The Black-White Wealth Gap in America

The Black-White Wealth Gap in America

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The black-white wealth gap in the United States is a system of economic control that white elites historically devised to keep African Americans in a second-class economic status. This gap, which, nowadays, consists of a sixteen times discrepancy between the median wealth of white and black households, is driven by four key factors: homeownership and the residual effects of discriminatory housing policy, disparities in higher education, the black-white income gap, and racial violence that affects intergenerational wealth transfers. Because this issue is on such a large scale and driven largely by historically racist divides, there is no quick fix; rather, it will take decades of activism, policy, and re-education to dismantle it. In this paper, I will discuss ways public policy as well as educational initiatives like ethnic studies and financial literacy can help address the racial wealth gap.

The Gap

According to a joint study by the Institute for Assets & Social Policy (IASP) and Brandeis University, in 2011 “the median white household had $111,146 in wealth holdings, compared to just $7,113 for the median Black household”1 (Sullivan, et al.). This is a sixteen times difference in wealth between white and black households. The racial wealth gap systematically disadvantage African-Americans by setting them behind whites financially in a hyper-capitalistic society. It is an institutionalized form of racism that must be unraveled over time, but in order to understand how to address it, we must first look at its causes.

The Causes

A. Homeownership

One of the largest contributors to the wealth gap is racial differences in homeownership. Homeownership weighs heavily into wealth calculation: a family that owns their home will have the home’s value counted towards their total wealth, whereas a family that is renting or homeless will not. Many Americans see the transition from renter to homeowner as a symbol of “making it”, but Blacks experience this transition at a much lower rate than whites. A 2002 study published in The Review of Economics and Statistics found that in a sample of 1991 renters, “whites were much more likely than blacks to become homeowners by 1996”, and this difference persisted even after “controlling for key variables such as level of income, family demographics, and household wealth in 1991” (Charles, Hurst). Moreover, the same study revealed that most of this difference was accounted for by “Blacks [being] almost twenty percentage points less likely than whites to initiate a mortgage application” (Charles, Hurst). Due to factors such as rational fear of discrimination by lenders and experiencing less economic and social security than whites, Blacks are often less motivated than whites to make large-scale investments like homeownership. 

Ultimately, these factors lead to lower homeownership rates for Blacks, and, in turn, lower wealth. In 2011, “73% of white households owned their own homes …  [while] … 45% of Blacks were homeowners” (Sullivan, et al). The earlier cited IASP statistic comparing black-white wealth1 contrasted the median, or 50th-percentile, white and Black families’ wealth. Hence, because most white families are homeowners and most black families are not, the $111,146 in median wealth belongs to a white family that owns a home, while the $7,113 belongs to a black family that does not — an important technical subtlety to explain this statistic. On top of homeownership rates, racial differences in home value also play a part in the wealth gap. In 2011, the “median white homeowner’s house is worth $85,800 compared to $50,000 for black homeowners” (Sullivan, et al). This difference exists because segregation and historically racist housing policies like ‘redlining’ forced Blacks to live in more impoverished neighborhoods, many of which, to this day, provide poorer job opportunities and pay, lower quality of education, and threats to health and safety (Lee). Thus, not only are those living in these areas less likely to become homeowners to their unequal financial opportunities, homes are typically of lower quality and cheaper prices, so even Blacks who own homes often do not experience the same level of wealth benefits from homeownership as their white peers do. 

B. Education

Major racial disparities in higher education also play a central role in shaping the wealth gap. The aforementioned IASP study calculated that the median white family sees “a return of $55,869 in wealth from completing a four-year college degree, while the median Black family attains just a small fraction of this return: $4,846” (Sullivan, et al). This massive racial gap in college’s wealth return gives way to seemingly ridiculous facts, such as the median white high school drop-out having more wealth than the median Black college graduate (Kasperkevic). Furthermore, the most recent national graduation rate for Black college students is “20.5%, about half the national rate of 39%” (Kasperkevic). Black students are dropping out of college at record rates, and even those who do graduate do not reap the same economic benefits of college as whites do. These gaps in return and graduation can be attributed to two primary factors: under-representation in top universities and higher student debt for Black students. 

