Wealth is Different

Though Americans of color from all walks of life have become President (hi Obama!), as well as cabinet officials, CEO’s of major corporations, jurists, entrepreneurs and sport stars, very few have become wealthy as a percentage of the population.

The wealth gap is  growing . Why? Credit:  Vox Media

The wealth gap is growing. Why? Credit: Vox Media

This phenomenon, known as the racial wealth gap, is essentially a measure of the median income of families of color (specifically African-Americans) compared with the median income of white families. The median white household’s net worth is $171,000. Meanwhile, the median African-American household owns $17,600 in assets. This gap is still growing even decades after the civil rights movement.

But what is ‘wealth’?

Almost everyone calculates personal wealth by adding up total assets such as retirement accounts, the value of a home, cash, etc., and then subtracting liabilities such as any kind of debt or obligation. The number that remains is a person or family’s net worth. By 2020 white Americans will own almost 90 times as many assets as African-Americans, and nearly 70 times more than Hispanic-Americans. We use net worth as a measure of wealth because it’s real in a way other measures aren’t. For example, someone who makes 50,000 but only spends 30,000 has as much net worth as someone who earns the much higher sum of $150,000 but also spends $130,000.

Someone who invested $10,000 in 1950 and stopped investing in 1960 would be wealthier than someone who invested $12,000 from 1960 - 1972, even though the second individual invested more money over a longer period of time.

And the thing about wealth is … it grows over time … with often stupendously little effort. The earlier you buy a house, the more value it will accumulate over time. The earlier you buy a stock, the more it’ll be worth when you sell it. And wealth doesn’t just rise logarithmically, it rises exponentially. For instance, someone who invested $10,000 in 1950 and stopped investing in 1960 would be wealthier than someone who invested $12,000 from 1960 - 1972, even though the second individual invested more money over a longer period of time. The second person loses out on the power of compounding interest. Mind blown?

White families, even those who came from poor backgrounds, were often able to start the home buying process much earlier than emancipated African-Americans or immigrants to the U.S. Today’s racial wealth gap began decades ago and centuries of inequality have compounded it. If you are a white American, your grandparents probably bought a house 60 years ago for about $10,000. African-American homeowners on the other hand, were forbidden to buy in these same neighborhoods by law (a practice often referred to as “redlining”).

As friend Richard Rothstein explains in his fantastic book, Color of Law, the Federal Housing Administration was complicit in preventing African-Americans from owning assets like houses. And this kind of blatant discrimination went on until 1968, preventing Americans of color from owning any substantial assets upon which to build wealth. Even after housing discrimination was outlawed, few followed the law. Discrimination in housing continued well into the 90’s until hundreds of lawsuits made it more expensive to be a bigot and tolerance became a wise business decision. In some American communities, housing discrimination is still a fact of life.

African-American median wealth hardly budges even when you take education into account. Credit:  Vox Media

African-American median wealth hardly budges even when you take education into account. Credit: Vox Media

Educational attainment doesn’t really shift the wealth gap either. People of color and immigrants who have an advanced degree are often the only ones in their family to be as educated (I’m the only one in my family with a JD, for instance). On the other hand, many (but not all) white lawyers are often the second or third generation of professionals so educated. They aren’t expected to spend hours answering family questions about the law, or loaning out money and expertise to their less-educated family members, friends or immigrant relatives recently arriving to the country. Educational attainment for this first minority generation often becomes a barrier to wealth accumulation and those who succeed do so in spite of these barriers.

As African-American history month starts, the persistent and growing racial wealth gap in America is a sobering reminder of how far we are from true equality.