Factors related to the accumulation of wealth

The increasing wealth gap between W’hites and Blacks in the United States is severely disabling African American communities. Owning assets and limiting household debt contribute to building wealth and increasing financial security. However, most African Americans lack adequate savings and investments to enable them to climb the economic ladder, or “pull themselves up by then own bootstraps,” as some say. In 2009, 35 percent of African Americans had zero or negative net worth, an increase from 29 percent in 2005 (Kochhar & Fry, 2014). The inability of African Americans to succeed economically cannot be attributed solely to personal responsibility, but is largely due to institutional obstacles that prevent them from climbing the economic ladder. A number of factors intersect and regenerate to keep economic and social oppression in place, and these tend to bear down on groups of color, especially on African Americans during periods of economic stress. The wealth gap between Blacks and Whites has long been a part of the American landscape and reflects systematic and social barriers to gaining employment that provides an adequate and sustainable income. In the next section a wide range of economic, social, and cultural factors will be explored; these contribute to the obstacles African Americans often face in the labor market and financial institutions, resulting in a lack of full participation in the American society.

Income disparities and household financial characteristics

There tends to be a direct relationship between income and wealth. Wealth increases with income due to higher levels of saving among high-income families and individuals, and the effects of higher incomes from returns generated by accumulated assets (Dettling et al., 2017). In 2016, the median and mean incomes were higher for white families than for African American families ($61,200 and $123,400, respectively (see Table 7.1). For African Americans, the median and mean incomes are $35,400 and $54,000, respectively. Table 7.1 shows a household financial profile by race and ethnicity from a 2016 survey in 2016 dollars or percentages (Dettling et al., 2017).

Table 7.1 Household financial profile by race and ethnicity, 2016: Types of wealth

Thousands of 2016 dollars or percentage

White

black

Hispanic

Other

Income:

Median

61.2

35.4

38.5

50.6

Mean

123.4

54

57.3

86.9

Net Worth:

Median

171

17.6

20.7

64.8

Mean

933.7

138.2

191.2

457.8

Percent of families with zero or negative net

9

19

13

14

worth

Assets (percent of families with): Primary residence

73

45

46

54

Vehicle

90

73

80

80

Retirement accounts

60

34

30

48

Business equity

15

7

6

13

Direct and indirect equity

61

31

28

47

Debts (percent of families with):

Debt secured by primary residence

46

32

31

38

Vehicle loans

34

33

32

34

Credit card balances

42

48

50

44

Education loans

20

31

19

26

Wealth from housing (for homeowners): Percent of assets in housing

32

37

39

35

Mean net housing wealth

215.8

94.4

129.8

220.7

Credit experiences (percent of families with): Payment-to-income ratio greater than 40%

6

9

8

9

Late on payments 60 days or more

5

10

4

9

Denied credit or feared denial

15

35

32

25

Source: Dettling et al., 2017.

Table 7.1 also shows that in 2016, African American families had the highest percentage of negative net worth (19 percent), in comparison to only 9 percent of white families. Negative or zero net worth indicates that debts exceed assets. The home is an important component of a family's assets. Seventy-three percent of white households own their homes, in comparison to 45 percent of African American households. In addition, white homeowners had considerably more equity (mean net housing wealth) in their homes: $215,800 as compared to $94,400 for African American families. Equity is the value of the home, less any debts on the home. Housing made up a lower percentage of the total wealth for white families than for African American families. For white families, housing accounted for only 32 percent of their total assets, in comparison to 32 percent of total assets for African Americans (Dettling et al., 2017). The most common type of asset owned by American families is the vehicle. Wealth in retirement accounts, family-owned businesses, credit card debt, and educational loans are unevenly distributed among racial and ethnic groups. African American families are more likely to have educational loan debt, credit card debt, and high incidences of credit denial (Dettling et al., 2017).

 
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