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

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).