Narrowing the Racial Wealth Gap
By Dedrick Asante-Muhammad and Thomas Shapiro on 01/25/2017 @ 09:00 AM
Editor's Note: This article was originally published on RollCall.com on January 13, 2016.
We have a proposition for the Trump administration and the new Congress, and it’s not a liberal or a conservative idea. It’s just a call for pragmatism when developing new federal policies over the next four years.
For too long, even when coming together to enact laws to accomplish noble goals, Congress and previous presidents have ignored the unintended effects of “one-size-fits-all” legislation on the racial wealth divide in this country. What seems like a great idea — making college more affordable, for example — can actually feed the divide.
Republicans and Democrats alike agree that the racial wealth gap is horribly skewed and growing. The median White household today has accumulated wealth of $110,000 compared to $7,000 and $9,000, respectively, for median Black and Latino households. There is talk on both sides of the aisle of developing economic development or tax proposals that might help reverse these trends, but a better place to start is to use newly developed strategies to scrutinize proposed legislation for its unintended effects.
The “Racial Wealth Audit” is one such strategy. Developed initially by Brandeis University’s Institute on Assets and Social Policy and Demos, the audit compares today’s racial wealth disparities with projected wealth outcomes by race and ethnicity following the implementation of a particular policy. In other words, it helps us anticipate the impact of future policy to better understand if a new policy will improve or aggravate wealth inequities.
Take the example above of making college more affordable. Applying the audit shows that among young adult households, full debt forgiveness for all student loan holders would increase the wealth gap between white and black households by nearly 10%, while a targeted policy that provided full debt relief to households making $50,000 or less (roughly the U.S. median income) would decrease the same gap by 7%.
Let’s take another example from the education sector. Many legislators are supporting a push to create a universal Children’s Savings Account, or CSA, program, which would provide a savings account to all children as early as birth, primarily to help pay for higher education.
Estimates applying the audit demonstrate that if a universal CSA program had been established for today’s young adults, and if that program had included a progressive public investment reaching up to $7,500 for low-wealth households but reduced amounts down to $1,250 for high-wealth households, the wealth gap between young-adult black and white households would have decreased by 23%. The gap between young-adult White and Latino households would have declined by 28%.
The idea of differentiating between the wealthy and economically vulnerable in setting policy isn’t new. The United States has long maintained an income tax system that taxes the rich at a different, higher rate than the poor. But we’ve done little over the years to examine whether all federal policies meant to address big problems are doing so without aggravating the racial wealth divide.
We also know that public investments can be transformational in creating a stable, growing and prosperous middle class. Look at what happened after World War II with the GI Bill. Unfortunately, those benefits were distributed unequally to soldiers of color, feeding a wealth gap that has yet to be corrected through our policies.
The approach we’re advocating is known as targeted universalism; that is, universal policies that emphasize benefits based on existing needs and barriers instead of one-size-fits-all. Policymakers must recognize that groups are situated differently and that to promote a large, universal goal, the policy tools and instruments need to take current social structures into account.
This prescription for developing new federal policies is not a radical one. It simply provides a crucial but often missing perspective. Our nation’s policies built the racial wealth gap we struggle with today. Now, we have the opportunity to avoid the mistakes of the past and do better.
Well-Designed CSAs Have the Potential to Help Decrease the Racial Wealth Divide
By Diego Quezada on 01/13/2017 @ 10:00 AM
Supporters of Children’s Savings Accounts (CSAs) often point to the fact that CSAs increase economic opportunity. CSAs are designed to ensure that all families, especially those in low- and moderate-income communities, have at least a modest wealth endowment to pay for postsecondary education. In order to achieve this goal, CSA policymakers should simultaneously address persistent, deep-seated racial wealth disparities in the United States through targeted policy design.
In 2013, the median White household had $144,200 in wealth, which is the value of what a family owns minus what it owes. By contrast, the median wealth of Black households was just $11,200. White families in the bottom quintile of the income distribution have slightly more wealth than Black families in the middle quintiles of the income distribution. Because wealth takes into account the intergenerational transfer of money, it is a better measure of economic security than income. That’s why we see these staggering racial inequities – White families have had much more time to pass wealth from one generation to the next.
The best CSA policies are the ones that are both universal and progressive – that is, they have greater initial deposits and incentive matches for families that come from economically disadvantaged backgrounds.
We know that this targeted approach could work. As CFED and the Institute on Assets and Social Policy have found, a universal, progressive CSA program established in 1979 with investments of $7,500 for low-wealth households and sliding-scale declines to $1,250 for high-wealth households would have reduced the racial wealth divide. The median wealth of Black households would be $7,450 greater today if such a policy were implemented, and the median wealth of Latino/a households would have increased by $6,100. The wealth gap between White and Black households would have fallen by 23%, and by 28% between White and Latino/a households.
Moreover, policymakers should also know that a progressive CSA program would not serve as a panacea to close the racial wealth divide. The returns to investments in education remain unequal for people of color, and for Black people in particular. In 2013, Black college graduates aged 22-27 had an unemployment rate nearly twice as high as their equally credentialed peers overall. In addition to promoting college access through CSAs, policymakers should ensure that people of color benefit equally from the same educational achievements. Increasing funding for the cash-strapped Equal Employment Opportunity Commission stands as one way to address this issue.
In order to achieve their goals of increasing college access and reducing wealth gaps, CSA policymakers should take into account that people have different opportunities and face different barriers toward getting ahead. They should also keep in mind that these disparities do not disappear as education or income levels rise. If CSA policymakers get it right, though, they have a great opportunity to benefit everyone and close wealth gaps.
Well-Intended, Well-Resourced Policies Aren’t Enough to Close the Racial Wealth Divide
By Emanuel Nieves on 01/11/2017 @ 09:00 AM
Just 9 days from today, President-elect Donald Trump will take the oath of office. While many questions still remain as to what the new President will do once in office, his actions over the past nine weeks have provided us with more details of what he may prioritize. For example, the deal he cut with Carrier and his recent Twitter messages about other manufacturers sending jobs outside of the country indicate that he may stand by his commitments to focus on keeping jobs in the US. At the same time, through his ‘New Deal for Black America’—his 10-point plan to advance the economic prospects of African-Americans—President-elect Trump has also shown some interest in remedying the economic plight of African-Americans and other communities of color. Given the current state of the racial wealth divide, in which households of color own just a fraction of the wealth ($12,377) of White households ($110,637), it is impossible to ignore the economic realities facing African-American and Latino families.
