Racial Wealth Gap in America and Solutions

Posted: February 21st, 2020

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Racial Wealth Gap in America and Solutions

One hundred and fifty years after the proclamation of emancipation and fifty years after the civil rights movement, one would expect America to have progressed in terms of acceptance and equality. Yet this is not the case. Despite having the first African American president in history, racial discrimination remains one of the most shameful things in the country. Some changes have been realized since the civil rights era. However, these changes are hardly enough to mask all the discrimination and prejudice that exist in the country. What is more confounding is the fact many white Americans believe that African Americans have already achieved equality. This makes them blind to the racial discrimination that victimizes African Americans today.

Wealth inequality is a major problem in the country. The richest 1% of households own 37% of all the wealth in the country. This means that 99% of the population has to share less than 70% of the country’s wealth. The economic inequality has especially contributed to a widening wealth gap between whites and minority households. In 2011, the median white household had wealth holdings valued at $111,146 this compared to $8,348 for Latino households and $7,113 for African American households. There is clearly a very big difference between the white and the African American households. Data collected in the same year indicated that the median white household had an income of $50,400 compared to $36,840 and $32,028 for Latino and African Americans respectively (Sullivan et al. 5).

Many factors such as college education, economic policies, and job placement opportunities affect the level of income that a person can get. Yet research shows disparities in terms of college enrolment and the wages received. College enrolment often depends on standardized tests in most cases. However, students rarely receive standardized education and they certainly do not live a standardized lifestyle. Students from low-income households receive low quality education and they learn in schools with limited resources. This is influential in determining their success in life.

Similar college degrees will provide different opportunities for people based on their race. Research conducted from 1984 to 2009 showed that similar college degrees provide more wealth for whites and this is responsible for 5% of the wealth gap between whites and blacks (Shapiro, Meschede, and Osoro 2). People who earn a low income have to take debts to send their children to college. Most of the low-income families are people of color. This means that those who are determined to enroll their children to college have to take debts to do so. Others opt not to go to college at all. These two decisions affect the wealth gap. Failure to go to college means that most people will end up in low skilled jobs. They will earn lower income and receive fewer benefits. A person will be late in acquiring assets if he or she depends on debt to attend college.

Historical experiences and past policies have contributed to the widening wealth gap. For instance, the separate but equal education policies and other segregation policies affected learning opportunities for many people. African Americans did not receive the same type of education as whites did. This affected their education levels and it determined the opportunities they would have in life. It decreased their opportunity of advancing their education to college level and it limited their chance of getting a higher income. Poverty is often cyclical. If parents are living in poverty, it is likely that their children will live in poverty as well.  

Lack of employment opportunities and other financial barriers have contributed to the widening wealth gap. Lack of employment means a loss of income. Other financial and economic barriers include discrimination in promotions, pay rises, and training opportunities. People who experience this do not have the opportunity to increase their assets or reduce their debts. They cannot make sound investment decisions and they may have to depend on debt to survive. Investments and savings increase a person’s wealth. High savings means that households can find protection in case of financial difficulties. This will in turn reduce homelessness and foreclosures. Loans, credit card debt, and unpaid mortgages increase a person’s debt (CGPS 2). This has contributed to the widening wealth gap.

Home ownership is a large determinant of wealth. Many people consider their homes a prized asset and they work towards ensuring that they acquire it. Access to home ownership is one of the factors that determine wealth gap. More whites are able to own a home compared to people from other minorities. Statistics indicate that 73% of whites own homes compared to 45% African Americans. There is a clear disparity and a wide gap in home values between white and black neighborhoods. This is mostly caused by policy. The National Housing Act of 1934 marked the black neighborhoods as credit risks. People have maintained this perception since that time. Such neighborhoods have high poverty rates and declining infrastructure. Discriminatory lending, as pertains to accessing mortgages and credit continues to persist today. Whites are more likely to receive prime mortgages compared to blacks.

One of the ways of ensuring a reduction of the wealth gap is change in policy, which would be aimed at enabling those who are less privileged to get the same opportunities in life as those who are wealthier. For instance, many of the students from low-income households who attend college are minorities and they have to depend on debt to finance their education. Making college education more affordable and accessible would ensure that students do not have as much debt. Once they have finished college, their main concern will be creating wealth and the lifestyle they want instead of paying off the debts accumulated when they were in school.

