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 that a large disparity exists among these racial and ethnic groups in the United States. Data from the 2019 Survey of Consumer Finances examining assets such as savings, investments, retirement and pensions, and especially home ownership, reveal that 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 that includes Asians, American Indians, Native Hawaiians, and those who report more than one racial identification, among others—showed that they had less wealth than White families but more than Hispanic and Black families.

This article compares the economic status of four racial and ethnic groups in the United States—Blacks, Hispanic, Native Americans, and Asian Americans—with that of Whites. These groups have experienced both formal, legal discrimination under U.S. law as well as discrimination in 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 available with respect to Black Americans.

Key Takeaways

  • The racial wealth gap refers to the disparity in assets of typical households across race and ethnicity.
  • This gap in assets is far wider than disparities in wages across race.
  • Income inequality, housing policies, limited educational opportunities, and a lack of support structures are some of the factors that contribute to the gap.
  • Data reveal a growing gap, since the Civil Rights era in the 1960s, in the median wealth across race and ethnicity in the United States.

Understanding the Racial Wealth Gap

In the United States, racial wealth gaps exist between the minority and majority populations as well as within different ethnic/racial groups.

  • Data from the Federal Reserve Board's 2019 Survey of Consumer Finances show that White families have greater wealth than other racial groups, with Black and Hispanic families having the least. At middle and older ages, for example, 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.
  • American Indian and Alaska Native households have a lower median income than Black, Hispanic, and White households, based on 2013-2017 Census data. 
  • 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 have not kept up with the gains in income experienced by their counterparts in other racial groups 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, Hispanic, or 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 the wealth of Native American, Black, and Latinx families. Observers have described the situation as being "as bad or worse than it was before Civil Rights [1968]." (Note that many economic researchers use Hispanic; Investopedia prefers Latinx, but in reporting, uses terminology that matches the research being cited.)

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 being one of the most equal to being the most unequal among the major racial groups in the U.S.

Racial wealth gap vs. racial wage gap

The racial wealth gap is greater than the racial wage gap alone, although they are related. 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 financial instability, such as periods of unemployment or low income, as well as to save for education and provide for retirement and an inheritance for offspring.

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 long historical and continuing patterns of wealth inequality.

Income 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. Minorities 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 home ownership.

Housing policies

Continual displacement has contributed to diminished wealth. Governmental policies after Reconstruction have kept Blacks from tapping into land equity, and mismanagement by Congress of the Freedman's Saving Bank, founded in 1865 and closed in 1874, also fueled inequality. In the 20th century the Federal Housing Administration (FHA) tried to encourage White middle-class home ownership using techniques such as redlining and restrictive covenants that restricted minority access to federally subsidized housing and refusing to insure mortgages for Black communities. These policies pushed Blacks into urban housing projects and kept them out of suburban communities, where housing appreciated in value and increased White wealth.

More recently, the Great Recession, which caused high rates of unemployment, saw predatory, high-interest housing loans targeted at Blacks and other minority groups, resulting in high rates of foreclosure for these communities in its wake. Since then, data reveal that there has been a staggered and slow recovery. Wealth inequality by race has grown in the middle- and upper-income categories, but narrowed between low-income White families and Black and Hispanic ones. Median home values of minorities have also lagged behind those of Whites since the Great Recession.

Political representation

Representation and political enfranchisement also play a part. The post-Reconstruction era reversed political gains made by freed Blacks. Racist laws and explicit violence, including the massacre of "Black Wall Street" in the Greenwood District in Tulsa, Okla., leveled historical attempts to grow wealth. The poll tax—a tax that had to be paid in order to vote and was levied with an eye towards suppressing minority votes—was outlawed only as recently as 1964 with the passing of the 24th Amendment. The impact of the 24th Amendment and Civil Right era legislation, however, depended—and continue to depend—on their enforcement, which has been inconsistent over the past half century. Even with strong laws, societal and cultural attitudes and practices have a role in the persistence of inequality.

Other factors

Education has historically influenced the creation of a wealth gap, as well. A 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 that the six-year graduation rate in 2018 for first-time, full-time undergraduates is 74% for Asian Americans, 64% for Whites, 54% for Hispanics, 40% for Blacks, and 39% for American Indians and Alaska Natives.

Educational inequalities usually begin early in life, however. 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 Hispanic students, for example, are much more likely to go to high-poverty schools than Whites or Asian Americans. 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 United States along racial lines, in part due to access to social networks, a category that includes access to housing, support structures, and referrals for employment. This can provide a tilted playing field for those seeking employment or recovering from economic loss.

The impact of the coronavirus and of the 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 minority populations. Minorities' high representation in sectors severely impacted by the pandemic, such as restaurants and hotels, added to their disproportionate burden.

White Families Have More Wealth Than Black, Hispanic, and Other or Multiple Race Families

White families have more wealth than Black, Hispanic, and other or multiple race families in the 2019 SCF

Source: Federal Reserve Board, 2019 Survey of Consumer Finances.

Notes: 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 any other racial or ethnic group. According to U.S. Census data, the real annual median income of Asian households was $87,194 in 2017, compared to $70,642 for non-Hispanic Whites, $41,361 for Blacks, $51,450 for Hispanics, and $40,315 for American Indians and Alaska Natives. Asian Americans also have the lowest unemployment rate of any community of color, although wealth accumulation in the lower income brackets has fallen off in recent decades.

But in truth, Asian Americans represent a large and financially diverse category—the most economically divided racial or ethnic group in the U.S., according to the 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 Scorecard for Communities of Color, 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 Whites, while people of Korean, Vietnamese, and Filipino descent had markedly less.

