Growing Inequality: An Urban Institute Report on Wealth and Race

The racial wealth gap is three times the racial income gap and growing, according to Less Than Equal: Racial Disparities in Wealth Accumulation, a report published by the Urban Institute in April. In 2010, white families earned, on average, twice as much per year than black and Hispanic families and were six times as wealthy.      In this report, wealth is defined as a measure of total assets minus liabilities/debt. Assets include stocks, retirement savings, and real estate; liabilities include credit card debt, loans and mortgages. Wealth disparities have grown over the past 30 years: while high wealth families saw their average wealth grow by 120% between 1983 and 2010, middle wealth families saw their wealth increase by just 13%. On the other end of the spectrum, low wealth families actually saw their wealth fall below zero, because their debt exceeded their assets. Using Survey of Consumer Finances data, the authors also found that racial wealth disparities have grown in the past 30 years. In 1983, white families were, on average, $230,000 wealthier than both black and Hispanic families but by 2010, white families were more than a half-million dollars wealthier than black and Hispanic families. The Great Recession did not create the racial wealth gap, but it did intensify it. Much of the wealth loss of Hispanic families (over 40% between 2007-2010) can be traced to lower home values, while black families lost the most in retirement assets (35% between 2007-2010). The authors note that this is consistent with research that shows low income families are more likely to withdraw retirement savings during unemployment and financial distress. The racial wealth gap also grows over a person’s life cycle. In their 30s, white families have nearly four times more wealth than families of color but by the time they are in their 60s, white families have seven times more wealth than black families and five times more wealth than Hispanic families. The authors suggest that these differences can largely be explained by the fact that compared to white families, families of color are less likely to own homes and have retirement accounts, two standard means of wealth-building. The authors found that low wealth families of color were disproportionately affected by the Great Recession, and that public policies have done little to address the growing gap. The authors also state that safety net programs like SNAP and TANF focus on consumption and income while sometimes discouraging wealth-building by making those with a few thousand dollars in savings ineligible for these programs. Policies that promote wealth-building, including tax subsidies for retirement and homeownership, provide less benefit to low wealth families because they are less likely to own homes and have retirement accounts. The authors conclude by advocating to reform policies like the mortgage interest deduction by making it benefit all families and helping families enroll in automatic savings vehicles. Access the report and a companion video at: http://www.urban.org/changing-wealth-americans/