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What causes a Racial Wealth Gap?

By Chuck Self, Community Foundation Board Director

Do you know what it is like to think you know something, but you really don’t? Like I was sure that camels store water in their humps. Their humps contain fat that can keep them going for three weeks without food. Or that coffee is made from beans. The seeds from the coffee plant are called beans.

Chuck Self

I think it’s appropriate during Black History Month that we explore assumptions we have about race that may not be true. I’m sharing a two-part article on the racial wealth gap (the second part will publish tomorrow in the Loop), so we can add urgency to this problem and determine the initial steps we can take to be solutions. I’m presenting data from the 2010s and 2020s to give you the most accurate and updated information available.

Wide and persistent wealth gap

As you can see in this graph below, the wealth gap problem is not only gigantic in size, but it is getting larger over time. The median wealth of Black families peaked in the early 2000s and was negatively impacted by the concurrent economic downturn and the 2007 to 2009 Great Recession. Although median Black family income has recently increased, it is still one-third less than in the peak years.

The most striking point of the graph is the comparison of the White and Black family median measures. Not only is the White family median greater than the 75% percentile and median for Black families throughout the whole period, but the recovery from the Great Recession has been more favorable for White families. This has increased the wealth gap for the typical White family from about seven times that of the typical Black family in 2010 to ten times in 2016!

4 Places to Generate Wealth

McKinsey & Company has identified four elements of family-wealth generation that can “promote economic stability, help propel families toward prosperity, or impede progress.” In each element, Black families have less opportunity than White families.

  1. Community Context: Where you live has an impact on your wealth-generating possibilities. For instance, middle class Blacks live in neighborhoods that, on average, have over 25% less family income than Asians or almost 20% less than Whites. Obviously, this impacts the network Blacks need to build to climb to higher levels of income.
  2. Family Wealth: It won’t be surprising that part of the reason Black families have lower wealth is because of reduced rates of inheritances. Most Black individuals will be shocked to hear that 1 in 4 White families will have received an inheritance by the time they are 30. Only 1 in 12 Black families did so.
  3. Family Income: 67% of entry-level professionals are Whites. Even at the next level, manager, the White share increases 73%. It continues to rise through the levels until 85% of C-suite professionals are White. There still are glass ceilings for professional minorities.
  4. Family Savings: It is more difficult for Blacks to save due to higher costs, especially housing. Over 35% of Black renters pay more than half of their income for housing, while less than of 20% of Whites are in the same situation. Even Black homeowners face the same situation compared to Whites (25% compared to 10%.)

Food for thought today. Tomorrow I will share Part 2: 10 Myths about the Racial Wealth Gap.

Chuck Self serves as a Board member for the Community Foundation, and is the Chief Investment Officer of Sumnicht & Associates, a wealth management firm and multifamily office located in Appleton.

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