The Racial Wealth Gap
What It Is, Why It Happened, and How It's Closed
I was hoping that Vice President Kamala Harris and President-elect Donald Trump would, at some point, meaningfully address the racial wealth gap leading up to the 2024 election, free of partisan politics, divisive rhetoric, and back-and-forth jabs. Unfortunately, that didn’t happen. Here’s what we do know. Far-left Democrats are quick to point out that systemic racism is the underlying (and still the leading) cause of the economic divide in America. Unfair policies and practices — historically and presently — have disproportionately harmed blacks but helped whites. Redistricting, redlining, and racial profiling, to name just a few. Far-right Republicans on the other hand, highlight the virtues of capitalism and exceptionalism (aka personal responsibility) as the keys to financial success. They spotlight, and in some cases, cherry pick, outlier immigrants who “come through the front door” as shining examples. Armed with a dream but devoid of a dollar, these newcomers hit the ground running as documented citizens. They start new businesses. They’re accepted to prestigious universities. They even get hired by Fortune 500 companies and move up the corporate ladder. As one of my ultra-Conservative friends shared with me in our conversation about this controversial topic, “Race is less of an issue today than during the Civil Rights Era when it comes to economic matters.” He added, “Didn’t Martin Luther King, Jr. preach, ‘Judge no man by the color of his skin but by the content of his character’?” I responded, “Yes, MLK did. But can you quote any of his other timeless sayings by heart?” My friend couldn’t.
Exceptions do exist, but the social class we’re born in is usually the same one we stay in until the day we die.
As a bridge-building specialist, I want to shed light on this topic without causing whites to feel defensive. I’m certainly not going to give a free pass to my brothers and sisters in the struggle, either. Truth be told, economic differences are more class defined than color confined. Regardless of ethnicity, our lane assignment at birth often dictates and determines our life outcomes on earth — financially or otherwise. I’d venture to say that most readers would agree with this statement because of the adverb, often. Exceptions do exist, but the social class we’re born in is usually the same one we stay in until the day we die. In short, the racial wealth gap highlights the economic imbalances between blacks and whites in America. Depending on the study referenced, white households have roughly 7 to 10 times the wealth that black households amass. Stay with me now. The reasons behind the racial wealth gap go back to slavery, when blacks weren’t treated or viewed on equal footing as whites. Signed into law by President Abraham Lincoln in 1863 but ratified by Congress in 1865, The Emancipation Proclamation officially freed black slaves. The Reconstruction Period occurred over the next twelve years, from 1865 to 1877. Emancipation was supposed to lead to the integration of blacks into mainstream society. However, nearly 100 years of segregation (aka the Jim Crow Era) followed until The Civil Rights Act was passed in 1964.
Our identifying label, formulated and narrated by the majority class in power, has changed through the years from slaves to Negroes to Coloreds to blacks to African Americans (and now back to blacks). But our financial condition, by and large, has barely improved. For every Oprah Winfrey or David Steward, the richest black man in America with an estimated net worth of over $13 billion, we have thousands of Ray Rays and Sha Nah Nahs who fall through the economic cracks. (Yes, I know people with these nicknames; I grew up with them in the projects!) I asked my wife’s father, Chris Fairrow, “What jobs did most blacks work pre-1964?” He looked down to gather his thoughts, then shared, “Cooks and cleaners and custodians. That was about it for us!” Menial jobs with abysmal pay. Where my father-in-law looked speaks volumes about where we stood (and still stand) here in America — at the bottom of the economic rung. Over the past 60 years,1964 to 2024, the racial wealth gap should have narrowed considerably. Regrettably, it has widen substantially in spite of desegregation and affirmative action efforts to create a level playing field, entitlement spending on welfare programs for single-parent mothers, and government expenditures to shore up public education as well as housing insecurity.
Take a look at the chart below, which contrasts the household net worth of whites and blacks according to the most recent U.S. census findings. It is quite alarming, to say the least. The median wealth for a black household, $24,520, is about one-tenth the median wealth of a white household, $250,400. Nearly 1/4 or 23.6 percent of blacks have a zero or negative net worth (assets minus liabilities), compared to only 8.6 percent of whites. And nearly 70 percent of black households have a net worth less than $100,000. The largest distribution of wealth for whites is in the millionaire category at 20.4 percent or 1 out of every 5 households, with only 5.3 percent or 1 out of every 20 black households reaching this threshold. Even amongst our own ranks, the economic gulf between the haves and the have nots is glaringly obvious based on our educational standing, employment position, and social network. Those at the top, the black bourgeois, do care deeply about Ray Ray and Sha Nah Nah. However, there’s a tremendous disconnect in helping our people on the fringes of society move past their generational trauma and personal drama. Whether we care to admit it as a race, this internal rift is real. Until the least among us can rise up financially, we can never be satisfied with our progress as a people. The ballot box gives us a voice, but an upgraded balance sheet amplifies the volume. Collectively, that is. (I would encourage you to read the Wealth by Race of Householder in its entirety on the census.gov website.)