Government policy changes concerning home ownership can change to benefit the more economically disadvantaged population. The government provides subsidies for home ownership but such subsidies only benefit the rich because they are based on income. The rich benefit from mortgage interest deduction benefits. It would be possible to reduce the health gap by offering tax credits to low income households and removal of other barriers that prevent home ownership (McKernan and Ratcliffe 2). At the same time, it is important to make the mortgage relief programs transparent and fair. The government should show concern for people’s wellbeing by allowing principle reduction on home mortgages. The previous recession reduced the value of homes yet individuals continue to pay high mortgage interests. Loan modifications and principal reductions would help such individuals and this would reduce the number of households facing foreclosure (Tippett et al.5). Baby bonds would be a way of guaranteeing a child’s future. They would enable the child to acquire assets and to finance his education once he reaches eighteen years. These bonds are a trust program, which is not dependent on his parents’ income or economic status. The government creates a seed fund and children from the poorest families receive the maximum amount (Tippett et al. 5).

As noted, many African Americans work in low skilled jobs and they are less likely to receive any privileges. Therefore, they are less likely to make investments or to save for retirement. If employers could implement a system where they deposit a certain amount of the workers wages to a retirement account, then this would help in ensuring that once people retire, they are economically secure. This would apply to workers whose employers do not have savings and retirement plans and most of them fall under low-income earners. Other programs such as the Asset Independence program would encourage people to save. The program encourages a low-income earner to save for an investment and this is more beneficial compared to taking debt to finance an investment (McKernan and Ratcliffe 3).

Improving individual income is important in reducing the wealth gap. When people have enough income, they will be able to save or invest some of it. People’s earning should be enough to cover necessities (Tippett et al. 5). Improvement of the minimum wage would go a long way in helping people. However, creation of policies aimed at ensuring fair pay and remuneration for work done would be more effective. African Americans and other minorities do not have to receive lower wages just because of the color of their skin. Wage secrecy is one of the factors that encourage discrimination in pay (Tippett et al. 5). Organizations and other institutions should make paychecks transparent.

Many minorities lack the required capital to start their businesses because most of them do not use banking services and others have poor credit ratings. This denies potential entrepreneurs the chance to succeed in life. Moreover, when they do get credit, they are charged very high interest rates. it is possible to change this situation by providing affordable financial services. One of the most effective ways of doing this is by expanding the services offered by Community Development Institutions. The services are low cost and they would enable individuals to acquire assets and invest in other activities (Tippett et al. 27). Policy change concerned with provision of financial services can target conventional banks by encouraging them to make their products more accessible to the poor and marginalized groups. In addition, depending on FICO to determine a person’s credit worth is limiting on many fronts. Other methods can determine future financial behavior and they would be a chance for those with no credit history to access financial services.

The big gap in wealth inequality among different races is a problem for individual households, communities, and the national economy. The government will have to spend more in relief programs and other forms of assistance if more people remain poor. Therefore, it is in the government’s interest to ensure that everybody has a good standard of living and no one lives in poverty. The government depends on taxpayers’ money to finance most of its projects. This can affect communities because it can hinder development projects. Instead of spending money on programs that help to boost the local economy, the government has to spend more on welfare. Ensuring fairness in pay is one way of working in integrity. Organizations that value ethics and integrity will be more committed towards ensuring that all its workers are compensated fairly for the work they do. They will also strive to ensure diversity as a way of encouraging people from all racial backgrounds to apply. The nation would benefit more if most of its people were literate. Neighborhoods lose their value if there is high poverty rate. Therefore, it is in everybody’s best interest to ensure that discrimination and racial wealth gap end.

Works Cited:

CGPS. The Racial Wealth Gap: African Americans. Center for Global Policy Solutions. April 2014

Lui, Meizhu. “Doubly Divided: The Racial Wealth Gap.” The Wealth Inequality Reader. Ed Chuck Collins et al. Cambridge: Economic Affairs Bureau, 2004.  42-50

McKernan Signe M. and Caroline, Ratcliffe. Closing the wealth gap: empowering minority-owned businesses to reach their full potential for growth and job creation. Urban institute. 18 Sep. 2013. Web. 2 Oct. 2015

Shapiro, Thomas, Tatjana, Meschede and Sam Osoro. The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide. Institute on Assets and Social Policy. Research and Policy Brief Feb. 2013.

Sullivan, Laura et al. The Racial Wealth Gap: Why Policy Matters. The Institute on Assets and Social Policy. 2015

Tippett, Rebecca et al. beyond broke: why closing the racial wealth gap is a priority for national economic security. center for global policy solutions. May 2014.