What Is the Racial Wealth Gap?
Although the term "racial wealth gap" technically refers to the difference in assets owned by different racial or ethnic groups, this gap results from a range of economic factors that affect the overall economic well-being of these different groups. The term reflects disparities in access to opportunities, means of support, and resources.
Federal surveys reveal a large disparity among racial and ethnic groups in the U.S. For example, the 2019 Survey of Consumer Finances—which examined assets such as savings, investments, retirement, pensions, and especially homeownership—found White families had eight times the wealth of Black families and five times the wealth of Hispanic families.
Data on "other families"—a diverse category including people who identify as Asian, Native American, Alaska Native, and Pacific Islander (and those who report more than one racial identification)—showed they had less wealth than White families but more than Hispanic and Black families.
Here, we compare the economic status of four racial and ethnic groups in the U.S.—Black, Latinx/Hispanic, Native American, and Asian American people—with that of White people. These groups have experienced both formal legal discrimination under U.S. law and discrimination as a result of U.S. societal attitudes and practices. The somewhat greater emphasis on the status of Black Americans corresponds to the larger number of studies and more detailed information analyzed and made available.
- The racial wealth gap refers to the disparity in assets of typical households across race and ethnicity.
- The gap in assets is far wider than disparities in wages across races.
- Income inequality, housing policies, limited educational opportunities, and a lack of support structures contribute to the racial wealth gap.
- Data reveals a growing gap in median wealth across race and ethnicity in the U.S. since the civil rights era of the 1960s.
Understanding the Racial Wealth Gap
In the U.S., racial wealth gaps exist between the minority and majority populations as well as within different ethnic and racial groups.
- Data from the Federal Reserve Board's 2019 Survey of Consumer Finances shows that White families have greater wealth than other racial groups, with Black families and Latinx/Hispanic families having the least. For example, at middle and older ages, the median wealth of White families is four to six times greater than the median wealth of Black families.
- White families with an unemployed head of household had almost double the wealth of Black families with a fully employed head of household, according to a 2017 article in the Federal Reserve Bank of St. Louis Review.
- In 2017, more than one in four Black households had a nonexistent or negative net worth. That compares to fewer than one in 10 for White families, according to the Economic Policy Institute.
- Asian Americans represent the highest-earning racial and ethnic group in the U.S., but not all share equally in the wealth. Lower-income Asian Americans did not experience the same income gains that other racial groups did between 1970 and 2016. As a result, the disparity between high- and low-income Asian American households is higher than it is between high- and low-income Black, Latinx/Hispanic, and White households.
Studies of the racial wealth gap vary somewhat in their relative measures of the different groups’ wealth. However, all confirm a gap of many multiples between the wealth of White families and people of color. Observers have described the situation as being "as bad or worse than it was before Civil Rights ."
Asian Americans represent a large and financially diverse group that has not, as yet, been studied extensively. Recent research by the Pew Research Center shows it is the most economically divided racial or ethnic group in America. In three and a half decades, income distribution among Asian Americans has gone from one of the most equal to the most unequal among the major racial groups in the U.S.
Racial Wealth Gap vs. Racial Wage Gap
Although they are related, the racial wealth gap is greater than the racial wage gap alone. Whereas the wage gap is the difference in earnings from labor among different races and ethnicities, the wealth gap describes the disparity of cumulative assets across races and ethnicities.
This disparity results from differences in income and in the historical accumulation of assets across generations. In this context, the broader concept of wealth stands as an important measure of economic health. It predicts the ability to survive periods of financial instability, unemployment, or low income, save for education, and provide for retirement and an inheritance for children.
What Causes the Racial Wealth Gap?
Specific government policies and societal discrimination have fed into the creation of a gap, but it's also important to consider general trends of wealth accumulation over time. In this sense, the current gap is generally viewed as the result of historical and continuing patterns of wealth inequality.
Over time, income inequality can cause a disparity in wealth. Having stable, high wages provides the opportunity to put away money while maintaining a decent standard of living, which is important in creating wealth. Members of racial and ethnic minority groups also have significantly less access to housing wealth, and government policies have kept them from accessing it. Wealth estimates suggest that as much as two-thirds of a typical American household's wealth comes from homeownership.
