.
How do we address this inequality?
First and foremost, understanding the roots that this problem has grown from is paramount. Wealth, unlike income, is built over generations by the accumulation and transfer of capital. Historically, people of color have experienced systemic racism and discriminatory practices which inhibited their ability to build generational wealth. As a result, the racial wealth gap has continued to expand into a chasm of epic proportions.
Systemic policy solutions
The origin of the racial wealth gap stems from systemic barriers. Solutions must be entrenched in systemic policy change and equitable implementation. A 2018 report published by the Samuel Dubois Cook Center for Racial Equity and the Insight Center for Community Economic Development details how often the onus is placed on Black people to be more “personally responsible” to change their wealth. The expectation is that disenfranchised groups “pull themselves up by the bootstraps.”
This rhetoric is harmful and does not lead to policy change. In order for the racial wealth gap to see tangible change, significant social transformation must occur through bold national policies. The following are examples of policy change that would address the racial wealth gap.
Creating a minimum wage that is a livable wage
There is a distinction between one’s income and their overall wealth. Nonetheless, many leverage their income to grow their wealth by allocating their wages toward appreciating assets. The federal minimum wage is $7.25, which is lower than the cost of living in every major city in the country. Establishing wealth is near impossible for minimum wage earners. For the Black and Brown folks who are barely making ends meet due to not earning a livable wage, growing wealth is almost impossible. Establishing a universal livable wage for all would allow for people to thrive, both in the short-term and the long-term.
Favorable loans for racial minorities encouraging entrepreneurship
Many people of color have been left behind when it comes to starting their own business. This is a result of years of discriminatory practices like higher loan interest rates, or lack of representation. Entrepreneurship has been a daunting experience. Once people of color do become entrepreneurs, they have far less access to capital and less equity in their business.
Robust changes to the Minority Business Development Agency are required to impact the wealth gap. Audacious ideas include launching business center initiatives at minority-serving institutions, starting an economic equity grant program for people of color, and fund licensed minority investment companies with low-cost government-backed capital. This capital would then be invested into Latino and Black communities. To strengthen our Indigenous and Asian communities, policies need to be focused on equitable economic development in ways that preserve collectivistic practices, identity, and overall culture. Actions like these require forethought and innovative thinking in order to mend the growing chasm of wealth between people of color and their white counterparts. In addition, creating
Racial equity in all policies
Although some believe that we live in a post-racial society, those who suffer the brunt of its existence would say otherwise. The beginning of any solution requires acknowledgement of a problem. We must identify how race plays a part in facets of everyday life. From inadequate healthcare, limited resources in secondary education, and poor infrastructure in low-income neighborhoods, many folks of color are already struggling, due to lower levels of health and well-being. Creating strategic partnerships that center racial equity across local, state, and national levels could be a catalyst for identifying issues and implementing concrete plans to close the gap.
Establishing baby bonds
Another intrepid idea that could aid in closing the wealth gap is creating baby bonds. These bonds would be federal endowments created at birth. Every year, until the child turns 18, a designated amount would be contributed, based on the income and wealth of the child’s parents or guardians. Those who make less would be given more with the amount progressively decreasing for those who make more.
This amount would grow with roughly 1-2% interest so that recipients could use the funds to start a business, buy a home, or to pursue an education. A 2016 study noted that if baby bonds were implemented in 1979, the Latinx-white wealth divide would be closed by now. Additionally, the black-white wealth divide would have shrunk by 82 percent. This initiative could be quite promising for significantly impacting the sizable racial wealth gap.
Canceling student loan debt
As of 2021, student loan debt totaled roughly 1.61 trillion dollars, growing six times faster than our nation’s economy. There are roughly 43-44 million federal student loan borrowers with an average balance just north of $37,000. According to the Roosevelt Institute, students of color tend to borrow more than their white counterparts, who generally have more wealth. This heavy borrowing, coupled with smaller amounts of wealth, creates a cycle of borrowers that are also crippled with higher debt than generations past.
Canceling student loan debt would immediately free up hundreds of billions of dollars. These funds could be contributed back to the economy in one fiscal year, followed by billions more over time. This progressive action would ensure future generations are not burdened by the growing crisis of exorbitant student loans. It would also decrease the racial wealth gap. Learn how one of our contributing writers paid off a six figure student loan debt.
The racial wealth gap has been pervasive since the dawn of America and precipitated by systemic oppression. Many ideas like financial literacy, investing, education to increase future wages, and home ownership all hold merit.
However, these individual measures alone will only make marginal differences at best in the racial wealth gap. To see true lasting change, individual transformation must be coupled with systemic policy transformation, tailored to righting the wrongs of the past.