While we laud and share a common goal of closing the racial wealth divide for African-Americans, the President-elect’s plan falls far short of achieving this goal, and if enacted will very likely widen the racial wealth divide even further. For African-American and Latino families, that’s a prospect they cannot afford. As CFED and the Institute for Policy Studies’ recent report, The Ever-Growing Gap, indicates, that wealth divide is already on track to double over the next 30 years, from an average of $500,000 today to over $1 million by 2043. Although it’s heartening to see that the incoming President is thinking about racial equity issues, addressing this problem is going to require that his administration take consequential action that does not make this situation worse.
To help ensure that future policy decisions close the racial wealth divide, CFED and the Institute for Assets and Social Policy at Brandeis University (IASP) have released a new report, titled Equitable Investments in the Next Generation: Designing Policies to Close the Racial Wealth Gap. The report uses a new framework—The Racial Wealth Audit™, a joint collaboration between IASP and Demos—to help policymakers and advocates design economic policies that close, not exacerbate, the racial wealth divide.
As part of its findings, Equitable Investments highlights how even well-meaning policies can increase the racial wealth divide if those policies are not targeted to provide the most support to those who need it most. For example, the report highlights how universal policies to eliminate student debt could actually increase the racial wealth divide among young adults by nearly 10%, while targeted policies such as providing relief to households making $50,000 (roughly the U.S. median income) or less could reduce the racial wealth divide by seven percent.
To avoid repeating mistakes of the past, President-elect Trump should take a closer look at the policies in the ‘New Deal for Black America.’ For example, while it is true that African Americans are in need of expanded access to affordable credit, it should not be done through abusive, predatory products and services that offer triple-digit interest rates and place people in a perpetual cycle of debt (such as payday, car title and pawn shop loans). Also, we should not further tilt our already upside-down tax code to further provide disproportionate benefits to the wealthy at the expense of working families.
Again, it is our hope that President-elect Trump will diligently work to ensure that it does not take 228 years for the average African-American family and 84 years for average Latino family to amass the wealth White households enjoy today. Unfortunately, if enacted as proposed, the President-elect’s ‘New Deal for Black America’ will likely widen the ever-growing racial wealth divide even further.
New IASP/CFED Report Finds Universal Policies Designed to Help Students Succeed May Exacerbate the Racial Wealth Divide
By Emanuel Nieves on 12/20/2016 @ 01:00 PM
Too often, policies aimed at creating greater opportunity for low-income families have resulted in the expansion of the wealth divide between White families and households of color and perpetuating historic inequities. Although past policy choices—such as federally sanctioned housing discrimination and unequal distribution of G.I. Bill benefits—intentionally created the racial wealth divide, current policies continue to drive this gap. These findings and more are included in a new report released this morning by CFED and the Institute on Assets and Social Policy (IASP) called Equitable Investments in the Next Generation: Designing Policies to Close the Racial Wealth Gap, which calls on policymakers and advocates to ensure that investments will result in greater equity.
While there are a number of ways to begin addressing this ever-growing wealth gap, the simplest step policymakers and advocates can start to take is to ensure that policies aimed at creating greater opportunity for low-income families do not have the unintended consequence of expanding the wealth divide between White families and households of color and perpetuating historic inequities. As novel as that may sound, understanding the ways a proposal may affect household finances is critically important to closing the racial wealth divide.
Utilizing a new framework—The Racial Wealth Audit™—jointly launched by IASP and Demos, Equitable Investments focuses on the impacts universal education policy initiatives may have on narrowing or widening the racial wealth divide. In addition, the report also highlights how universal policies designed to help students succeed may exacerbate the racial wealth divide and what we can do to ensure that this doesn’t happen.
For example, the report highlights how universal policies to eliminate student debt could actually increase the racial wealth gap among young adults by nearly 10%, while targeted policies such as providing relief to households making $50,000 (roughly the U.S. median income) or less could reduce the racial wealth gap by 7%.
Although the Racial Wealth Audit framework can and should be applied to many other areas of policy design, it is just one tool to ensure that policies do not spread resources without consideration of need. As the example highlighted above shows, without consideration of need even well-meaning policies can direct resources to those with little financial need, thereby exacerbating the racial wealth gap.
By focusing on the ways in which policy design in the area of education shapes the racial wealth gap, we hope that Equitable Investments will foster a conversation about how policymakers can more effectively address pervasive and far-reaching inequality in the United States through intentional, well-crafted policies that place racial economic equity at the forefront of policy design considerations. Without such focus, our ability to reverse historically-rooted, racial economic inequalities will be greatly impeded.
The Ongoing Struggle for Native American Economic Empowerment and Self Determination
By Dedrick Asante-Muhammad and Rogelio Tec Moo, Guest Contributor on 12/02/2016 @ 11:00 AM
Editor's Note: This article originally appeared on the Huffington Post.
Each year during the national holiday of Thanksgiving my family and I go to the National Museum of the American Indian in Washington, DC. We go as an annual reminder of the past and current struggles of Native Americans. An important example of this centuries-old struggle for Native American self-determination is in today’s headlines as Indigenous peoples and their supporters continue a historic standoff with the government and private security forces over the Dakota Access Pipeline that threatens the Standing Sioux Reservation.
The ongoing everyday struggle of Native Americans to live a life of self-determination in the midst of an economy plagued by deep and divisive racial economic inequality is a story that receives much less headlines. For centuries, the U.S. created much of its wealth by appropriating Native American land. Decades of intentional U.S. governmental policies stripped Native Americans from their land and resources creating a racial wealth divide between them and White Americans. Today, Native Americans stand with African Americans and Latinos on the asset poor side of the racial wealth divide.
In 2011, the American Community Survey (ACS) reported Native Americans have the highest poverty rate among all minority groups. Their national poverty rate was at 27.0% - 1.2% higher than African Americans, 3.8% higher than Hispanics and 15.6% higher than the White national poverty rate during the same period. It must be noted that there is little socio-economic data collected about Native American peoples that much of the numbers cited are roughly five years old.
Moreover, the ACS for American Indian and Alaska Native Alone Population did an income report of Native Americans in 2013. They found that the median income of Native Americans was roughly $36,252 – slightly higher than the median income of African American households where the median income was $34,598. Altogether, these numbers pale in comparison to the White household median income of $58,270.
In terms of unemployment, Native Americans have had similar struggles. According to the Bureau of Labor Statistics, the unemployment rate for Blacks was 16%, Hispanics was 12.5% and Whites was 8.7%. For comparison, the unemployment rate for Native Americans was 17.9% - according to the ACS estimates during 2010.