The effects of discriminatory lending practices linger despite fair housing laws. For example, people of color still face higher interest rates, lower loan approval rates, lower homeownership rates, and lower personal wealth.
The continual displacement of racial and ethnic minorities has contributed to diminished wealth. For example, the mismanagement by Congress of the Freedman's Savings Bank, founded in 1865 and closed in 1874, fueled inequality. Likewise, government policies enacted after Reconstruction kept Black individuals and families from tapping into land equity.
In the 20th century, the Federal Housing Administration (FHA) encouraged White middle-class homeownership using techniques such as redlining and restrictive covenants, which prevented racial and ethnic minorities from accessing credit or buying homes outside of redlined communities.
Historic discrimination in U.S. housing policy—including the once-legal practice of redlining—is a primary driver of racial inequities that persist today.
Unable to get regular mortgages, some Black residents were forced to resort to exploitatively priced housing contracts that massively increased the cost of housing and gave them no equity until their last payment was delivered. These policies pushed Black individuals and families into urban housing projects and kept them out of suburban communities where housing appreciated in value and increased White wealth. Chicago's Contract Buyers League was formed in the 1960s by a group of inner-city residents to fight these practices.
More recently, the Great Recession, which caused high rates of unemployment, saw predatory, high-interest housing loans that targeted the Black community and other racial and ethnic minority groups, resulting in high rates of foreclosure in these communities.
Representation and political enfranchisement also play a part. The post-Reconstruction era reversed political gains made by formerly enslaved African Americans. Racist laws and explicit violence, including the massacre of "Black Wall Street" in the Greenwood District of Tulsa, Okla., leveled historical attempts to grow wealth.
The poll tax—which had to be paid to vote and was levied with an eye toward suppressing racial and ethnic minority votes—was outlawed only as recently as 1964 with the passing of the 24th Amendment. The impact of the 24th Amendment and civil-rights-era legislation, however, depended—and continues to depend—on enforcement, which has been inconsistent over the past half-century. Even with strong laws, societal and cultural attitudes and practices have played a strong role in the persistence of inequality.
The Great Gatsby Curve illustrates the relationship between income inequality in a country and the potential for its citizens to achieve upward mobility. Graphs that depict these two variables suggest a strong positive correlation between inequality and a lack of upward advancement from one generation to the next.
Education has historically influenced the creation of a wealth gap, as well. University education is a known path to higher wages, with the average college graduate in the U.S. earning nearly 75% more than the average high school graduate—$78,000 versus $45,000—according to a 2019 analysis by the Federal Reserve Bank of New York.
Data from the National Center for Education Statistics shows the six-year graduation rate in 2018 for first-time, full-time undergraduates was 74% for Asian American students, 64% for White students, 54% for Latinx/Hispanic students, 40% for Black students, and 39% for Native American and Alaska Native students.
Educational inequalities usually begin early in life. In the U.S. today, the odds of attending a high-poverty or high-minority school depend largely upon a child's racial/ethnic background and social class. Black and Latinx/Hispanic students, for example, are much more likely to go to high-poverty schools than White or Asian American students. And attending a high-poverty school lowers math and reading achievement for students in all racial/ethnic groups—an effect that hasn't diminished over time.
Studies have also concluded that economic mobility is segregated in the U.S. along racial lines, partly due to access to social networks, a category that includes access to housing, support structures, and referrals for employment. This can tilt the playing field for those seeking employment or recovering from economic loss.
The impact of the coronavirus and its resultant business closures was also not experienced evenly by different racial groups. Less access to healthcare, higher rates of underlying disease, and a larger share of "essential" jobs have led to higher rates of infection among racial and ethnic minority populations.
White Families Have More Wealth Than People of Color
Source: Federal Reserve Board, 2019 Survey of Consumer Finances. Figures display median (top panel) and mean (bottom panel) wealth by race and ethnicity, expressed in thousands of 2019 dollars.
