New America Foundation
By: Pamela Chan & Karrie Peterson
April 15, 2011
As the demographics of this nation are shifting away from a white-majority, we've reached a critical time to address the accompanying racial wealth gap among U.S. households. In light of these current trends, the Insight Center hosted their Color of Wealth Summit last week in Washington, D.C. The Summit was part of their Closing the Racial Gap Initiative which is "a national effort to build awareness and support efforts addressing the wealth gap that leaves the average American family of color with only 16 cents for every dollar owned by the average white family." This year's summit focused on children of color and centered around the release of a new report, Diverging Pathways: How Wealth Shapes Opportunities for Children, primarily authored by Trina Shanks, Ph.D., of the University of Michigan School of Social Work. The report examines household wealth data for children across all major racial and ethnic groups and attempts to illustrate how disparities in wealth relate to indicators of child well-being.
The new set of descriptive statistics examined in the report highlights valuable insights on the relationship between household wealth and child well-being. The key findings from the report are:
•Racial disparities in households with children are dramatic. In 2007, 32% of white households with young children were income poor and 14.2% had no assets. In sharp contrast, 69% of Latino and 71% of blacks were income-poor, and 40% had no assets.
•Racial disparities in child outcomes start early and grow over time. At nine months, all children start out with fairly similar scores on a standard child development test, but by two years of age, racial disparities emerge.
•The wealth gap widened for households with children. For example, between 1994-2007, the wealth gap between white and black households with children increased by $22,000-almost doubling form $25,000 to $47,000. The finding suggests that "if these patterns hold true for other households of color where the number of vulnerable families outstrips those that are advantaged, the opportunities for many of our nation's children to succeed will fade."
•Maternal education matters, but alone cannot eliminate racial wealth disparities. The wealth gap between black and white households were surprisingly event wider among households with mothers who attained a bachelor degree or higher. For every dollar of wealth owned by a white mother with a bachelor's degree or higher in 1994 a black mother owned 64 cents. By 2007, it had fallen to 13 cents
Dr. Shanks concludes the report with a preview to her continuing work on the subject of wealth and racial inequality and an acknowledgement that this study is the beginning of further inquiry. During her summit presentation, Shanks affirmed previous research that household wealth is a stronger indicator than income for child well-being in some areas (e.g. educational attainment), but finds that wealth is not necessarily a strong indicator in other areas (e.g. ownership of the family residence). Her future research will explore when household wealth is an indicator for different measures of child well-being. Hopefully, further research will also address which measures of child well-being are indicative of future adult outcomes. This information is critical in the development of effective policies and programs.
The key takeaway from the report is that growing up in a household with financial assets matters regardless of race. Exactly why assets matter is still being teased out, but that doesn't change the fact that for kids, having access to assets means a better quality of life and better life chances. The report suggests that the solution most often proposed for closing the racial disparities gap, successful attainment of a college degree, is not proving to be sufficient in overcoming obstacles to wealth, and in turn, life chances. More research and work is needed in this area, but for those interested in addressing racial inequality it's time to start asking more questions about why there's a persistent and growing racial wealth gap.
From the asset building perspective, there are a couple of smoking guns that may help explain why building wealth is especially difficult among economically disadvantaged communities of color. It is important to note, these factors occur in all lower-income communities, but disproportionately affect some communities of color because they are overly represented in lower-income areas. Advocates for racial equality should critically examine if and how these factors are impacting their communities. First, people in lower-income communities experience greater erosion of their household resources due to egregiously expensive financial services that are intentionally marketed to their communities. These include financial services like high interest credit products that hide the cost of a loan or capture people at a particularly desperate time, and fraudulent life insurance plans that are sold door-to-door. Second, people in lower-income communities are not able to utilize the wealth-building infrastructure available to economically advantaged communities because the infrastructure is not designed with their needs and preferences in mind. This includes actual access to both safer and less costly mainstream financial institutions and tax incentives for savings and investments.
With these factors at play in economically disadvantaged communities of color, broad policy changes can and should be made to structural barriers impeding equal access to economic opportunity. New America has a comprehensive list of proposed policy changes using the asset building perspective in The Assets Agenda. As evidence-based research, like Dr. Shanks's, continues to show that having assets means having a chance to engage in better life opportunities, addressing the structural barriers to preserve and enhance the assets of all lower-income Americans should also be a priority for everyone seeking to diminish racial inequities.