Study Shows Racial Wealth Gap Grows Wider

Jul 26, 2011

There's long been a big gap between the wealth of white families and the wealth of African-Americans and Hispanics. But the Great Recession has made it much worse — the divide is almost twice what it used to be.

That's according to a new study by the Pew Research Center, which says that the decline in the housing market is the main cause.

The numbers are astounding. The average wealth of a white family in 2009 was 20 times greater than that of the average black family, and 18 times greater than the average Hispanic family. In other words, the average white family had $113,149 in net worth, compared to $6,325 for Hispanics and $5,677 for blacks.

That's the largest gap since the government began collecting the data a quarter of a century ago, and twice what it was before the start of the Great Recession.

Real Estate Downturn

Rakesh Kochhar, one of the authors of the report, says white households went into the recession in a much stronger position and, as a result, were better able to weather the storm.

One reason was investment in real estate. Minority families had most of their wealth in their homes, so when the housing bubble burst, Kochhar says, those households took a bigger hit.

"Especially Hispanics, for example. Sixty-six percent of their net worth derives from home equity," Kochhar says. "And they are concentrated geographically in parts of the country such as California, Arizona, Florida and Nevada, where the housing downturn was most severe."

The result is that the average Hispanic family lost two-thirds of its wealth between 2005 and 2009, according to the Pew report. Black families lost more than half of theirs.

White households, on the other hand, were more diversified. They had a greater share of their money in stocks, mutual funds and pensions. They lost wealth, but only about 16 percent on average.

Lingering Effects Of The Recession

But there were other factors at work, too.

Take Helena Edwards of San Francisco. Two years ago, she found herself, her partner and three children facing eviction from an apartment. Their landlord had foreclosed on the property, but didn't tell them. Edwards, who is African-American, was able to eventually buy a home with the help of a nonprofit group called EARN, which promotes savings by low-income families.

But she says it's not easy balancing all of her bills. Her partner lost his job, and she had her pay and health benefits cut back because of the economic downturn.

"Am I able to save $5 a month? Not really no more. Do I still live paycheck to paycheck with the house? I still live paycheck to paycheck with the house," Edwards says.

Kochhar says Hispanics and African-Americans are far more likely to be unemployed because of the recession, and that has put an additional strain on assets. It means tapping into savings and pension funds, or going into debt just to make ends meet.

As a result, about a third of black and Hispanic households had zero or negative net worth at the end of the recession in 2009. That's twice the level of white families.

Tom Shapiro of Brandies University, who has studied the racial wealth gap for years, says he's concerned about the long-term impact. He thinks the wealth gap will likely grow even more, unless the economy turns around soon.

"If a family doesn't have enough for a safety net for itself, it can't think about moving forward or moving ahead," he says.

That means fewer resources for things like education or buying a house or starting a business. Shapiro says that only puts the average minority family further behind, and less able to weather the next economic storm.

It's a cycle Edwards hopes to break by scraping together the money for her mortgage payments. She wants to pass her house on to her daughter, so her daughter has the head start Edwards never had.

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