Asian Americans: The Largest Internal Wealth Gap
On the face of it, Asian households in the U.S. have fared well. The typical Asian household has a higher median income than that of any other racial or ethnic group. According to U.S. Census data, the real annual median household income of Asian households was $94,903 in 2020, compared to $74,912 for non-Hispanic White households, $55,321 for Latinx/Hispanic households, and $45,870 for Black households.
Asian Americans also have the lowest unemployment rate of any community of color, although wealth accumulation in lower-income brackets has fallen off in recent decades.
However, Asian Americans represent a large and financially diverse category—the most economically divided racial or ethnic group in the U.S., according to Pew Research Center.
As such, Asian Americans represent a split category, which can be misleading when assessing the racial wealth gap. The picture looks different from the viewpoint of different subgroups, as well as across different levels of income for this demographic. The racial wealth gap within the Asian American group is high.
Between 1970 and 2016, the gap in living standards for Asian Americans near the top and those near the bottom of the economic ladder doubled, transforming one of the most equitable income distributions into the least equitable. The 2016 National Asset Scorecard for Communities of Color Survey, which looked at wealth disparities among different Asian American groups in major metropolitan areas, reported that in Los Angeles, people of Japanese, Indian, and Chinese descent had more median wealth than White people, while people of Korean, Vietnamese, and Filipino descent had markedly less.
One reason for the disparity is that income growth has become weighted toward the top. Between 1970 and 2016, incomes for Asian Americans in the lowest-earning category had the least growth of any racial group, while incomes for Asian Americans in the top-earning categories had the most. Consequently, the disparity between high- and low-income Asian households is greater than it is for Black, Latinx/Hispanic, or White households.
Researchers also attribute the growing gap to changes in immigration. Following the Vietnam War, a large proportion of immigrants took low-skilled employment. But Asian immigrants since the 1990s, including Asian Indian immigrants, benefited from the U.S. H-1B visa program, which made highly skilled employment available.
Today, Asian Americans are the most educated immigrant group in U.S. history. About half of U.S.-born (55%) and foreign-born (54%) Asian Americans have at least a bachelor's degree, compared with 32% of all U.S-born people and all U.S. immigrants with a college degree.
Still, Asian Americans have other impediments to asset accumulation, which can differ across subgroups. Asian Americans tend to live disproportionately in high-cost urban areas, especially in large cities in California and New York. In addition, they tend to have larger households.
Historically, different sociopolitical factors have had an effect as well. Settler colonialism—such as the annexation of Hawaii by the U.S. in the late 19th century and subsequent changes in land ownership—has been suggested as a reason why some groups in the larger Asian American-Pacific Islander category have amassed less wealth.
The History of the Racial Wealth Gap
American wealth inequality is older than the U.S. itself. The enslavement of Africans and Indigenous people provided a cheap source of labor for—and enhanced the profits of—early American colonists.
European immigrants to the U.S. used chattel slavery—along with their access to political and economic structures denied to underrepresented groups—to spur development and grow wealth. This system persisted into the 1860s in large parts of the country and in many areas evolved into exploitative tenant farming. Furthermore, Black people and members of other racial and ethnic minority groups were often denied basic property and contract rights.
This period also coincided with the continued conquest of Indigenous people. It was a time of Indigenous people's resistance to colonial projects, including wars and shifting alliances, such as Pontiac's Rebellion and the Iroquois Confederacy.
Though the initial source of violent disenfranchisement was overseas imperialism, in the 19th century, it shifted to expansionism within the borders of the U.S.—bolstered by concepts such as Manifest Destiny—and political disenfranchisement. For example, court rulings such as Johnson v. M’Intosh (1823) and Cherokee Nation v. Georgia (1831) stripped Indigenous people of their right to sell land and undermined their political autonomy.
After the 13th Amendment ended slavery in 1864—and the 14th Amendment granted full citizenship to formerly enslaved persons born or naturalized in the United States in the mid-1860s, the country entered the Reconstruction period (1865 to 1877). At the time, there were promises to encourage wealth creation among newly enfranchised Black Americans, including efforts at increasing education.
