What is the Racial Wealth Gap?
tIn 2016, the net worth of the average white family was almost ten times as large as the net worth of the standard Black family. This disparity can be traced back to slavery, which forced Black Americans to work without earning pay, the Tulsa Race Massacre in 1921, which decimated what was known as "Black Wall Street," and laws during Jim Crow were prevented Black communities from building wealth.
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To be more concrete, wealth is defined as "the sum of resources available to a household at a point in time" and consists of the income of a household and a household's accumulated wealth from past inheritances. The wealth gap is a significant issue because the modern inequalities today exist partly due to the generational nature of wealth – money is passed down from one generation to the next. In fact, inheritances comprise of 4% of annual household income. Since Black Americans were historically unable to earn money, this has prevented Black families from being able to "catch up" with their white counterparts. As a result, white families who have the same incomes as Black families tend to be significantly wealthier.
Wealth is important because it enables individuals to take job risks, to have access to safe housing and good schools, and to take advantage of more opportunities.
The racial wealth gap is not caused by differences in educational attainment or even debt (white families have more debt). As detailed above, the primary perpetrator for the racial wealth gap is intergenerational inheritances. For that reason, many have suggested that inheritances be taxed (McIntosh, Kriston, et al.)
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Wealth is important because it enables individuals to take job risks, to have access to safe housing and good schools, and to take advantage of more opportunities.
The racial wealth gap is not caused by differences in educational attainment or even debt (white families have more debt). As detailed above, the primary perpetrator for the racial wealth gap is intergenerational inheritances. For that reason, many have suggested that inheritances be taxed (McIntosh, Kriston, et al.)
Learn more:
- Eliminating the Black-White Wealth Gap Is a Generational Challenge (Center for American Progress)
- Wealth Matters: The Black-White Wealth Gap Before and During the Pandemic (Center for American Progress)
- Racial wealth gap may be a key to other inequities (The Harvard Gazette)
- US Black-White inequality in 4 charts (CNN)
What is Financial Literacy?
Financial literacy is defined as "the ability to use skills to effectively manage money and resources," and experts agree that this ability is also key to closing the racial wealth gap (Christian, Rachel).
A report by the Global Finance Literacy Excellence Center, which used the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) to test Americans' personal finance knowledge, found that Black Americans answered only 38% of the questions correctly, while whites answered 55% of the questions correctly.
This study found that there is a strong connection between financial literacy and financial wellness among Black Americans – greater financial literacy correlates to a higher likelihood of saving for retirement and managing debt (Yakoboski, Paul J., et al.)
Learn more about this report here
This study found that there is a strong connection between financial literacy and financial wellness among Black Americans – greater financial literacy correlates to a higher likelihood of saving for retirement and managing debt (Yakoboski, Paul J., et al.)
Learn more about this report here
Research also reveals that requiring students to learn about financial literacy yields results, such as being more likely to apply for financial aid. For that reason, many have been advocating for financial literacy to be taught in public schools. As of 2020, less the half of the fifty states required students to complete a finance course before graduating high school, and in many states, it isn't even its own class. It is also less likely for students in poorer schools to be required to take personal finance courses than students in wealthier schools (Christian, Rachel)
Learn more about the impact of the financial literacy gap, the different areas of financial literacy, barriers to financial literacy, and resources available for the Black community at Annuity.org's Financial Literacy in the Black Community page. Annuity.org is a free financial web resource accredited by the Better Business Bureau.
Learn more about the impact of the financial literacy gap, the different areas of financial literacy, barriers to financial literacy, and resources available for the Black community at Annuity.org's Financial Literacy in the Black Community page. Annuity.org is a free financial web resource accredited by the Better Business Bureau.