One reason for the disparity is that income growth has become weighted towards the top. Between 1970 and 2016, incomes for Asians in the lowest earning category had the least growth of any racial group, while incomes for Asians 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, 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, have benefited from the U.S. H-1B visa program, which made high-skilled employment available.

Today, Asian Americans are the most educated immigrant group in U.S. history. About 61% had at least a bachelor's degree in 2012. Asians also have tended to get high-skilled jobs in America, and to acquire green cards and immigrant status through employment rather than family.

Even so, 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

Enslavement of Africans and Native Americans provided a cheap source of labor for and enhanced the profits of early American colonists, making wealth inequality older than the United States itself. European immigrants to the U.S. used chattel slavery—along with their access to political and economic structures denied to minority populations—to spur development and grow wealth. This system persisted into the 1860s in large parts of the country and in many areas evolved into exploitive tenant farming. Furthermore, Blacks and other minority groups were often denied basic property and contract rights.

This period also coincided with the continued conquest of Native Americans. It was a time of Native American resistance to colonial projects, including wars and shifting alliances, such as Pontiac's Rebellion and the Iroquois Confederacy. While the initial source of violent disenfranchisement was overseas imperialism, in the 19th century it shifted to expansionism within the borders of the United States—captured by concepts such as Manifest Destiny—and political disenfranchisement. Court rulings such as Johnson v. M’Intosh (1823) and Cherokee Nation v. Georgia (1831), for instance, stripped Native Americans of their right to sell land and undermined their political autonomy.

Post-Civil War

After the Civil War Amendments ended slavery in the mid-1860s, the country entered the Reconstruction period (1865-1877). At the time there were promises to encourage wealth creation among newly enfranchised Blacks, including efforts at increasing education.

That period, however, ended with compromises with White southerners, ceding power in the South back to the former slave masters. George White, the last Black congressman from a southern state for many years when he left in 1901, commented on the Reconstruction-era improvement in the economic status of Blacks 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 Black illiteracy rate dropped by 45%, the aggregate of Black-owned property rose in value to about $920 million, and the property per capita for Blacks was about $75. He then noted, "All this we have done under the most adverse circumstances," citing lynchings, disfranchisement, and factories and labor unions being closed to Black workers, among other obstacles.

Post-Reconstruction, the reversal of Black progress and the dominance of White supremacy ultimately resulted in Blacks' political and economic disenfranchisement, stunting the accumulation of wealth among 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 minorities' access to land and other economic and cultural structures.

Similarly, other minority populations were denied access to economic structures. In the 19th century, Native Americans, for instance, were subjected to a brutal period of dispossession, including being "civilized" through Indian schools forced on them and being either assimilated or put into the Reservation System, a system that to this day is marked by poverty.

Asians in the United States were also dispossessed during this period. Chinese immigrants came to the United States during the California gold rush, often performing intensive labor on the railroads. 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 states. It wouldn't be undone until the middle of the 20th century.

In addition, the late 19th and early 20th centuries also witnessed the imperial acquisition of territory 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.

$142,500

In 2019, the average wealth of Black families 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 a flourishing of civil rights movements, but it would also see the continuation of federal policies and societal practices that block minorities 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 minority groups receiving less support than White Americans from federal programs such as Franklin Delano Roosevelt's New Deal and Harry Truman's Fair Deal.

Richard Rothstein's 2017 book, The Color of Law, describes the role of the Federal Housing Administration during the New Deal era 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 to 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 Asians 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 National Origins Act of 1924. 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, Asians accounted for the largest proportion of recent immigrants to the U.S. of any racial or ethnic group. 

One of the darker episodes in American history unfolded during the Second World War 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 people who had been forcibly evacuated and interned.

The Civil Rights era (1954-1968) 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 United States has grown significantly.

Attempts to explain why that is 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 deindustrialization and the decline of unions in the 1970s, which caused well-paid union jobs to vanish; the expansion of private prisons and the War on Drugs, which led to higher rates of incarceration that negatively impacted familial wealth, particularly among minorities; and 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 than on White populations. In addition, with technology and globalization increasingly impacting the U.S. economy, the returns on capital have grown at a faster rate than the rate of increase for wages and salaries. All of these factors have contributed to the racial wealth gap.

The late 20th century saw some legislation that increased the federal recognition of Native Americans, with laws such as the Indian Self-Determination 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 (2007-2009) hit minority populations hard. Slow and staggered recoveries tilted wealth further.

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.

Native Americans 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 last quarter century, Native Americans still have the highest levels of poverty and unemployment and the lowest incomes and rates of educational achievement of all U.S. minority groups.

Attempts to combat the racial economic gap have continued. The 2009 Lily 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.

But wealth gaps persist. COVID-19 has impacted minority populations the most, exacerbating the racial wealth gap. 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 had a higher proportion of essential jobs, which put them at a higher risk of exposure. COVID-19, which President Donald Trump referred to using socially insensitive language, has also led to an increase in discrimination against Asians. 

Since his inauguration, President Joseph R. Biden, Jr., has announced policies and legislative proposals, including the American Rescue Act, which include measures intended to provide relief for income loss and resulting hunger and unmet expenses attributable to COVID-19. They are also designed to alleviate racial disparities in access to healthcare, jobs, and fair wages—all steps that can assist minorities' economic well-being and ability to accumulate wealth. It remains to be seen how these efforts will develop and whether they will ultimately shrink these gaps.