According to 2013 statistics from the Integrated Postsecondary Education Data System (IPEDS) on the racial demographics of colleges, at the top 100 research universities, black students constitute just 6% of the undergraduate population, far lower than the 15% across all colleges (McGill). These top-tier schools leave black students behind in the admissions process by “rely[ing] heavily on measures that disadvantage minority students, [like] standardized test scores” (McGill). With less opportunity to gain admission to top universities, many black students opt instead for less-selective state schools and community colleges, which on average lead to lower financial return. Furthermore, even after gaining admission to colleges, Black students may still “feel very much on the fringes” (McGill). These feelings of isolation and dejection affect their ability to integrate socially and academically, and is theorized to lead many Black students to drop-out, thus decreasing Black graduation rates. In addition, Black students accumulate higher student debt on average than their white peers. In a Gallup poll of college students conducted between 2000 and 2014, “about half of black college students graduated with student debt over $25,000 – whereas only 35% of white students did” (Kasperkevic). Furthermore, a study by the Center for American Progress revealed that “69% of black students who don’t finish school cite the burden of high student loan debt as the reason, compared with 43% of their white peers” (Kasperkevic). Combining these two statistics suggests that many Black students do not graduate because they simply cannot afford to stay in college. The stress and pressure of student debt severely threatens their immediate educational opportunities, future job prospects and, ultimately, later wealth.

C. Income

On top of experiencing institutionalized differences in education and homeownership, Black Americans also experience a severe income gap. According to the Survey of Income and Program Participation conducted in 2008, “the [median] white family earns $50,400, while the [median] black family earns $32,038” (Ashman, Neumuller). This income difference significantly influences the wealth gap; a study published in the Review of Economic Dynamics calculated that “income differences, on their own, can explain 43.0% of the racial wealth gap” (Ashman, Neumuller). This suggests that the black-white income gap may be one of the greatest contributors to America’s racial wealth gap, particularly because its effects accumulates over time. The median Black family that is making $18,000 less than the median white family every year experience a loss of $18,000 worth of wealth accumulation opportunity cost every year, and over time, this loss adds up, and in general, widens the racial wealth gap. 

D. Racial Violence

It is no secret that racial violence against Blacks was, and remains, a massive issue in America. What is less well known is the generational impact that historical violence had, and still has, on many Black families’s wealth. A 2019 New York Times article explained that “racially motivated attacks deprived many prosperous Blacks of their hard-earned wealth”, ultimately affecting their future generations as well (Lee). For example, in 1947, a man named Elmore Bolling, a successful Black businessman with a wealth of about $500,000 (converted to 2019 dollars), “was murdered by a gang of whites who thought he was ‘too successful to be a Negro’” (Lee). Within two years, “white creditors and frauders took all of his money”, and despite Bolling’s own financial success, his children and grandchildren received no inheritance and grew up in poverty (Lee). This case demonstrates the generationally damaging effects of racial violence: one single violent attack 80 years ago triggered an onslaught of poverty and suffering that manifests to this day. Unfortunately, the Bollings’ story was not an isolated case. One of the most violent racist attacks in American history occurred in 1921, when “Greenwood, a prosperous black neighborhood in Tulsa, Okla., was burned and looted … as many as 300 black people were murdered and 10,000 were rendered homeless” (Lee). This one attack robbed up to 10,000 Black Americans of their wealth, in effect severely limiting the economic opportunities of 10,000 Black families in the process. The effect that generational wealth accumulation has on the wealth gap cannot be understated. The previously cited Review of Economic Dynamics study found that “intergenerational transfers of wealth, … account for … 25.8% of the [racial wealth] gap” (Ashman, Neumuller). This disparity in intergenerational wealth between Blacks and whites can be illustrated by the metaphor of a footrace. In this race, Blacks started far later than whites and faced vicious obstacles throughout the race, while whites cruised along the track. In the United States, Blacks started later because they were enslaved for over two centuries, but even after emancipation, they faced Jim Crow, mass incarceration, discrimination in jobs, education and housing, and, as discussed, severe racial violence. Ultimately, these attacks create ripples throughout future generations and play a large role in shaping the inequity of intergenerational wealth transfers, and thereby, the racial wealth gap.

One cannot understate the influence that slavery and Jim Crow have on modern day institutionalized racism. All systematic disadvantages that Blacks face — including education, homeownership and income disparities — are methods whites created throughout history to control Blacks and delegate them to a subordinate position both economically and socially.

Leveraging Public Policy & Education to Solve the Wealth Gap

Contrary to common pessimistic attitudes, the wealth gap is not an unbreakable cycle. A study published in Child Development “found little evidence that wealth mediated the Black–White test scores gaps, which were eliminated when child and family demographics were held constant” (Yeung, Conley). This indicates that family wealth, while influential in a child’s life, is not a very powerful determinant of their later success. Instead, school quality, availability of resources, parental support and other factors have a greater effect on childrens’ achievement and future prospects. These factors are more manageable, and can be improved with more effective family education programs and investment in education resources. Thus, the wealth gap is not entirely cyclical, and with targeted policy, education and a lot of time, it is possible to achieve true racial economic equality within the United States.

