WASHINGTON, D.C. – New research from the Urban Institute’s Opportunity and Ownership Project points to an ever-widening wealth chasm between blacks and Hispanics, on the one hand, and whites.
Wealth is total assets, such as bank and retirement accounts and home value, minus debts, including mortgages, student loans, and credit-card balances.
The income gap, by comparison, is much smaller. In 2010, the average household income for whites was $89,000, about twice the $46,000 average for black and Hispanic families – and roughly the same ratio as in 1983.
As whites, blacks, and Hispanics age, their wealth trajectories, in absolute and relative terms, diverge sharply. Early in their wealth building years (age 32–40), white families in 1983 had an average net worth of $184,000. In 2010, near their peak wealth-building period (age 59–67), their net worth was up to $1.1 million.
In contrast, average black wealth rose from $54,000 to $161,000, while Hispanic wealth increased from $46,000 to $226,000.
Propelling this growing wealth wedge is the lower likelihood that blacks and Hispanics own homes and retirement accounts. For instance, in 2010, fewer than half of black and Hispanic families owned homes, while three-quarters of white families did.
Between 2007 and 2010, Hispanic families’ wealth plummeted 44 percent, due largely to falling home prices. Black wealth dropped 31 percent, a product of hits to their retirement assets and high rates of unemployment during the Great Recession (2007–09). White wealth skidded 11 percent.
“Wealth isn’t just money in the bank; it’s insurance against tough times, tuition to get a better education and a better job, savings to retire on, and a springboard into the middle class. In short, wealth translates into opportunity,” according to the report, “Less than Equal: Racial Disparities in Wealth Accumulation.”
Signe-Mary McKernan, Caroline Ratcliffe, Eugene Steuerle and Sisi Zhang prepared the report.
Because Hispanics and blacks are disproportionately low income, the researchers said, their wealth prospects are strongly affected by safety-net policies aimed at low-income families. These policies emphasize consumption, such as having enough food to eat, and often discourage saving by making families ineligible if they have a few thousand dollars socked away.
At the same time, most wealth-building policies are of limited benefit to families of color, who are less likely to tap into tax subsidies for home mortgages and retirement accounts.
“Reforming policies like the mortgage interest tax deduction so it benefits all families and helping families enroll in automatic savings vehicles will help improve wealth inequality and promote saving opportunities for all Americans,” the researchers concluded.