All of this data highlights how the reality of Native American disenfranchisement and marginalization is a story that one does not need to go to a museum to see, but rather is a reality lived every day by Native Americans. The good news is that Native Americans resistance as seen in the struggle against the Dakota Access Pipeline continues to this day. Economic development has been a central struggle for Native American people. The emergence of community development financial institutions (CDFIs) like the South Dakota Four Bands Community Fund has been an important step in creating long term pathways for financial stability and security for Native American people. In 2009, the Native CDFI Network began with the purpose of bringing together Native Americans CDFIs from across the country to strengthen national advocacy and economic resources for Native American people.
Native American people across the country continue to organize to move the country beyond its history of inequality and disenfranchisement and, as usual, it is up to the rest of this country to finally follow the Native Americans lead in creating a country where all truly have the opportunity and access to resources that allow for self-determination and financial stability.
Building High-Impact Nonprofits of Color in New Orleans and Miami
By Jessika Lopez and Dedrick Asante-Muhammad on 12/01/2016 @ 01:00 PM
The outcome of last month’s presidential election made clear that our work to serve communities of color has never been more important. It was thus fitting that one week after the presidential election, CFED’s Racial Wealth Divide Initiative team was on the ground in New Orleans and Miami to meet with members of the first cohort of the Building High-Impact Nonprofits of Color project. The project, made possible thanks to generous support from JPMorgan Chase & Co., convenes leaders from New Orleans and Miami to build their capacity to better serve their local communities.
Our host when we traveled to New Orleans was the Jericho Road Episcopal Housing Initiative, a neighborhood-based nonprofit homebuilder that provides families with healthy and energy-efficient affordable housing opportunities. While in Miami, we were hosted by Sant La Haitian Neighborhood Center, whose mission is to empower, strengthen and stabilize South Florida's Haitian community through access to free services and resources.
The trainings provided in each city, titled Understanding the Power of Community Assets in Addressing the Racial Wealth Divide, explored how organizations of color can leverage their own strengths to boost financial stability in their communities in the context of deep racial wealth inequality. Each organization developed a community asset map to better identify resources to be leveraged in their community. Then, each leader identified someone from one of the other cohort organizations to be their coach through the end of the year. In this way, the nonprofits of color we’re working with aren’t just learning from CFED and from the experts we’ve partnered with to provide these trainings, but also from one another.
Last month's trainings mark the end of the first phase of the project. We look forward to launching the second phase in early 2017, including the kickoff of our second cohort of nonprofits of color with organizations in Baltimore and Chicago. Stay tuned!
Challenges Remain to Unleash Potential of Latino-Owned Business
By Diego Quezada and Lillian Singh on 11/16/2016 @ 10:00 AM
Editor's Note: This article originally appeared on the Huffington Post on November 7, 2016.
After Rosa Macias and her husband, Venancio, moved to the United States from Mexico in 1990, they sold furniture at weekend swap meets. In later years, they partnered with a family member to open a furniture shop on the east side of town in Phoenix, Arizona. Rosa and Venancio soon opened their own store, Muebleria Del Sol. Today, the Del Sol Group, which includes four large furniture stores, brings in $6 million in revenue per year.
This story from Rosa and Venancio is not an exceptional case but emblematic of the recent dramatic rise in Latino entrepreneurship. From 1990 to 2012, Hispanics added new entrepreneurs almost 10 times faster than the overall population. Latino entrepreneurs are starting businesses, employing people and helping them earn paychecks, pay their rents and generate money in the economy. According to the Small Business Administration, 2.3 million people work at Hispanic-owned businesses.
Even with this growth, Latino Americans still face structural barriers that limit their ability to grow the economy more.
Case in point, Latino-owned businesses still make far less than white-owned businesses. CFED's Assets and Opportunity Scorecard reports that on average, white-owned businesses are valued nearly three times as high as businesses owned by people of color. According to a Stanford Latino Entrepreneurship Initiative study, if Latino-owned businesses averaged the same sales as non-Latino-owned businesses, they would have an extra $1.38 trillion in the economy. Since the Latino population is growing as a share of the population – at 17% of the American population today, Latinos are expected to make up 30% of the population by 2060 – unlocking the potential of Latino entrepreneurship stands as an economic imperative. Whether people like America's growing diversity or not, it's happening, and making our economy more inclusive will help everyone.
One myth critics bring up to explain the relative lack of growth in Latino-owned business is that Latinos cater to their own demographic group. The research rejects this theory. According to the aforementioned Stanford study, only 20% of Latino-owned businesses have a "mostly Latino" consumer base. Overall, Latino-owned businesses do not rely on Latino customers.
Latino-owned businesses have not reached their potential because of structural barriers. Black and Latino entrepreneurs experience more denials when seeking financing for small businesses, even when other factors – their educational backgrounds, financial profiles, even their clothes – are identical. Only 6.1% of Latino-owned businesses finance their business with a commercial loan, and just 2.4% do so with a government loan. Latino entrepreneurs thus have few opportunities to start and grow their businesses through conventional capital sources.
And even if Latino entrepreneurs manage to secure loans, they pay higher interest rates. One study found that these higher rates were statistically significant. More broadly, the Federal Reserve revealed that business owners of color pay interest rates 32% higher on average than what their white counterparts pay.
One policy to promote Latino entrepreneurship is the State Small Business Credit Initiative (SSBCI), a 2010 program designed to provide lending to small businesses after large banks cut back on this lending in the wake of the Great Recession. Forty-two percent of SSBCI loans were made in low- or moderate-income communities from 2010 to 2014. SSBCI's funding expires in 2017, though; Congress should reauthorize SSBCI and expand it, implementing goals that set benchmarks for loans given to entrepreneurs of color. The Center for American Progress and Brookings Institute have both called for expanding SSBCI to expand credit opportunities for women and people of color.
Latino-owned businesses are already doing so much for the U.S. economy. They could do much more if we removed structural barriers like limited access to capital. If policymakers want to spur economic growth, buttressing growing, dynamic Latino-owned businesses should stand at the center of their agenda.
1. Although we would prefer to use the term "Latino" in this blog post, we have used the term "Hispanic" when citing sources for data integrity.
Brunch & Budget Takes a New Perspective on the Racial Wealth Divide
By Danielle Fox on 11/14/2016 @ 02:30 PM
The Brunch & Budget Podcast describes itself as the place where personal finance and social justice intersect, so it can only be described as fate when they attended the 2016 Assets Learning Conference (ALC) and learned about our Racial Wealth Divide Initiative. Since then, they have launched a multi-part series discussing an in-depth and frank assessment of the work the Racial Wealth Divide team has done so far. We’ve been loving what they have to say, and we think you will, too!