A. Public Policy 

Effective public policy has potential to significantly shrink the racial wealth gap. One approach to policy-writing is to generate a set of goals based on their predicted effectiveness in reducing the wealth gap, and then create policies that further these goals. The overall goal of this approach is to find policies that make the largest positive impact on Black wealth.

Following this approach, we can first tackle homeownership. According to the IASP study, if public policy “successfully eliminated racial disparities in homeownership rates … median Black wealth would grow $32,113 and the [racial] wealth gap … would shrink 31 percent” (Sullivan, et al). In addition, if public policy “successfully equalized the return on homeownership … median Black wealth would grow $17,113 and the [racial] wealth gap … would shrink 16 percent” (Sullivan, et al). These two statistics are very encouraging, because together, they imply that equalizing the rate and return of homeownership among whites and blacks would effectively cut the wealth gap in half.

Many poor Americans they live ‘paycheck-to-paycheck’, meaning they rely on paychecks merely to pay for living necessities, and do not have the financial resources to save towards large investments like homeownership or college. African-Americans experience this particular level of poverty at higher rates: the Economic Policy Institute reported that “19 percent of black households have zero or negative net worth”, while just “9 percent of white families are that poor” (Lee). Thus, essentially any proposal that encourages or empowers Black non-homeowners to save towards homeownership could help in closing the homeownership gap. For one, progressive taxation would decrease the economic pressure on poorer Black families who already “spend a larger share of their income on cost of living … [thus] allow[ing] them to start saving” (Amadeo). Another similar solution is implementing Universal Basic Income (UBI), once proposed by Dr. Martin Luther King Jr. and currently being championed by Democratic Presidential candidate Andrew Yang. Yang’s plan involves giving every American adult $1000 a month, unconditionally (Yang). In practice, both of these policies would relieve some of the financial burden from poorer Black families and empower them to gradually save towards buying a home, thus slowly closing the homeownership gap. Later, we will explore how institutionalized financial literacy education may be able to contribute to this goal as well.

Equalizing the return on higher education is one more promising direction for action. If public policy “successfully equalized the return to college graduation, median Black wealth would grow $10,786 and the wealth gap between Black and white households would shrink 10 percent” (Sullivan, et al). In other words, equalizing the value of college for Blacks and whites would have a fairly substantial effect on closing the wealth gap. In addition, this statistic does not even capture the secondary effects that equalizing college education may have on Black families: if Black students begin noticing that college has become a better investment, more and more students may look to it as an option, in turn encouraging more Black students to go to college and creating even more Black wealth.

One way to increase the overall financial benefit of higher education for Blacks is to decrease its financial loss: student debt. Similar to our discussion on homeownership, essentially any proposal that encourages or empowers parents to save money towards their childrens’ college funds would further this goal. Andrew Yang’s UBI is certainly one solution, but another highly effective strategy is implementing “Child Savings Accounts (CSA) limited to education or homeownership”, which could “grow tax-free and not penalize welfare recipients” (Amadeo). The CSA programs involve giving every child born in the US a savings account that can be spent exclusively on education or buying a home. This would encourage parents to lay a financial foundation for their children’s college education, which can lessen, or in some cases eliminate, the burdens of student loan debt. Furthermore, because CSA funds can also be spent on homeownership, the program would help reduce racial gaps in both education and homeownership. In fact, a 2016 simulation by the “Annie E. Casey Foundation found that [if] a CSA program began in 1979”, it could have “[shrunk] the wealth gap between blacks and whites by 82%” (Amadeo). These results are incredibly promising, and center around a policy that doesn’t even require any public funding.

Finally, closing the racial income gap should be a central goal of equality-driven policy. If public policy “successfully equalized the return to income, so that each additional dollar of income going to Black and Latino households was converted to wealth at the same rate as white households, median Black wealth would grow $44,963, and the wealth gap would shrink by 43 percent” (Sullivan, et al). Income inequality is frequently brought up by lawmakers, but just as frequently dismissed. Due to covert racial bias, many lawmakers attribute Blacks’ lower income to perceived innate factors, like laziness or lower intelligence, rather than addressing the systematic disadvantages Blacks face. As effective policymakers, we must first abandon these racist stereotypes, and instead attack the institutions that actually create income inequality.