However, that period ended with compromises with White Southerners, ceding power in the South back to the former enslavers. George White was the last Black congressman from a Southern state for many years when he left in 1901. He commented on the Reconstruction-era improvement in the economic status of the Black population in the U.S. when he decided that running for re-election to Congress in North Carolina would be futile due to the predominance of White supremacy.
According to Congressman White, between 1868 and 1900, the illiteracy rate among Black Americans dropped by 45%, the aggregate of Black-owned property rose in value to about $920 million, and the property per capita for Black Americans was about $75. He then noted, "All this we have done under the most adverse circumstances," citing lynchings, disfranchisement, and factories and labor union exclusion of Black workers, among other obstacles.
Post-Reconstruction, the reversal of Black progress and the dominance of White supremacy ultimately resulted in the political and economic disenfranchisement of Black Americans, stunting the accumulation of wealth among racial and ethnic minority populations and leading to the introduction of the infamous "Black codes" of the Jim Crow era. Jim Crow laws and practices entrenched racial segregation across large parts of the country, limiting racial and ethnic minorities' access to land and other economic and cultural structures.
Similarly, other underrepresented groups were denied access to economic structures. For example, Indigenous people in the 19th century were subjected to a brutal period of dispossession, including being "civilized" through the "Indian schools" forced upon them and being either assimilated or put into the reservation system, a system that to this day is marked by poverty.
Asian immigrants in the U.S. were also dispossessed during this period. Chinese immigrants came to the U.S. during the California Gold Rush, often performing intensive labor on the railroads. The economic downturn led to competition for jobs, which caused a backlash of anti-immigrant sentiment. Under the Chester A. Arthur administration, in 1882, Congress passed the Chinese Exclusion Act. This act, in the first serious restriction of free immigration in U.S. history, prohibited Chinese immigration to the U.S. It wouldn't be repealed until the middle of the 20th century.
The late 19th and early 20th centuries also witnessed the imperial acquisition of territories in the Pacific Islands, including Hawaii, Guam, American Samoa, and the Virgin Islands, among others, plus the acquisition of Puerto Rico from Spain in 1898.
In 2019 (the most recent survey conducted), the average wealth of Black families ($142,500) was less than one-fifteenth of the average wealth of White families ($983,400), according to the Federal Reserve.
The 20th century
The 20th century would see flourishing civil rights movements, but it would also see the continuation of federal policies and societal practices that block members of racial and ethnic minority groups from acquiring wealth.
In education, housing, jobs, and wage rates, the interwar period saw an increase in racial inequality that contributed to wealth disparities. This has been linked to Black Americans and members of other underrepresented groups receiving less support than White Americans from federal programs such as Franklin Delano Roosevelt's New Deal, Harry Truman's Fair Deal, and the implementation of the GI Bill.
Richard Rothstein's 2017 book, The Color of Law, describes the New Deal-era role the FHA played in keeping Black Americans from accessing wealth through housing ownership. The FHA, founded in 1934 during the Roosevelt administration, engaged in redlining by withholding insurance for mortgages from Black communities while also giving subsidies to builders to mass-produce housing that was open to White residents but unavailable to Black residents. Rothstein labeled this a "state-sponsored system of segregation."
Racism, officially sanctioned by immigration law, also kept Asian people from immigrating to the U.S. in significant numbers until late in the 20th century. Earlier proscriptions of Asian immigration were expanded to include additional Asian groups in early-20th century legislation, such as the Immigration Act of 1917 and the Immigration Act of 1924 (the Johnson-Reed Act).
As a consequence, by 1965, Asian Americans made up less than 1% of the total U.S. population—much less than other racial groups, according to assessments of Census data. Legislation that year reopened the doors, and by the mid-2010s, Asian people accounted for the largest proportion of recent immigrants to the U.S. of any racial or ethnic group.
One of the grimmer episodes in American history unfolded during World War II in the aftermath of the 1941 Japanese attack on Pearl Harbor, the American base in Hawaii. American-born and foreign-born Japanese Americans, a big part of the West Coast Asian community, were forced into mass internment camps under the Roosevelt administration's 1942 Executive Order 9066, despite constitutional objections. Congress would pass an official apology in 1988, paying out $20,000 in reparations to each person who had been forcibly evacuated and interned.