Part One: How to Close the Racial Wealth Gap
This episode goes over the major problems that need to be solved to close the racial wealth gap.
This episode talks about some of the solutions that are in motion or being proposed by the CFED to make strides on closing the racial wealth gap from savings programs, college savings, homeownership, tax law changes, retirement programs and so on.
Part Three: Why Homeownership as a Person of Color is More Than an Investment, It’s How to Build a Legacy
Part three explores one of the quickest ways to close the racial wealth gap – increased homeownership for people of color.
The fourth part covers some of the biggest challenges entrepreneurs of Color face, particularly Black and Latinx folks, as they try to start, build and sustain their small businesses, along with some thoughts on how to overcome these obstacles.
Their coverage of the 2016 ALC is (thankfully) ongoing and there are more podcasts to come. You can listen to the shows live on Sundays at 2 pm EST on BondFireRadio.com, or you can listen on your own time through the Brunch & Budget Podcast page. You can add the podcast to your iTunes by searching "Brunch & Budget" in the iTunes app or click here to go there directly!
Crossing the Great Divide: Building Assets and Wealth for All
By Andrea Levere on 11/10/2016 @ 09:00 AM
Editor's Note: This article originally appeared on the Living Cities blog.
“But it’s all right, ‘cause it’s all white…I ain’t talking about rich, I’m talking about wealth.” - Chris Rock, 2004
Sometimes the most vivid truths are spoken by the most unlikely suspects. Since its founding 36 years ago, CFED has pursued a mission to reduce wealth inequality, although we didn’t know it was called that until 25 years ago (what timing!) when Michael Sherraden introduced asset building as the next approach to poverty alleviation in his book, Assets and the Poor. A New American Welfare Policy. While the creation of the social safety net was one of the crowning achievements of the 20th century, the economic changes of our time demand more if we expect to help families stabilize their financial lives and escape the cycle of poverty.
The asset-building approach was grounded in the belief that a household needs knowledge of and access to affordable financial products and services to build the savings and economic cushion that enable upward mobility. Policies that protect consumers in the financial marketplace and encourage savings and investment among low-income households can work in conjunction with traditional antipoverty programs to help families get ahead. The core insight that “it’s not just what you earn, but also what you own” led to our view that the task ahead was to “turn the safety net into a ladder” by building a field of practitioners, crafting policies, engaging private markets, and collecting the data that diagnosed the challenges and delivered evidence of what worked.
CFED’s partnership with Living Cities led to a pivotal report in 2011 titled Building Economic Security in America’s Cities: New Municipal Strategies for Asset Building and Financial Empowerment. This report chronicled the innovative approaches of a growing number of cities in advancing economic security and opportunity through offices of financial empowerment, innovations ranging from access to banking to credit building, and the use of municipal regulation to restrict predatory financial practices. The enduring gift of this report was the design of the Household Financial Security Framework, which illustrated how personal behavior and aspirations, financial structures and systems, public policy and economic trends all interact to create the complex financial lives that we all live and how cities can align services and partners to build financial security in a comprehensive way. Five years later, this framework still guides the work of cities, states and nonprofit organizations.
Another leap came with the creation of the Liquid Asset Poverty metric, which measures the ability of a household to exist at the poverty level for three months if its main source of income is disrupted. Today, 44% or almost half of US households live in liquid asset poverty, with rates much higher in many of our major cities. This number has changed the political conversation; rather than focusing on “those poor people” as a problem, we now understand that more than half of the population faces some level of financial insecurity every day and is part of a broader community seeking solutions.
Yet despite the success of many of our asset-building programs and policies, the current level of income and wealth inequality has increased to levels not seen since the Depression. While Americans of all backgrounds have experienced significant losses of wealth since the recent recession, Americans of color have suffered the most. They are 2.1 times more likely than white households to live below the federal poverty line and 1.7 times more likely than whites to lack the savings needed to weather an unexpected financial crisis. Today, the gap between the average wealth of white households and Black and Latino households exceeds $500,000. A report issued by CFED and the Institute for Policy Studies last month revealed the stunning news that if the average Black and Latino family’s wealth increased at the same rate it has over the past 30 years, it would take Blacks 228 years and Latinos 84 years to generate the same amount of wealth white families have today.
And this sobering reality brings us back to the prophetic words of our favorite comic-turned-economist, Chris Rock. The challenge ahead is to proactively address the racial wealth divide through community-based and policy solutions that reduce this inequality at the national, state and local levels. While much of this inequality is the result of centuries of racist policies, our current tax code expands economic inequality every day through subsidies for homeownership, savings and investments, retirement and higher education that return almost $147,000 annually to the top 0.1% while the average benefit for those making less than $50,000 was barely $150. We need to flip the tax code while we place racial equity at the center of our strategy to revitalize cities and build financial well-being for their residents. I can imagine no organization better prepared to rise to this challenge than Living Cities as it celebrates its 25th anniversary.
A Tale of Two Cities: Racial Economic Inequality in New Orleans and Miami
New Orleans and Miami, two cities long touted as tourists’ paradises, share another similarity - racial wealth inequality.
Racial wealth inequality is a major issue in the United States. It’s origin dates back to the transatlantic slave trade, followed by the ratification of the 13th amendment, Jim Crow era, civil rights movement to now - the country has a painful history of white supremacy and racial prejudice with economic repercussions.
The tale of race and economics resonates strongly in New Orleans where, following Hurricane Katrina, the failure of the levies and massive flooding, more than 950 people lost their lives and hundreds of thousands more were displaced.
The racial wealth inequality in post-Katrina New Orleans reflects the inequality from pre-Katrina and explains why the African American community in particular was so vulnerable to a natural disaster and devastated by its impact.
In CFED’s recent report, The Racial Wealth Divide in New Orleans, the ramifications of this displacement and the current racial wealth divide in the city are explored.
Today, some 69% of families of color are liquid asset poor, meaning they do not have savings to stay above the poverty line in the event of an emergency or job loss, compared to 29.4% of white families. Additionally more than 30% of black households are under the poverty line ($23,850 or less for a family of four), compared to just 4.9% of white households.
These disparities have also led to much racialized internal displacement or gentrification, where former black communities are disappearing and/or moving further and further out from the city center.
