9 Facts About the Racial Wealth Gap

Five hundred years. That’s how long experts say it would take for Black people to reach economic parity with white people and close the racial wealth gap, given current trajectories.

That’s 100 years longer than slavery existed in the U.S. In fact, it’s longer than the U.S. has been a country. And it’s about six times the lifespan of an average Black person.

Economists and researchers from the Federal Reserve Bank of Chicago shared findings in a webinar earlier this month on where Black Americans stand compared to other racial and ethnic groups since 2019.

While acknowledging Black people have made gains in recent decades, they also identified a series of disparities that keep them from gaining financial ground with whites — including higher rates of unemployment, lower rates of home ownership and wages, regardless of education.

The experts point to a total of nine factors directly affecting the racial wealth gap. Here’s what they found.

1. Minorities have more wealth than ever, but not enough to shrink the racial wealth gap

Data from the Federal Reserve’s 2022 Survey of Consumer Finances shows Asian-American households have a median net worth that is 1.8 times greater than white households at $536,000. Their net worth is 8.7 times greater than Latino households and 11.9 times greater than Black households.

“While the multiplier for the Black-white wealth gap decreased from 9.9 in 2016 to 7.8 in 2019 to 6.3 in 2022, the gap in dollar terms increased from $153,800 to $165,000 to a staggering $240,000 — showing that the disparity is getting worse,” said Kristen Broady, senior economist, economic advisor, and director of the Economic Mobility Project at the Federal Reserve Bank of Chicago.

2. Black Americans earned 34% less than all racial and ethnic groups combined

Stark differences in earned income — take-home pay — still exist. It is why conversations around the racial and gender pay gap and its intersections are so persistent.

As of 2022, the median U.S. household income across racial and ethnic groups was $74,580. Black households earned around $52,860, but white households earned $81,060, and Asian households brought in $108,700. Half of Black households’ total income was between $15,000 and $75,000.

3. Higher education is important, but it does not guarantee better economic mobility for Black graduates

Black people with a bachelor’s or master’s degree had on average the most student debt and borrowed more than other groups yet had the lowest income. Black students borrowed around $58,400, and after four years, they still owed 105% of it, according to data from the National Center for Education Statistics.

The combination of low income and high debt makes repayment more challenging, leaving many Black people in a financial hole that is hard to climb out of.

“When we think about this, it makes it harder to accumulate capital and do things like get a mortgage,” Broady said.

4. Unemployment is still higher for Black workers

During the peak of the COVID-19 pandemic, Black and Latino workers had the highest unemployment rates. Four years later, as the national rate moved closer to pre-pandemic levels, Black workers were left behind.

“Their unemployment rate took longer to peak and also longer to subside back to that normal baseline relative to other workers,” said Anthony Barr, research and impact director at the National Bankers Association.

That’s important because income is the most significant driver of wealth for most households, Barr added. It’s also why “periods of unemployment, even if relatively brief, can have outsized effects” like taking on more debt.

5. Black households are less likely to own a home and more likely to be undervalued

While homeownership is another driver and indicator of wealth, the Black homeownership rate has never reached 50%. It came close in recent years, peaking at 46.4% in 2020, but dipped during the post-pandemic economic recovery period.

Homeownership “is a very illiquid form of wealth,” Barr said. “And so even if, during the pandemic, your on-paper wealth went up, that doesn’t necessarily translate to better financial health in a month-to-month period.”

Adding insult to injury, Black-owned homes in majority-Black neighborhoods tend to be devalued because of systemic racism in the U.S. housing market.

6. Thinking About Their Financial Futures Differently

There are several ways to build a nest egg for retirement: employer-sponsored retirement savings plans, Roth IRAs, and pensions, to name a few. Yet as of 2022, just 35% of Black workers had some type of retirement account, and those that did had saved only around $117,530, according to the Survey of Consumer Finances.

A lack of preparedness and investment puts Black people at risk of spending their golden years living in poverty, Word In Black previously reported.

While they still have the least amount on average invested in the stock market, Black Americans are increasingly active on Wall Street. Young Black investors are changing the game; experts say access to technology and information has helped.

7. Lower Access and Higher Distrust in Traditional Banking Systems

The term “unbanked” refers to those who do not have an account with or use a bank, credit union, or other financial institution. Black people are overrepresented within this group at 13%.

The use of check cashing companies, payday loans, and money orders is higher for the unbanked and underbanked. But high transaction fees and interest rates lead experts to warn against using predatory banking companies, which are disproportionately located in Black neighborhoods.

At the same time, however, traditional financial institutions do not have branches in Black neighborhoods, charge their own fees or require minimum deposits or balances — factors that can affect Black consumers’ ability to do business with them.

“We do know there are disparities in terms of where branches are located, for example,” Barr said. “A Federal Reserve Bank of Chicago working paper finds that banks are less likely to be located in Black-majority neighborhoods, even relative to low-income neighborhoods.”

8. Black Households Rely on Credit Cards

Credit cards’ popularity is due to their direct effect on credit scores. A higher credit score lowers interest rates, increases credit limits, and even what neighborhood someone can live in, according to the Fair Housing Center for Rights and Research in Ohio.

Undermining this is a common myth that carrying a balance on credit cards helps boost credit scores. It’s the opposite, the Consumer Financial Protection Bureau says. But, in 2022, 78% of Black households had a balance they were carrying monthly.

9. The Black-Owned Business Boom May Fade

The COVID-19 pandemic brought challenges for small businesses, leading thousands to close their doors — temporarily and permanently. In the years since, a surge of new Black-owned businesses hit markets.

“While Black entrepreneurs may start businesses in an effort to increase wealth and income, without proper support and tools, their efforts may prove inadequate to increase wealth and may even become detrimental,” Broady said.

And this is already proving to be true. Broady points to the U.S. Census Bureau that found Black-owned businesses with employees were “least likely to have earned a profit and most likely to have taken on losses in 2022.”

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