How Household Wealth Is Distributed by Race of Householder https://www.census.gov/library/stories/2024/04/wealth-by-race.html
Here’s what I’ve observed over the last 15 years as a certified financial planner, life coach, accomplished author, economic empowerment crusader, and board member of a publicly traded mutual fund company while working primarily with people of color, notably the African American community:
- Financial trauma often causes, influences, and shapes our flawed money scripts or self-defeating economic narratives; in totality, these counterproductive belief systems hold us back as a race.
- We’re more captivated by lifestyle assets (aka income-draining assets) than we are liberated by leverage assets (aka income-producing assets), showstopper possessions versus shareholder profits.
- We’re more likely, comfortable really, to support a non-profit organization with our time and talents than with our treasures or financial resources, regardless of socioeconomic status.
- We often fall victim to get-rich-quick schemes that masquerade as “lucky financial breaks” for us, which highlights our lack of due diligence before capital is deployed.
- Most of us start the wealth game down by 20 points, which can cause us to be even more reckless with our money ball shot selection (Quick Shots, Forced Shots, and Tough Shots).
- We tend to view credit scoring through an “us/black vs. them/white” framework, where ours is subpar and theirs will always be significantly better (627 Credit Score vs. 727 Credit Score).
- A present-moment mentality getting caught up in “here and now” spending traps prevents us from taking our “down-the-road” financial future seriously (Reactive vs. Proactive).
- We’re often more focused on earning income than we are in building legacy wealth that our offspring can inherit and hopefully, handle responsibly (Income Statement vs. Balance Sheet).
- We have more noticeable gaps in insurance coverages than our white counterparts, and generally don’t have a working estate or end-of-life plan in place. (Seventy percent of black adults don’t have a will.)
- We’re more likely to try a DIY strategy or an a la carte approach to achieving financial wellness rather than paying (without expecting a discount) for comprehensive, professional advice.
“See the blueprint for financial success in your mind first, then take the necessary action steps to pursue better life outcomes.”
— Mareion A. Royster, CFP & Financial Advisor with Hamilton Capital
Let’s wrap up. How do we close the racial wealth gap? Outside the classroom, LFYO offers empowerment workshops, one-on-one coaching, and online tutorials for high-need populations. Inside the classroom, we must open the window of financial opportunity to every African American, not just for the privileged few who have the talent to monetize an athletic, aesthetic, or academic gift. Using a bit of creativity, here’s what I propose. We must go downstream to early education, showing elementary-age kids how the subjects they learn in class can come alive through personal finance concepts.
Math and money management are connected through numbers, graphs, and proportions (which many black students have a hard time grasping). Using easy-to-understand words and practical applications, explain how reading is important when deciding between two credit cards with different terms. Also, great readers can grow into exceptional leaders (and make a lot of money as C-Suite executives!), all while leveraging their remarkable interpersonal skills. Social studies offer the perfect opportunity for imaginative minds to travel abroad. By saving for and then planning a getaway trip, this allows them to become acquainted with diverse cultures and culinary delicacies through an upgraded economic skillset. Who knows, they might even use make-believe money to invest in international companies that are headquartered outside the U.S. Why is this important? Having been introduced to the products or services of these international companies during their exposure-related voyages, this provides the perfect venue for at-risk students to gain real-world experience on tracking publicly traded stocks. The long-term benefit is this: They now know what it’s like to be on both sides of the cash register, as repeat customers and equity owners. Cha Ching!
Think about it. A lot of inner-city students have never ventured outside of their neighborhood, let alone their city’s outer belt.
Last but not least, what about science? This would be a great time to introduce students to biochemistry, in particular, how good food can produce a great mood. Invite a chef into the classroom. Plant a colorful garden outdoors or indoors. Start fictitious, health-conscious social enterprises where teams compete for prizes that align with customer service, operational efficiency, and environmental stewardship principles. For middle school students and beyond, introduce higher-level concepts. As they build their financial life skills in a highly competitive, game-based setting, even boring topics like insurance and taxes sound interesting. When teenagers are earning a paycheck, managing a household, buying an automobile, protecting a cherished asset, or receiving a tax refund, they’re more likely to stay the educational course. This is the key to helping vulnerable populations connect the relevancy dots between their present reality and future possibility. Let’s team up together in 2025 as we do our part in closing the racial wealth gap!
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Be sure to check out the Closing the Racial Wealth Gap Video at the top of this page.