Yet, it should be noted that while the size of the black community decreased post-Katrina, there has been growth in the Latino community, and the Vietnamese community growth is relatively flat. Still Latinos and Vietnamese in New Orleans face similar economic and political challenges to that of African Americans.
In Village de L’Est, for example, the Vietnamese community had to fight to open a local school and close a landfill, after one was created in the rush to rid the city of debris, following the storm.
Gentrification and its affects are not unique to New Orleans. In the second report released by CFED this month, The Racial Wealth Divide in Miami, they found that more than 65% of Miamians of color are cost-burdened renters and less than 30% are homeowners, compared to 43% of whites.
Miami’s wealth inequality, unlike New Orleans is further nuanced by its long history of immigration. Even today, 3 out 5 Miamians are foreign-born. Miami has been home to numerous immigrant groups. Most recently, there has been an influx of Central and South Americans.
Unfortunately there are great disparities among and even within racial and ethnic groups. The homeownership rate among Cubans is 36.9% compared to just 16.7% of Central Americans. Still, neither ethnic group compares to Whites that have a homeownership rate of 42.9%. In education, we see even greater disparities. Just 3.6% of Haitians have a bachelor’s degree or higher compared to 7.3% for African Americans, which is then compared to 31.3% for Whites.
Although similar challenges face these cities, they differ by their magnitude and how they manifest within families and communities - it is these differences that require targeted and local interventions.
With the release of these profiles, CFED also announced their project Building High Impact Nonprofits of Color. The project’s interventions rest upon this belief - those working in communities are best equipped and positioned to affect the racial wealth divide.
CFED’s Racial Wealth Divide Initiative has selected ten organizations, five in New Orleans and five in Miami. In New Orleans, the selected nonprofits are as follows: Ashe Cultural Arts Center, Jericho Road Episcopal Housing Initiative, MQVN Community Development Corporation, Puentes LatiNola and VAYLA New Orleans. In Miami the selected nonprofits are as follows: ConnectFamilias, Hispanic Unity of Florida, Miami Children’s Initiative, Partners for Self-Employment and Sant La Haitian Neighborhood Center. With the selection of these organizations and their investment, CFED’s Racial Wealth Divide Initiative, in partnership with JPMorgan Chase, is making the case that to address the racial wealth divide, investments must be made in communities to organizations of color with high impact asset-building services.
There is hope. With these investments, the work of organizations, and significant policy reform we may be able to address the racial wealth divide and find ourselves in paradises that serve both tourists and their local communities of color.
"Born on Third Base" featuring Chuck Collins
By Jessika Lopez on 10/06/2016 @ 04:00 PM
In our latest report, The Ever-Growing Gap, CFED and the Institute for Policy Studies found that it will take 228 years for African Americans to catch up to White wealth and 84 for Latinos. With many people focusing on income, CFED and the Institute for Policy Studies found that it was more important to focus on wealth (assets minus liabilities) because it plays such a vital role in achieving financial security.
To further help understand the role of wealth and why rising racial and economic inequality is one of the biggest issues facing American’s today, the Racial Wealth Divide team is happy to highlight our latest podcast, “Born on Third Base,” featuring Chuck Colllins. During this podcast, Chuck, who is a descendant of Oscar Mayer, talks about his own personal experience with wealth and how it helped him understand his privilege. In this conversation Chuck Collins delves into how in our society privilege compounds itself just as disenfranchisement does and the need to create a society and more importantly a community that intervenes into concentrating privilege and instead creates mechanisms to expand opportunity.
Chuck Collins is the Director of Inequality and the Common Good at the Institute for Policy Studies and is a co-author of our report, The Ever Growing Gap. Take a listen and also check out Chuck’s newly released book, Born on Third Base: A One Percenter Makes the Case for Tackling Inequality, Bringing Wealth Home and Committing to the Common Good.
Racial Wealth Divide Initiative: One Year Later
By Dedrick Asante-Muhammad on 09/21/2016 @ 10:00 AM
Editor's Note: This article originally appeared on the Huffington Post.
Racial wealth inequality is growing. We see it in data. We see it on the news. We see it in our communities. Ferguson, Baltimore, Minneapolis, Dallas . . . no matter where we live, we confront stories highlighting the consequences of a society divided deeply by race and opportunity. And we all struggle to find ways to make a difference.
One year later, we’re excited to share an update on how this initiative is making a difference.
First, the Racial Wealth Divide Initiative began “at home” by ensuring that all of CFED’s work—programs, policy, advocacy, staffing and leadership—is examined through a equity lens. CFED is known for its rigorous, data-driven approach, so a key first step was strengthening racial inequality analysis in all of CFED’s core programmatic and policy areas.
Second, the Initiative focused on launching specific projects to support and advance best practices in addressing racial wealth inequality. The Initiative’s inaugural program, the African-American Asset-Building Initiative, has provided technical assistance and program support to five local nonprofits to create strong and effective financial capability programming in African-American communities. This past January, with an additional round of support from JPMorgan Chase & Co., CFED launched the Building High-Impact Nonprofits of Color project. Over the course of a year, 10 organizations of color across New Orleans and Miami will receive intensive organizational training, subject-matter support and network-building guidance so they can not only help their clients build wealth, but also effectively encourage community-wide solutions to racial wealth inequality. In 2017, we will expand the project to Baltimore and Chicago—building the capacity of approximately ten additional nonprofits led by people of color.
Third, the Racial Wealth Divide Initiative team has worked to identify and elevate local, state and national solutions that address the challenge of racial wealth inequality and to get the word out about these solutions to a wide audience. The Initiative launched the Race & Wealth podcast to promote discussion about issues and solutions related to racial economic inequality. To date, the Initiative has published 18 op-eds and presented on racial wealth inequality at eight conferences across the country, while Initiative Director Dedrick Asante-Muhammad co-authored a recent report, The Ever-Growing Gap, with CFED’s Emanuel Nieves and Chuck Collins and Josh Hoxie of the Institute for Policy Studies.
There is much to do to help bridge racial economic inequality and no one person or organization has all the answers. But one year into the Racial Wealth Divide Initiative, we are optimistic about the impact we can have by strengthening nonprofits and advancing best practices and solutions to move our country forward.
How Children’s Savings Accounts are Helping Bridge the Racial Wealth Divide
By David Meni, Graduate Intern on 09/13/2016 @ 02:00 PM
We’ve written a lot on the blog this summer about the growing promise of Children’s Savings Accounts (CSAs) and reports from the field on how CSA programs have been growing and succeeding in more places than ever before. Shira Markoff wrote about how CSAs can fit into the larger national conversation about free or debt-free colleges, Delaney Luna took us through a number of CSA pilot programs that are leading the way in New England, and just last week, Megan Kursik from Michigan Communities for Financial Empowerment discussed strategies for proliferating a strong CSA program throughout the state of Michigan.
