The Color of Money: Racial Wealth Gap Tripled from 1984 to 2009

A new study from Brandeis University’s Institute on Assets and Social Policy shows a dramatic increase in the wealth gap between white and African-American families from 1984 to 2009. The study is remarkable in its depth, as it followed the same set of families over the 25-year period. The total wealth gap between white and African-American families rose from $85,000 in 1984 to $236,500 in 2009.

Even more important than documenting the increasing gap, the study finds that structural barriers, not personal attributes and behavioral choices, are dictating how wealth is accumulated. Five fundamental factors account for two-thirds of the proportional increase in the wealth gap: the number of years of home ownership, average family income, employment stability (especially during the Great Recession), college education, and family financial support and inheritance.

These factors show that the American ideal that hard work is all you need to get ahead no longer holds true. (Not that it ever really did.) Home ownership is a clear example of how structural barriers to wealth accumulation start to become cyclical. Due to historical wealth advantages, white families are far more likely to receive family assistance or an inheritance for down payment and once a family starts to accumulate equity, their household wealth starts to increase. What's more, the ability to make larger up-front payments by white homeowners lowers interest rates, making homes more affordable in the long-run.

In contrast, African-Americans historically faced sharp discrimination in the housing area -- both in terms of where they could live (with many suburbs off limits for decades) and the ease of getting affordable loans. That multi-generational legacy of discrimination in an all-important area of asset building still shapes wealth patterns today. 

Whites have a lot more wealth for historical reasons. And, once you have wealth, the system is set up to make it easier to keep accumulating wealth. But, without that initial wealth cushion, accumulating wealth is incredibly difficult. Structural practices and preferences are so strong that for typical families, a $1 increase in average income generates just $0.69 in additional wealth for an African-American household. In contrast, a $1 increase results in $5.19 of additional wealth for a white household. This fact, perhaps more than any other, debunks the idea that we live in a meritocratic society. Equal earnings are resulting in unequal wealth, the opposite of what should happen in a meritocracy.

The study is really worth reading in its entirety, both for the depth of research and the findings. Despite the common narrative, we are no longer living in an economic or political reality built on a level playing field.