We at Money talk a lot about the power of compound interest. It's the magical way your savings builds up exponentially — or compounds — as you stash away cash and earn interest on your interest, year after year.
But disadvantages can also be compounded. Even small doses of injustice, oppression, and inequitable policies are bad, of course, but they are much, much worse when their impact builds up over time and they hold people back on a national, generational scale.
This is why the racial wealth gap is so persistent in American society. As a Brookings Institution report analyzing the black-white wealth gap sums up, "Black and white households reveal the effects of accumulated inequality and discrimination, as well as differences in power and opportunity that can be traced back to this nation’s inception."
You can't point to one period of time, or one single statistic or cultural factor, to explain why the average black American has a tiny fraction of the wealth of his white counterpart. Instead, there's a broad range of elements at play — from mortgage-lending practices dating back a century ago to higher car insurance rates for drivers living in black neighborhoods today — that have compounded over the decades and collectively result in a system that's unfair, if not overtly racist.
No single data point can explain all the ways black Americans are held back economically. With that in mind, we compiled numbers that show dramatic racial disparities in everything from retirement savings to business ownership.
Together, the data reveal a pattern of injustice that's also a core part of why protesters have taken to the streets in the wake of the recent killing of George Floyd at the hands of the Minneapolis police. As Linwood Tauheed, an economics professor at the University of Missouri-Kansas City, told MarketWatch in early June: "The wealth gap is one of the reasons there are protests today."
Jobs, Unemployment, and Business Ownership
• Black job applicants who "whitened" their resumes — by removing cues that revealed their race — were significantly more likely to be asked for job interviews, according to a 2016 study co-authored by a Harvard Business School professor.
• Similarly, a National Bureau of Economic Research paper found that job applicants with popular "white" names like Greg and Emily were 50% more likely to get callbacks from employers than people with "black" names like Lakisha and Jamal.
• In a study published in American Sociological Review from 2009, different people with similar qualifications applied for entry-level jobs in New York City. "Black applicants were half as likely as equally qualified whites to receive a callback or job offer," researchers found.
• Going back at least to 1972, regardless of whether the economy has been thriving or struggling, the black unemployment rate has generally been roughly twice as high as the white unemployment rate, the Economic Policy Institute found. As the nation began opening up in the wake of the 2020 coronavirus pandemic, white workers have recovered more quickly: The seasonally adjusted white unemployment rate dropped from 14.2% in April to 12.4% in May, whereas the black unemployment rate rose slightly, from 16.7% to 16.8%, according to the Bureau of Labor Statistics.
• Whereas business ownership rates are roughly 15% among white families, "black and Hispanic families are about half as likely to own a business," a Federal Reserve study reported. What's more, according to a National Bureau of Economic Research paper from June 2020, there was a staggering 41% drop in the number of African-American-owned businesses from February to April.
• "Business ownership is a route to wealth creation," an Aspen Institute study explained, and while white Americans hold one-third of their wealth in business and financial assets, the median for African-Americans is 15%.
• In the mid-1960s, African-Americans represented less than 1% of all executive-level officials and manager positions at U.S. companies, according to the Equal Opportunity Commission. Their representation increased over the decades, reaching close to 7% in 2008, but it has fallen in the years since then. And it has never come close to equaling African-American representation in the overall U.S. population, 13.4%.
• Of all the CEOs at Fortune 500 companies, only four, or 0.8%, are black.
• Of the board of directors at S&P 500 companies, 187, or 37%, did not have a single black board member in 2019.
• Of the 614 billionaires in the U.S., only five are black. And whereas many billionaires came to their wealth through inheritance, all five of the African-American billionaires in 2020 are self-made: Jay-Z, Michael Jordan, Oprah Winfrey, founder of World Wide Technology David Steward, and founder and chairman of Vista Equity Partners Robert F. Smith.
College, Student Loan Debt, and Defaults
• Brookings Institution data shows that black college graduates owe $23,400 in loans when they finish their degrees, versus $16,000 for their white peers. Four years after finishing college, black grads owe an average of nearly $53,000 — largely due to interest accrual and borrowing for grad school — which is roughly twice as much as white grads who finished college in the same year.
• Black college graduates default on their student loans at a rate five times higher than their white counterparts, according to another Brookings report. In fact, 12 years after college, black grads are more likely to default than white people who dropped out of school before graduating.
• Earning a college degree generally pays off, regardless of race. Median income in 2016 for black workers ages 25 to 34 was $49,400 with at least a bachelor's degree, versus $27,800 with only a high school degree. But the median white worker earned more in both cases: $54,700 and $35,000, respectively.