Now that the summer is winding down (though you wouldn’t know it from the heat here in DC), let’s take a step back and look at why states and localities have been pursuing CSAs so enthusiastically. Spoiler alert: it’s because they work.
Today we’re releasing a new Fact File: Scholarly Research on Children’s Assets and Children’s Savings Accounts. The Fact File serves as a guide to the growing body of evidence that shows the potential of CSAs to expand opportunity for children, particularly those from low- and moderate-income families and families of color.
A great deal of new evidence on the effects of CSAs has been released in the last few years, particularly from the SEED OK experiment in Oklahoma, the first randomized controlled trial (RCT) of a universal progressive CSA in the United States. The strength of this RCT study reinforces a litany of past research on the promise of CSAs and children’s savings in general: that they improve child development, college expectations and outcomes and help build financial capability.
Here’s a summary of the major findings from the literature:
- CSAs improve early child development and academic performance. Starting children off with savings early in life has ripple effects throughout their development. One study showed that the development effects of having a CSA are similar to that of the Head Start Program. Children with savings have also been shown to perform better on standardized math exams.
- Parents and children with early savings have greater college expectations. Having expectations of attending college– and developing those expectations early for both parents and children – is one of the most important factors that put a child on a pathway to enrolling in college. Studies have shown that CSAs and other early childhood savings can be one of the most potent tools for developing college expectations, particularly in families where neither parent went to college themselves.
- Children with college savings are more likely to enroll in and graduate college. Children’s savings can impact more than just expectations of going to college. Even a small amount of savings – less than $500 – increases a low- or moderate-income child’s likelihood of attending college threefold. CSAs may also be able to help families weather the uncertainty about college affordability and prevent them from having to take out expensive loans or dropping out entirely.
- Children’s savings increases a child’s future financial capability and reduces the racial wealth gap. From reinforcing financial literacy education to helping low- and moderate-income individuals become banked from an early age, studies on CSAs have found that these programs have the capacity to bolster a child’s financial capability as they mature.
The fact that the strongest CSA programs are universal and progressive (matched funds are greater for lower-income families) also means that CSAs can act as one of a number of policies we can enact to help reduce the racial wealth gap.
For more information on these and other findings, be sure to check out our latest Fact File.
Special thanks to our partners at the Center for Social Development at Washington University St. Louis and the Center on Assets, Education, and Inclusion at The University of Kansas for their continued work in the field of CSA research and for indispensable input on this publication.
The Color of Patrimonial Capitalism
By Dedrick Asante-Muhammad and Chuck Collins, Guest Contributor on 09/07/2016 @ 02:00 PM
Editor's Note: This article originally appeared on the Huffington Post.
Without a course correction, French economist Thomas Piketty warned, we are hurtling toward a grotesquely unequal future. A future governed by a hereditary aristocracy composed of the progeny of today’s billionaires.
In his assessment, however, Piketty overlooked the “peculiar institution” of our nation’s original sin. The color of what Piketty calls our “patrimonial capitalism” will be almost exclusively white.
Progress in race relations has done little to narrow the racial wealth divide. If average black wealth grows at the same rate it has over the last 30 years, it will take another 228 years before it equals the amount of wealth currently possessed by white households.
If we stay on our current trajectory of unequal wealth growth, the wealth divide between white families and black and Latino families will double to about $1 million by 2043, the same year when households of color are projected to account for half of the U.S. population.
The legacy of discrimination in asset-building programs, which help people purchase homes, save for college or increase retirement savings, goes back generations and has a direct impact on the net worth of today’s families. Assets are a more durable measure of inequality than income, providing a buffer against economic downturns, both personal and societal.
Wealth plays an essential role in establishing financial security and opportunity for future generations. The average retirement savings for black and Latino households is $19,049 and $12,229, respectively, compared to $130,472 for White households.
Homeownership still stands as the most significant asset for low- and middle-income families. In the years after World War II, as the G.I. Bill propelled millions of white households into homeownership, discrimination in mortgage lending left most people of color behind.
The result today is an enormous gap in homeownership. More than 70 percent of white households own their home compared to less than half of black and Latino families.
The driving causes that both compound wealth inequality and worsen the racial wealth divide are overlapping but different. Policy preferences that favor asset owners over wage earners, such as low capital gains taxes and most global trade agreements, have supercharged the share of wealth flowing to the top one percent. The Forbes 400, a list exclusively of billionaires, now possesses a stunning $2.34 trillion — more wealth than the entire black population and one-third of the Latino population combined or a total of over 60 million people.
Policy inaction to reduce inequality, such as allowing the minimum wage to lag and diminished investment in higher education, undermine workers of all colors. Yet popular equalizing initiatives, such as raising the minimum wage or expanding college access, will not aid black and Latino workers in the same way it does for Whites. Homes in black and Latino neighborhoods do not appreciate at the same level as homes in predominately white neighborhoods. And the return on investment for black and Latino college graduates is significantly lower than Whites in terms of lifetime earnings.
So what course corrections are needed to reverse generations of racial economic inequality?
For starters, consider public programs aimed at asset-building and homeownership. These well-intentioned policies lack rigorous enforcement against predatory and asset-stripping products and services.
Low-wealth households often must rely on alternative financial services, such as payday loans, prepaid cards and check-cashing. In some cases, these services take away as much as 10 percent of a household’s income. Black and Latino households are more than twice as likely to have to turn to these services, thanks to barriers to traditional banking. We should provide incentives, such as reduced taxation, to banks that provide accessible banking services to those without significant assets.
We also need to make a full-throttle effort to reverse existing upside-down tax incentives. Over $600 billion in tax subsidies each year helps promote homeownership, private retirement funds, and savings and investments. The overwhelming majority of these subsidies flow to affluent and white households. Why not push these subsidies towards people who actually need them?
The racial wealth divide was created and exacerbated by public policies that currently threaten to push our nation towards fundamentally un-American levels of inequality and unequal opportunity. Another future is possible, one where public policy can begin to bridge our nation’s deep divisions, not continue to widen them.
When Neighbors Resist Affordable Housing, What’s a City to Do?
