If you're a person of color in the United States, you're directly impacted by the racial wealth gap. Why? Racial income inequality has widened since the Great Recession. But it would take more than a single history lesson to walk through the root causes of the racial wealth gap.
Instead, our wealth by race guide will walk through the depth of inequality between white and minority households and take a close look at the impact this has. But most importantly, we’ll share how we can come together to create positive change to overcome the racial wealth gap once and for all.
What is the racial wealth gap? (A racial wealth gap definition)
Looking for a racial wealth gap definition? The racial wealth gap is the difference in median wealth between races in the United States. And there's a noticeable wealth disparity between white and minority households. In case you hadn't guessed, White households tend to be financially stronger than Black, Latino, and Native American households.
First up, employees from minority backgrounds are likely to be paid less than White employees, so, lenders will target you with high-interest loans and other unsavory high-cost financial products. Plus, the dream of achieving homeownership is also less likely. There are fewer black homeowners now than there were in 2010, and Black Americans fall 30% percent behind the number of white homeowners.
Black households often have higher debt than White Americans and few have savings and investments. And if financial challenges arise? The lack of savings combined with a financial literacy gap can be devastating to black families.
Imagine you miss a single payment. This can result in a string of late fees, penalties, and collection notices because of missed payment due dates. And the repeated inability to keep up with your bills could have even more severe consequences including foreclosure.
Alternatively, your utilities could get cut off, your credit could be impacted and you may not qualify for a mortgage. All of these can put your overall financial well-being at stake.
Sounds unreal right? Unfortunately, this is a sad reality for many minority households. But let's look at some wealth by race stats in more detail.
What are the differences in poverty rates?
For decades, Black American wealth has consistently lagged behind other races. Data from the Census Bureau shows that the poverty rate was at 19.5% for Black families and 17% for Hispanic families in 2020, while for non-Hispanic Whites, it was at 8.2%.
And these disparities in background translate into labor market discrimination too.
What's the black-white wealth gap like in the labor market?
For employees, there are significant pay differences. A typical black worker is on a 24.4% lower income than a typical white worker.
The real median income is $46,005 for Black Americans and $56,814 for people of Hispanic origin. To demonstrate the depth of racial income inequality, white non-Hispanic earnings stand at $77,007.
And, unfortunately, the racial wealth divide is widening. In 1979, the income inequality stood at 16.4%, meaning it's now 8% worse.
The good news? The number of Black American adults with a high school diploma has skyrocketed (from 36.6% in 1972 to 87.9% in 2019). There have also been considerable gains in college completion rates too. However, as Black Americans earn lower incomes, it's harder for them to pay off student debt once they start earning.
Why we must act to close the racial wealth gap
You might be thinking that this is just the way things are and that there isn't much that can be done about it. However, nothing could be further from the truth.
The continuous turmoil caused by racial injustice means this topic has never been more important. But fighting for equality and justice does not start and end with policing on the streets. It seeps into every area of our lives.
Preserving life through a just system is of utmost importance. And once that life has been preserved, giving that person equal opportunity to flourish is key.
The racial wealth gap has prevented many from flourishing financially. At the same time, others have achieved unlimited levels of wealth. These wealth inequalities have real implications.
Put simply, children from more privileged homes often have better outcomes in life. They have more opportunities, stronger economic networks, and access to better schools.
At the other end of the scale, wealth disparity prevents access to healthcare and raises the incidence of chronic disease. It also affects life expectancy. This was made even more clear by the devastating impact of the recent global pandemic on black and brown communities.
We need to close the gap and there's never been a time to start doing so than now.
How you can help close the racial wealth gap
On a broader level, closing the racial wealth gap must be supported by government policies to help disadvantaged demographics build wealth. But there are things we can do on an individual basis as well.
1. Empower yourself and your community with financial education
When it comes to the world of personal finance, you might feel like your efforts are a drop in the ocean. But want to know the real truth? No one is born financially savvy, even those who have gained assets through inheritance.
It takes a dedicated amount of effort to learn, plan, do, and repeat. But once you get to the doing, you'll find that it's where all the magic happens. Once you know, you'll share your knowledge with your children, family, and your broader community.
Becoming empowered with financial education is one of the first steps you can take to closing the racial wealth gap. And Clever Girl Finance is committed to providing you with financial education. In fact, we have a ton of resources to support you.
We've walked up the learning curve too and are more committed than ever to making it as easy as possible for you to learn. Wondering where to start?
Plus, as part of our commitment to your learning and education, we've made our 30+ online personal finance courses completely and permanently free.
2. Take strategic action with your finances
Educating yourself is one thing but you'll truly start to see results and bridge the racial wealth gap once you begin to take action.
Wherever you are in your financial journey today, know that with repeated action, you'll be in a totally different place five years from now. The key is to give yourself time.
