How U.S. Business Policies Shape Wealth Accumulation

For American families, wealth—the indicator of their financial net worth—offers a plethora of possibilities. Wealth helps people to travel to other areas, easily change between jobs, and act in an emergency. It lets workers create financial sustainability in retirement and lets parents pay for or assist with the education of their children. Crucially, it is the most whole assessment of the future financial situation of a family. Families depend on their money, after all, to cover their obligations should their normal income vanish during an unemployment spell or upon retirement. Sadly, race determines the distribution of income in this nation—and especially between white and black homes.

With significantly less chances for economic mobility

And a fraction of the income of white families, African American families are more economically unstable. As this study shows, African Americans have less wealth than whites even after accounting for favorable elements as rising education rates. Less wealth translates into less chances for upward mobility and is reinforced by lower income levels and less chances to create wealth or pass collected wealth on to next generations.

Several important elements aggravate this cycle of income disparity. Black households, for instance, have significantly less access to tax-advantaged types of savings because of lengthy histories of employment discrimination and other discriminatory behaviors. Blacks have fewer access to the savings and tax advantages that accompany homeownership as a well-documented history of mortgage market discrimination indicates that they are far less likely than whites. Additionally forcing Blacks into less favorable work possibilities than their white counterparts are ongoing labor market discrimination and segregation. Thus, African Americans have limited access to secure employment, excellent salaries, and retirement benefits at work - all fundamental mechanisms by which American families acquire access to savings. Furthermore, families with higher earnings get more tax benefits linked with both housing and retirement savings under the present tax law.

African Americans naturally get less tax benefits

even whether they are homeowners or have retirement savings accounts; their wages tend to be lower. Fundamentally, ongoing housing and labor market discrimination and segregation aggravate the destructive cycle of wealth disparity. Although this study examines wealth differences between black and white households, it is noteworthy that Latino and some Asian American and Pacific Islander (AAPI) households have considerably less wealth than their white counterparts also. Hispanic households do, in fact, have just somewhat more wealth than black families. Comparatively to white families' median wealth of $171,000, black and Hispanic families' median wealth in 2016 was $17,600 and $20,700 correspondingly. Because their average and median wealth is similar to whites, the difference between white and AAPI wealth is sometimes underappreciated. Still, AAPI households exhibit rather large wealth disparity. This paper presents ideas to solve the several problems aggravating the disparity in black-white wealth.

Just how bad is the disparity in income between Blacks and Whites? Based on 2016 Federal Reserve statistics emphasized in this paper, four main factors seem to be sustaining the significant wealth disparity between white and black Americans: About one-tenth of white Americans' wealth belongs to African Americans. The median wealth of nonretired black households 25 years of age and above in 2016 was less than one-tenth that of similarly situated white households.

The Great Recession has not helped the black-white wealth disparity to close. Just before the Great Recession, in 2007, black median wealth was about 14 percent that of whites. Black wealth grew faster than white wealth in 2016, yet at the median black wealth still accounted for less than 10 percent of white wealth. Black households have less personal savings and more need for them than their white counterparts. Blacks are less likely to have access to emergency funds yet more likely to experience negative income shocks for a variety of reasons. Black people are therefore more prone to neglect their bills and incur debt during emergencies.

African Americans have systematic difficulties closing the wealth difference

Between them and whites. The wealth disparity exists independent of household income, age, marital status, or level of education. For black homes with a college degree, for example, the median wealth matched roughly 70 percent of the median wealth for white homes without a college degree. As households get older, the divide gets more pronounced. Blacks between the ages of 50 and 65 and near retirement have just around 10 percent of the wealth of whites in the same age range in 2016. This is less than the about 24-percent difference in 1998, when the same groups of individuals fell between 32 and 47 years old.

African Americans are less likely to be homeowners, business owners, and to have a retirement account than whites; they have less assets overall. According to most recent statistics from 2016, black ownership of such assets was far less than that of white ownership.

Black households carry more expensive debt. Black debtors in 2016 usually owing $35,560—less than 40 percent of the $93,000 owed by whites. But the debt black people usually owned was more expensive since they had more high-interest debt—such as installment credit, college and auto loans. Blacks, for instance, hold more credit card debt than whites.

The ongoing racial wealth disparity sets African Americans in an economically unstable environment and fuels a vicious circle of economic struggle. Blacks are less economically mobile and so unable to increase their wealth over time since their lack of enough riches. While significant, policy levers including better access to higher education by themselves will not be sufficient to generate equal opportunity in terms of wealth-building for all. This obvious disparity can only be addressed by wide, relentless policy attention on wealth generation.