By Kate Davidoff on 09/01/2016 @ 10:00 AM
When affordable housing developments get off the ground, communities often have a lot to say about them—especially when information about the proposal is scarce. But with the federal government starting to push states and municipalities to do more with their housing programs, getting neighbors invested in new developments in a positive way is more important than ever. Without their buy-in, projects can stall for months or even years, and local governments sometimes try to avoid clashes with residents by making deals as quietly as possible. Housing leaders need to make neighborhood engagement a priority if efforts to expand opportunity are going to be successful—and equitable—for all community members.
For years, the legacy of residential segregation has kept many households of color locked out of neighborhoods—and wealth-building opportunities—in communities across the country. In recent years, the federal government has started to crack down on housing policies that keep communities segregated—even inadvertently. In a much discussed decision, the Supreme Court ruled in last year that state and local governments do, in fact, violate federal housing laws when they spend money from the U.S. Department of Housing and Urban Development (HUD) on policies that perpetuate segregation. The ruling stipulated that this is the case even if the intent of the policy itself was not explicitly to segregate housing by race.
This decision is still reaching municipalities and their efforts to build affordable housing that doesn’t perpetuate decades-old divisions along the lines of race. Partially as a result of this decision, HUD is providing local governments with the data necessary to understand and measure segregation, in the hopes that localities will use this data to comply with the Supreme Court’s order: creating affordable housing in new places and ending the seemingly endless cycle of segregation in housing in America.
However, regardless of the Supreme Court’s decision, HUD’s data and the White House’s support, state and local officials' ability to comply with this rule can be greatly impacted by individual citizens, like Veronica Walters.
On Dec. 12, the Baltimore Sun published a 6,100 word story…that describes how the city Housing Authority, complying with a federal court order, has been quietly buying homes over the past decade in prosperous suburbs to use as public housing…The reaction to the Sun story was immediate. “City housing program stirs fears in Baltimore County,” Donovan wrote in a follow-up piece.
Veronica Walters, 73, who lives in Catonsville, a middle class, largely white Baltimore County neighborhood with a median household income of $77,165, told Donovan. “We have worked for years in order to have a house in the county, and the government is pushing people out here,” she said, before adding: “They don’t deserve to have what my family worked hard for. It’s a shame we didn’t know about this ahead of time. I would have been right there protesting.”
Wealthy suburban counties such as Veronica’s are not the only group to resist affordable housing. Earlier this month, in the Inwood neighborhood in Northern Manhattan, residents protested and successfully stopped rezoning efforts that would’ve cleared the way for the construction of a new 23-story, mixed-use development that included over 150 affordable units. The predominantly Latino neighborhood felt that the below-market-rate rents weren’t below-market enough to be affordable for most New Yorkers. Moreover, residents feared that, if the building succeeded, it would gentrify the neighborhood, raise rents and lead landlords to force current residents out of their homes.
The dueling examples of Baltimore and Inwood highlight the difficulty of implementing an affordable housing program. Each example offers its own lessons, but both illustrate existing residents’ resistance to change, and how this hampers the ability of governments to use affordable housing to lift people out of poverty.
The reaction to affordable housing certainly isn’t new, but hiding its implementation isn’t the answer. Baltimore city officials have long faced resistance to affordable housing. In one noteworthy example, 1990s Moving to Opportunity project that would’ve relocated people living in segregated poverty to middle income neighborhoods was met with such protest (in one case just 10 new homes were slated to be built in a majority white neighborhood) that the project had to be abandoned. Just this month, under pressure from suburban residents who feared lower property values, Baltimore City Council rejected a bill that would have made it illegal for landlords to discriminate against prospective tenants who use Section 8 vouchers to pay their rent, making it even more difficult for families to find affordable units. These are just some of many examples in Baltimore—so it’s no surprise why city officials may have wanted to keep the purchasing of homes in suburban counties a secret from residents like Veronica.
However, purchasing homes in secret, and trying to keep entire housing programs operating under the radar only encourages the stubborn, occasionally virulent skepticism with which existing residents treat affordable housing. The Supreme Court decision and the provision of HUD data calls for transparency from advocates and city officials alike while giving them the ability to address segregation and poverty. The hard conversations with residents should be at the forefront of these efforts, rather than at best an afterthought and at worst a non-entity. Residents should have the opportunity to understand what the problem is, why the court decisions matter and how they may work together to improve the lives of everyone in the community. The CFED data illustrates the depth of the problem, and the potential for affordable housing to be an effective solution. The opportunity to recognize these benefits exists, but the people who can put a stop to affordable housing are also the people who can ensure its success. Advocates and city officials shouldn’t fear these people; they should welcome them into the process.
ALC Session Spotlight: Racial Wealth Inequality
By Sean Luechtefeld on 08/24/2016 @ 11:00 AM
In just five weeks, 1,400 asset builders will descend on Washington for the 2016 Assets Learning Conference. Over the next week, we’ll be highlighting several of the 80+ sessions from which attendees will have to choose. If you want to get in on the action and participate in these sessions, it’s not too late! Register for the ALC by Friday, September 2 to guarantee your seat at the table and save $100!
If you’re interested in solving racial wealth inequality, here’s your personalized ALC agenda:
- Bridging Economic Inequality with the Racial Wealth Audit (Wednesday, September 28, 10:45 am)
The Institute on Assets and Social Policy (IASP) at Brandeis University, along with Demos and CFED, are developing a racial wealth audit that assesses which asset-building policies will have the greatest effect on bridging racial economic inequality. Experts in this session will discuss design features of policies that affect racial wealth inequality and the importance of a racial wealth audit for developing the best possible policies to create opportunity for all.
- Creating Opportunity and Financial Well-Being in Native Communities (Wednesday, September 28, 10:45 am)
This session will explore the challenges/obstacles to building financial well-being in Native communities. Participants in this session will hear from experts about programs, strategies and solutions that are building financial well-being in Indian Country and will have the chance to engage in discussions about how to create long-term, scalable opportunities to build financial well-being and economic opportunity.
- Let a Thousand Flowers Bloom: Nurturing Racial Equity in Our Networks and Nonprofits (Wednesday, September 28, 10:45 am)
How can nonprofits take on the racial leadership gap and the racial wealth divide within our own sector? How can grassroots community-based organizations led by people of color gain access to and influence the asset-building field? How can organizations and funders deepen their commitment to racial equity internally and within their coalitions? In this session, we will share findings from Building Movement Project’s 2016 Nonprofits, Leadership & Race Survey. We’ll explore how organizations can advance the inclusion of people of color in our sector though strategic hiring, mentoring and leadership development. We’ll discuss strategies and best practices for funders and coalitions to increase influence and access for organizations led by people of color, and for building internal opportunities for employees of color within our own organizations.