The civil rights era
The civil rights era (1954 to 1968) saw the passage of several important pieces of legislation to combat racial inequality, including the Civil Rights Act of 1964, one of the most comprehensive pieces of civil rights legislation since the Reconstruction era. The 1964 law sought to curb discrimination on the basis of "race, color, religion, sex, and national origin." One section of that act, Title VII, prohibited racial wage discrimination. The Lyndon B. Johnson administration also launched affirmative action programs to undo some of the racial inequality in the country.
However, since the civil rights era, the racial wealth gap in the U.S. has grown significantly.
Attempts to explain why often rely on structural arguments. Historians argue that Black Americans were vulnerable to large political and economic trends in the post-civil-rights period. These include:
- The deindustrialization and the decline of unions in the 1970s that caused well-paid union jobs to vanish
- The expansion of private prisons
- The war on drugs, which led to higher rates of incarceration that negatively impacted familial wealth, particularly among racial and ethnic minorities
- Continued discrimination in housing, which kept many Black Americans from benefiting from the rise of housing wealth during that period
Economic studies point to disparate levels of family support, inheritance, retirement planning, and emergency savings, as well as average family income, unemployment, and the volatility of the labor market, which had a greater impact on Black populations than on White populations. In addition, with technology and globalization's increasing impact on the U.S. economy, the returns on capital have grown at a faster rate than wages and salaries have. All of these factors have contributed to the racial wealth gap.
The late 20th century saw some legislation that increased the federal recognition of Indigenous peoples, with laws such as the Indian Self-Determination and Education Assistance Act of 1975 and the Tribal Self-Governance Act of 1994. These came about as a result of consistent activism.
The 21st century
The Great Recession (2007 to 2009) hit racial and ethnic minority populations hard. Slow and staggered recoveries tilted wealth farther away from them.
A study of 1,700 households found that the gap in median net worth between White and Black households nearly tripled between 1984 and 2009, increasing from $85,000 to $236,500.
Indigenous peoples have endured some of the most violent and repressive dispossessions in American history. Racial wealth gaps for this group linger. Although they have seen increases in educational attainment and income as well as decreases in poverty and unemployment in the past quarter-century, Indigenous peoples still have the highest levels of poverty and unemployment and the lowest incomes and rates of educational achievement of all U.S. racial and ethnic minority groups.
Attempts to combat the racial economic gap have continued. The 2009 Lilly Ledbetter Fair Pay Act, passed during the Obama administration, mandates that employers take steps to ensure they do not discriminate with respect to wages and salaries.
Housing and lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD).
But wealth gaps persist. COVID-19 has impacted underrepresented populations the most, exacerbating the racial wealth gap. Racial and ethnic minority groups have faced higher risk from the coronavirus, resulting in high rates of hospitalization and death. They have also faced, among other things, discrimination and poorer housing conditions, and as noted above, they have held a higher proportion of essential jobs, which put them at a higher risk of exposure. COVID-19, which former President Donald Trump referred to using socially insensitive language, has also led to an increase in discrimination against Asian populations.
What Are the U.S. Fair Lending Laws?
Fair lending laws prohibit lenders from discriminating based on specific protected classes (including race and national origin) during any aspect of a credit transaction. Several statutes comprise federal fair lending laws and regulations, including the:
- Fair Housing Act of 1968
- Equal Credit Opportunity Act of 1974
- Home Mortgage Disclosure Act of 1975
- Community Reinvestment Act of 1977
What Is Redlining?
Redlining is the now-illegal discriminatory practice of denying credit to residents of certain areas based on their race or ethnicity. Sociologist John McKnight coined the term in the 1960s to describe maps created by the Home Owners’ Loan Corporation (a U.S. government agency) that marked racial and ethnic minority neighborhoods in red, labeling them “hazardous” to lenders.
What Factors Can Lenders Consider When Making Loans?
Lending institutions can only consider factors relevant to an applicant's creditworthiness (their ability to pay). It's illegal for lenders to consider factors that are unrelated to creditworthiness, including the applicant's race, color, religion, national origin, sex, marital status, age, and participation in public assistance programs.