Addressing the Racial Wealth Gap with New Rigor
Wealth is critical for family financial security and the capacity to build a better life. It can provide a lifeline during hard times, and during good times it can activate opportunities for upward mobility and investment in the future. While income helps families afford the living expenses of today, wealth is the key to long-term stability and financial growth. Yet despite legal progress toward expanding financial opportunities for all Americans, the disparities in wealth by race and ethnicity are at historic levels. The racial wealth gap, defined as the difference in median wealth holdings between groups by race or ethnicity, has consistently shown that typical white households hold multiple times the wealth of their African American and Latino peers. Today, the typical white household owns $8 in wealth for every $1 owned by African American and Latino households.1
Inequalities in wealth tend to have compounding effects over time because households with existing assets are able to use their resources to buy homes, invest in the future, and avoid high-cost debts, providing an advantage that grows across lifetimes. Research from the Institute on Assets and Social Policy (IASP) following the same families over decades demonstrates how racial and ethnic disparities in wealth intensify with time, as whites see important gains in assets over the years while households of color draw smaller returns (Shapiro, Meschede et al. 2010, Shapiro, Meschede et al. 2013). Growing evidence shows that historical access to asset-building opportunities is a key aspect of economic security today and puts the racial wealth gap at the heart of a broad range of policies aimed at establishing secure families and communities across the country.
Public policy plays a crucial role in household asset-building by establishing the rules of the game for household finances and facilitating (or hampering) savings. Both past and present policies are important factors that contribute to racial and ethnic wealth disparities. Discrimination, inequities in financial markets, and disparate access to credit by race and ethnicity all reinforce the growing racial wealth gap (Conley 2001, Shapiro 2004). These disparities create barriers to financial security for people of color and compound the problems of racial and ethnic inequities in labor, education, entrepreneurship, and other markets. In practice, the legacy of past discrimination in housing and other assets is codified into current policy when programs that ignore these persistently unequal outcomes are enacted. But policy offers the chance to either intensify or combat current trends, which are leaving households of color increasingly more vulnerable financially (Shapiro, Meschede et al. 2013). The Racial Wealth AuditTM provides the information necessary to identify and promote public policy decisions that overcome discrimination and the barriers to wealth accumulation rooted in history.