Wealth Begets Wealth; Poverty Begets Poverty

Research: Why the racial wealth gap persists  

A $1000 bond at birth: the key to closing the racial wealth gap? image credit: Shutterstock

One of the groups most consistently excluded from economic gains: Black Americans. One of the groups most consistently snared by economic downturns: Black Americans. What can be done about this, if anything? Let’s walk through current statistics involving income and wealth gaps in the U.S, and the solutions some are proposing to close said gaps.  

If we’re going to discuss statistics and trends related to wealth inequality, we must also address income inequality and how this evolves, over time, into wealth inequality. Although both are related and key indicators for financial health, they aren’t synonymous.  

Income vs. Wealth 

Income —   short-term earnings,  typically calculated on an annual or monthly basis,  affords a lifestyle in the present, including things such as month-to-month expenses and activities 

Wealth — a long-term measure  accumulated over time, the value of assets minus debt, 

can be trans-generational, which means it passes from one generation to the next

Understanding this distinction is imperative because someone who doesn’t make an adequate income to support themselves in the present, will never have the ability to create wealth in the future for themselves or their descendants.  

Closing the racial wealth gap isn’t merely a matter of education equality  

A report, “Setting the Record Straight on Racial Wealth Inequality,” by

Duke University dives into the roots of the wealth gap and why it has persisted. Black households in the middle-income quintile have less than one-third of the wealth of white households in the same quintile. The study also addresses embedded barriers that can’t be overcome solely by closing the earnings gap through education (and therefore higher paying jobs), as commonly thought and suggested by other reports. 

Our ancestors were barred from the wealth generation party  

White households headed by someone with a high school degree or GED have more wealth than Black households headed by someone with a college degree. Experts argue that the gap is less about earnings in the present and more about the lack of intergenerational income. Due to centuries of exclusion from income earning and wealth building opportunities afforded to white families, Black families began generating and accumulating wealth much later. Much. later. This is significant because earnings and income from parents and grandparents is where the generational income comes from, but if your parents and grandparents have only recently started to earn income, there is no wealth to transfer.  

Black wealth didn’t increase during the pandemic, unlike most 

According to a Brookings article, data from the report on consumer finances, which hosts the most recent data on racial wealth equity, suggests although wealth increased during the pandemic across the board, every group didn’t experience this benefit. Their survey details that Black families didn’t experience this financial growth. As of 2022 the Black median household income was $44,000, while the median household income for Hispanic, white and Asian households was $66,000, $235,000, and $536,000, respectively. 

As the rich get richer ...

An article by the Urban Institute, a think tank based in Washington D.C, details the extent to which the wealth gap has increased, especially as distance grows between the middle and wealthy class. The institute reports on the growing gap amongst classes. In 1963 the wealthiest families had around 36 times the wealth of the middle class and in 2022, they had more than 71 times the wealth of that same class. Studies also show the wealth gap between Black families and white families widens with age. For people born during the middle of the 20th century, by 1983 when this population was in their 30s the wealth gap was around $181,000 and by 2022 when that same group was in their 70s the gap was greater than $1.4 million.  

So how do we close the gap?  

With a growing gap between the wealthiest Americans and the rest of the population, there are some conversations about how to close those disparities. Although we won’t witness an immediate change, it’s important to advocate for policies, programs and practices that might allow us to see change over a longer period of time.  

We could ...   Tax the wealthy  The National Women’s Law Center advocates for changed tax policies.  They advocate for taxing the wealthy at higher rates, and using funds from those taxes to support childcare, paid leave, community and social services, affordable housing and healthcare.  

We could ... start baby investment funds  

William Darity Jr. And Darrick Hamilton developed a financial approach called a baby bond. This offers every baby a publicly funded trust account, and the amount they receive will be determined by the wealth of the families they are born into, with those born into less wealthy families receiving more. Sen. Corey Booker and Rep. Ayanna Pressley authored a baby bonds proposal that would seed $1,000 for every child at birth, with progressive annual investments of up to $2,000 a year.   

We could ... provide guaranteed income  

An organization based in Atlanta is piloting a program called Freedom Futures, which provides 50 young adults with a guaranteed income of $500 a month, which will amount to an investable lump sum of $40,000. These proposals are a great starting point, but there are big concerns about where the funding will come from to support initiatives like these. 

Solving the wealth gap, and therefore income gap, is a complex set of barriers that will likely challenge advocates and law makers for many years to come. What is most important is that people acknowledge the significance of the wealth gap and the historical and social context that accompany these gaps to ensure we can permanently eradicate them and create long-term change.