If you have debt, create a repayment plan and start actively working on that plan to pay it off.
You'll also want to build your savings and investments. Prioritize setting up an emergency fund to help with any near-term needs. Learn how investing works and get started with achieving your long-term goals.
Homeownership is also worth pursuing as a way to build home equity and transition generational wealth.
3. Share your knowledge with your children and community
If there's one tool that has long been underestimated, it's knowledge transfer. So, pass on that racial wealth gap definition to the next generation to increase awareness. Financial education is something many parents leave for schools to teach their children. Schools, on the other hand, teach it minimally, leaving financial education to parents.
As a result of this Catch-22, little or no valuable financial education is taking place before school or college graduation, further widening the racial wealth gap.
Kids graduate from high school and college and land their first big paychecks. And from there, they roll down a financial hill. They fall prey to seductive marketing tactics from credit card companies, are pressured into buying the latest trends on social media, and end up with zero savings to show for their hard work.
The simple remedy? Educate your children. Have conversations in your communities. Parents and communities have so much to share with the next generation. It's not just the Warren Buffets of the world who are qualified to give financial advice.
Arguably, your life experience will teach volumes more because it's completely relatable.
4. Support minority-owned businesses
Looking for a tangible way to be part of the solution? Starting today, support black-owned businesses and other minority-owned organizations.
The potential to narrow the wealth gap through this point alone is huge. There are countless numbers of big brands that for years have profited off minority communities.
Many black and brown women have created products that serve their community and beyond. As you support their businesses, you not only help them but the generations after them. It ensures that minority communities have a say in the quality of goods they consume.
The growth of minority-owned businesses gives consumers choice. Instead of walking down the makeup aisle and seeing two shades of foundation that claim they work for non-white skin, now, minorities can see a full variety of shades.
Minority ownership creates a domino effect where minority women see other minority women thriving financially. And this provides a mountain of inspiration to help narrow the wealth gap.
When people of color achieve financial success, they are in a much better position to help others. They can use their resources to advocate for change and create better opportunities for the community at large.
5. Use your vote to combat racial injustices
Voting hasn't always been a constitutional right for all Americans. Black men were unable to vote until the 15th amendment was passed in 1869; even then many faced roadblocks such as literacy tests which prevented them from voting. And Black women had to wait even longer until 1920 when the 19th amendment was passed following the suffrage movement.
Black men and women have had to fight hard to receive their right to vote, so it's essential all US citizens aged 18 and over participate in elections. Become informed about political issues, form an opinion and use your voice and your vote to overcome racial income inequality.
6. Give to causes to fight racial injustices
If you're in a position to do so, giving to causes that fight racial injustices can make a world of difference. There are many aspects to supporting the movement. You can do so financially, physically in person during events, and emotionally by lending a hand or an ear.
One of the best ways to beat social racial income inequality, and injustice is to do so one person at a time. It's something we can all do every single day by stepping out of our comfort zones and into our neighbors' worlds.
Form friendships across cultural divides and learn about other people's backgrounds. Then walk alongside your new friends through their struggles and triumphs. As we each do this, we will break barriers that have long plagued our communities.
When all is said and done - the cameras have stopped rolling and the headlines have died down, how will you and I engage with our neighbors? How will you and I continue to fight injustice? What kind of example will we set for our children and our children's children to see?
Looking to support financially is one way we can help. Here are five amazing initiatives playing a part in bridging the racial wealth gap. Check them out and learn how you can contribute.
Black and Brown Founders
Black and Brown Founders provide community, education, and access to black and LatinX founders. The inclusive program allows them to launch tech businesses using modest resources. This helps black families to feel in control of their lives while building wealth and lasting legacies.
BOOM Concepts helps artists and entrepreneurs from marginalized communities to amplify their voices. Creative studios are based throughout Pittsburgh.
Black Girls Code
Black Girls CODE empowers pre-teen girls of color to develop in-demand coding and tech skills. The main aim is to establish equal representation in the tech sector. By 2040, Black Girls Code will train 1 million girls to lead, innovate and create in core STEM subjects.
Refugee Dream Center
The Refugee Dream Center is a post resettlement refugee agency helping minority refugees. The goal is to help refugees integrate into society using skills learned at the Center.
Prison Book Program
The Prison Book Program helps the incarcerated boost their education and knowledge. Since 1972, this grassroots organization has been sending free books to prisoners. Dictionaries, GED study guides, and basic legal information have all been provided.
Let's close the racial wealth gap
Now you have a firm understanding of the wealth by race divide, it's time to take action. Knowledge of the racial wealth gap isn't enough to make an impact for future generations.
Instead, it's up to Americans of all backgrounds to come together. When we fight collectively against these injustices, we can make a positive difference. How do you plan to make a difference?