Study shows wealth inequality between the races has skyrocketed
May 18, 2010 8:00 AM
By Tim Grant Pittsburgh Post-Gazette
After decades of tracking income disparities between black and white families, a new study reveals that income equality does not always lead to wealth equality when it comes to race.
A report released Monday by the Institute on Assets and Social Policy at Brandeis University in Waltham, Mass., found the wealth gap between black and white families and individuals being tracked in the study more than quadrupled over the course of a generation, and that the middle-income white families in the study accumulated a higher net worth than high-income African-Americans.
The escalating gap, according to the study researchers, was largely caused by assets being passed down within families and the fact that white families have historically had more wealth to pass down.
"About one in every four white families inherit money, and their average inheritance is $10,000," said Thomas Shapiro, director of the IASP and author of "The Hidden Cost of Being African American: How Wealth Perpetuates Inequality."
"That provides a huge head start," he said. "Less than 8 percent of African-American families inherit wealth, and when they do, the average inheritance is $900."
Using economic data taken from a nationally representative set of 2,000 families tracked from 1984 to 2007, researchers found that an initial wealth gap of $20,000 between black and white families mushroomed over the 23-year period to $95,000.
The project defined wealth, or net worth, as the amount of assets a person had -- such as cash, stocks and bonds -- minus liabilities -- obligations such as credit card debts, car loans and student loans. Home equity was not considered because researchers said families who sold their homes would most likely need to replace them.
Wealth can make a difference in families helping their children with down payments on homes and paying for college. It also can provide a financial cushion if and when individuals have a financial setback.
The study's data predates the economic collapse in 2008, which suggests the racial gap could be even wider now.
"It is wealth more than income that leads to economic security," said Meizhu Lui, director of the Insight Center for Community Economic development in Oakland, Calif.
The families being studied were grouped by income.
Median wealth holdings for high-income African-Americans (those with incomes above $75,000) stood at $25,600 in 1984, and by 2007 they had fallen to $18,300. High-income whites with a similar income saw their net worth grow from $68,200 in 1984 to $238,400 in 2007.
Middle-income African-Americans in 1984 had a median net worth of $10,800, which rose to $11,700 in 2007. White families with similar incomes had a median net worth of $18,400 in 1984, which jumped to $73,500 in 2007.
Black families in the bottom 10 percent of wealth holdings fell deeper in debt over that period. In 1984, they had a median wealth of -$2,000, which by 2007 had dropped to -$3,600, according to the report.
For every year the study was conducted, at least one in four African-Americans had no assets or a negative net worth, which made them dependent on credit to make ends meet.
"Economic stagnation and decline was experienced by both low-wealth whites and low-wealth African-Americans," the report said. "However, African-Americans were found to be more likely to have very low levels of wealth."
Researchers said they had no reason to believe that there were any major differences in saving patterns that might have contributed to the startling disparities in wealth attainment.
"What the data tells us is shocking," said Mr. Shapiro. "The racial wealth gap shows us we need to be concerned not only with equal opportunity, but that the same achievements translate to similar results."