• Over the course of a lifetime the average worker of all races with a college degree will earn $2.7 million, according to a Georgetown University study. But African-American college grads will earn 20% less than their white counterparts with college degrees.
Banking, Stocks, Investing, and Retirement Savings
• African-Americans are far more likely to be "unbanked" — that is, having no traditional bank or checking account — compared to other races. Whereas the white population has an unbanked rate of 3.3%, according to a Federal Reserve Bank of Kansas City study, the rate for African-Americans is 18.2%.
• As of 2017, 36% of African-Americans said they had money in the stock market (including a 401(k) or other retirement accounts), compared to 60% of white Americans, according to a Gallup poll.
• There's a racial retirement savings gap: 62% of working-age black households do not have any assets in a retirement account, versus 37% of white households with no retirement accounts, per the National Institute on Retirement Security. What's more, people of color nearing retirement age have an average savings of $30,000, versus $120,000 for white households.
• In another look at retirement savings and race, the Center for Retirement Research found that as of 2016, black households typically had just 46% of the retirement wealth of their white counterparts. "This inequality would be much higher but for the presence of Social Security – black households had just 14 percent of the non-Social Security retirement wealth when compared to white households," the report's authors say.
• The wealth gap tends to grow as people get older. Looking at Americans born from 1943 to 1951, the Urban Institute found that white households' average wealth was $395,000 in their late 30s, spiking to $1.3 million in their late 60s, compared to $127,000 and $204,000, respectively, for black households.
Housing and Homeownership
• Federal Housing Administration policies essentially instituted segregation for decades. "If a neighborhood is to retain stability it is necessary that properties shall continue to be occupied by the same social and racial classes," the FHA's "Underwriting Manual," published in 1936, stated. "A change in social or racial occupancy generally leads to instability and a reduction in values." The takeaway is that the FHA would not insure loans to black Americans attempting to buy homes in primarily white neighborhoods.
• White homeownership rates have been significantly higher than other races for decades. From 1940 to 1970, the rate of white homeownership climbed from 45.7% to 65.2%, and then inched up to 68.2% in 1990, per the Census Bureau. Black homeownership rates also increased over the decades, only at lower levels, from 22.8% in 1940 to 41.6% in 1970, upward to around 43% to 44% in the 1980s and 1990s.
• Homeownership rates have for African Americans have leveled off, and sometimes even dropped, since the 1990s. Census data shows that the homeownership rate from 2016 to early 2020 ranged from 41% to 44% for black Americans, compared to a range of 71% to 74% for non-Hispanic white Americans.
• An ACLU study shows that black homeowners suffered more greatly during the housing bust. Whereas white homeowners saw their home equity drop 9.1% from 2007 to 2009, and another 2.2% from 2009 to 2011, black homeowners' equity decreased 11.9% and 5.6%, respectively. "This difference likely emerges as a result of blacks’ disproportionate exposure to predatory loans and other deceptive mortgage schemes," the study's authors wrote.
• Data analysis by the Pew Research Center shows that 27.4% of black mortgage applicants were rejected in 2015, compared to 11% of white and Asian Americans. The most common reason black mortgage applicants were turned down as having a poor credit history — that was cited in 31% of the rejections, compared to 21% of the rejections for white applicants.
• The median home value in U.S. metropolitan neighborhoods that are less than 1% black is $306,000 — or more than double the median home value in neighborhoods that are more than 50% black ($149,000), according to a Brookings analysis of Census data.
• The Federal Reserve says that 73% of black families own at least one car, compared to 90% of white families in America.
• Black car buyers face higher costs at the dealership. A 2018 National Fair Housing Alliance study found that 62.5% of better-qualified non-white car testers were offered more costly financing options, and the difference would have mean they'd pay over $2,600 more than their white counterparts over the life of the auto loan.
• Auto insurance costs more in black neighborhoods. A 2015 Consumer Federation of America report indicates that drivers in predominantly African-American neighborhoods pay 70% higher rates for car insurance than drivers in mostly white areas.
Race, Income, Net Worth, and the Wealth Gap
• Median income in 2018 was $41,361 for black American households, according to the Census Bureau, compared to $63,179 for all households and $66,943 for white households.
• Median net worth for white families in America was measured at about $171,000 in 2016, or nearly ten times that of black families ($17,150).
• The poverty rate for black Americans was 22% in 2018, compared to 9% for white Americans.
• The proportion of black families with zero or negative net worth was 37% in 2016, compared to 15.5% for white families.
• Closing the racial gap would make the American economy grow immensely. McKinsey & Company estimates that closing the racial wealth gap by 2028 could increase U.S. GDP by 4% to 6%.