One tried and true policy that could address the racial income gap is to establish a federal job creation program. This program was successfully implemented under Franklin D. Roosevelt’s presidency as a way to counter the severe economic downturn of the Great Depression, and it can be just as effective in reconciling the gap in Black-white unemployment rates. The theory is that “by targeting communities where joblessness is much higher than the national average, this program could significantly reduce unemployment among Blacks, while raising incomes and reducing the racial wealth gap in the process” (Amadeo). In addition to unemployment, minimum wage is another critical issue: “Black[s] are disproportionately likely to be employed in positions that pay the minimum wage or just above” (Sullivan, et al). A study published in The Journal of Economics and Society found that in practice, “cities that increased their minimum wage” from the federally mandated $7.25/hour “generally reduced poverty and reliance on welfare” (Amadeo). This conclusion suggests that increasing the minimum wage can indeed improve the standard of living for Black workers — many of whom rely on the minimum wage, and in turn, counter both income and wealth inequality. It is worth noting that our previous proposals for boosting Black students’ higher education outcomes would also conceivably narrow the income gap, as it would qualify more Black workers to work in higher-paying jobs.

B. Education

Alongside these policies, certain educational initiatives, specifically ethnic studies and financial literacy, have been proven to have potential in reconciling the racial wealth gap.

Ethnic studies is important because it teaches students to critically examine the way race, ethnicity and other social factors affect all members of society. One contributor to whites’ racial bias is their lack of knowledge, and often ignorance, concerning racial issues. Many assume that because we are in the 21st century, institutionalized racism does not exist anymore. For example, a 2018 survey found that “whites … think that black wealth is about 80% that of whites”, when in reality, it is around 7% (Amadeo). Ethnic studies education has been shown to be able to correct some of this ignorance. A study published in the National Education Association Research Department (NEARD) concluded that “[ethnic studies] course-taking and interracial interaction … have a positive impact on ‘democracy outcomes,’ particularly on white students, since exposure to a systematic analysis of power and cross-racial interaction is newer to white students than to students of color” (Sleeter). These results demonstrate the positive effect of ethnic studies on white students, because it teaches them to become more conscious of their inherent racial bias as well as how to critically address it.

However, ethnic studies education is not just important for white students; in fact, it is equally, if not more, impactful for students of color. The same NEARD study found from a “survey of 606 Black students” that “the students most likely to graduate and go on to college expressed high awareness of race and racism and high regard for being Black”, while those “least likely to stay in school expressed low awareness of race and racism [and] low personal regard for being Black” (Sleeter). This insight suggests that ethnic studies education is actually highly beneficial to Black students’ academic achievement. High achieving Black students tended to have a deeper understanding of how their own racial identity fits into the bigger picture of the American racial structure, and ethnic studies is exactly what provides this deeper level of understanding. This is because unlike most other courses, ethnic studies asks students to directly reflect on how their own experiences connect to what they study, empowering minority students while teaching white students to be more critical of their own privilege and bias. 

Financial literacy education is another initiative that can positively impact Black students’ wealth. A study published in the College Student Journal sampled “students attending a PBU (Primarily Black University), and [concluded] that non-Blacks were more likely to be financially knowledgeable than their Black counterparts” (Murphy). In other words, Black students were, on average, less educated about financial issues and how to accumulate or manage wealth. Black students’ lack of knowledge on the subject can lead to irresponsible spending, and leave Black students more susceptible to scams and unfair treatment in functions like loans, credit, and mortgage. Financial literacy education, especially if targeted towards Black students, “can help to address th[e] wealth disparity by educating students on the benefits of homeownership and participation in the stock market”, as well as other important financial concepts. For example, in our aforementioned case of Black renters in 1991 being less likely than whites to apply for a home mortgage, perhaps many had less homeowners in their family, or were simply not as well educated on the issue of mortgages and homeownership, factors which may have influenced their decisions to not apply. Widespread financial literacy education could conceivably have helped narrow this decision gap.


Ultimately, the racial wealth gap in America is a glaring reminder of the historical injustice that Black Americans suffered, and a contradiction to our core values of social equality and socioeconomic mobility. Despite having made great progress in American race relations in the last century, including integrating Blacks into white schools, workplaces and universities, and even having the first Black president, we will not achieve true equality until we achieve economic equality. Therefore, we must continue to fight for racial justice in every avenue of society and attack the systems of racial control — especially economic forms of control — that continue to haunt us from our past.


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Kasperkevic, Jana. “Half of Black College Students Graduate with More than $25,000 in Student 

Loan Debt.” The Guardian, Guardian News and Media, 7 Oct. 2014

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