- What Does It Take to Support African-American Financial Capability? (Wednesday, September 28, 10:45 am)
Participants in this session will hear from African-American-led organizations that are working collaboratively in six communities to improve financial capability and inclusion. Panelists in this session will share information about the African-American Financial Capability Initiative, an exciting investment the Northwest Area Foundation is making to encourage collaboration, foster peer learning and support collective impact strategies.
- Pennies on the Dollar: How Racial Wealth Inequality Factures the Nation, and Why We Must Act (Wednesday, September 28, noon)
Despite the success of many asset-building programs and policies, the level of income and wealth inequality has increased to historic levels not seen since the Great Depression, and households of color are suffering most. This honest, thought-provoking conversation about addressing the racial wealth divide will feature a panel of leaders representing organizations of color.
- Immigration and the Path to Financial Well-Being (Thursday, September 29, 10:15 am)
Historically, immigrant communities across the US have struggled to be part of the financial mainstream and have lacked the resources to achieve full financial inclusion. In this session, experts and leaders in the field will focus on the programs and services their organizations are offering to alleviate challenges while highlighting their present and future work to boost financial well-being among immigrants. This session will also explore ways that innovative programs and state and federal policies can help immigrants get ahead.
- Broadening the Tent: Engaging Communities of Color in Our Coalitions (Thursday, September 29, 10:15 am)
This session will examine how engaging communities of color in coalition building can lead to positive outcomes that benefit diverse stakeholders. Practitioners will share their effective coalition-building strategies and practices at the national, state and local levels. Participants will have a chance to think about their own coalition-building challenges, including getting feedback and input on how to resolve these challenges.
- Entrepreneurship and the Racial Wealth Divide: Challenges and Opportunities for Black-Owned Business in the South (Thursday, September 29, 10:15 am)
African-American entrepreneurs in the South face a unique set of challenges as they work to transform their businesses into assets for themselves and their communities. Prior research suggests that cash flow difficulties are a particular challenge for low- and moderate-income entrepreneurs and that the greatest disparities in business outcomes are experienced by African-American entrepreneurs in the South. The racial wealth divide puts African-American entrepreneurs in an even more precarious financial position from the beginning. This session highlights new research drawn from conversations with practitioners in 9 states and in-depth interviews with 30 African-American entrepreneurs in North Carolina, Georgia and Mississippi about the underlying drivers of cash flow inconsistency. Panelists and participants will share their reactions to these findings and consider their implications for program, policy and service-oriented solutions that might help entrepreneurs achieve financial security through business ownership. This session is sponsored by Capital One.
- Race and Homeownership: How Housing Contributes to the Racial Wealth Divide, and What Should be Done about It (Friday, September 30, 10:15 am)
Housing is the single greatest contributor to the racial wealth divide in this country, and this session will explore what can be done to create more parity in this space. Discussions will include how we got here (what policies produced the divide historically) and what the housing policy landscape looks like today, including how it helps or exacerbates racial wealth disparity. This session will also explore what needs to be done in the future to reduce racial wealth inequality.
- Closing the Women’s Wealth Gap (Friday, September 30, 11:45 am)
This panel discussion will focus on the causes and effects of the women’s wealth gap, with a focus on emerging policy and practical strategies to narrow the gap by expanding savings and investment opportunities for low-income women and women of color.
- Closing Plenary: The Price of Hope (Friday, September 30, 1 pm)
Our closing plenary, The Price of Hope, will reflect on all that has been shared and discussed over the previous three days, and leave us with a sense of renewed direction and purpose. The plenary will feature a performance and remarks from actor Anna Deavere Smith, whose recent efforts to document the “poverty to prison” pipeline etch into sharp relief the urgency and importance of creating pathways to prosperity for all children and families. In this final session, leaders from some of the nation’s most respected foundations and public agencies will share their vision for promoting equality and financial security for all U.S. families, including highlighting the unique role philanthropic institutions play in advancing prosperity for all.
These are just a small sampling of all this year’s ALC has to offer. Check out the full agenda here.
We hope to see you in Washington, DC, September 28-30! Learn more and register today at assetsconference.org.
America’s Racial Wealth Divide Is Nothing Short Of Shocking
By Dedrick Asante-Muhammad and Chuck Collins, Guest Contributor on 08/24/2016 @ 09:00 AM
Editor's Note: This article originally appeared on the Huffington Post.
It would take the average black family 228 years to accrue the same amount of wealth that white families have today.
Most media coverage of racial injustice has understandably focused on our country’s unfair policing and criminal justice system. But to fully understand the current reality of racial inequality in America, we also need to take an honest look at our nation’s shocking wealth disparities.
Wealth — the total assets a family owns after the bills are paid — is the safety net we all need to help us get through the tough times and invest in our futures. And its polarization along racial lines is striking.
The average wealth for white households is $656,000. For Latinos it’s $98,000, and for black households it’s just $85,000. The average wealth of black and Latinos combined still doesn’t come close to half of white wealth.
And while white wealth continues to grow substantially, any gains in black and Latino wealth pale in comparison. Current estimates show that if nothing changes, the racial wealth divide will grow to $1 million by 2043.
In fact, it’ll take the average black family 228 years to accrue the same amount of wealth that white families have today. That’s just 17 years shorter than the centuries-long institution of slavery in the U.S. For Latinos, it’ll take 84 years to reach average white wealth today.
Generations of racial discrimination in programs like housing and government benefits are now reflected in dismal bank statements and paltry retirement funds for blacks and Latinos.
In particular, racial bias in mortgage lending — known as redlining — has consistently barred communities of color from the wealth-building train, resulting in low homeownership rates.
After World War II, for example, predominately white families received government-subsidized mortgages that allowed them to purchase homes, while black families didn’t. The result has played out over generations: Today, more than 70 percent of whites own homes, compared with only 41 percent of blacks and 45 percent of Latinos.
For many blacks and Latinos, a lack of assets has contributed to economic insecurity and sometimes-heartbreaking reversals of fortune. This explains the dizzying disparities in retirement savings: The average white household in the U.S. today has $130,000 in retirement funds, while average black and Latino households have $19,000 and $12,300, respectively.
The younger generation isn’t doing any better. College debt is rising for all races, andnearly half the workforce earns less than $15 an hour — barely enough to pay the bills.
The structures in place driving these inequalities, like tax cuts for the wealthy and global trade deals that drive down wages, amplify existing racial wealth divisions. They pit low-wage workers of all races against each other, leaving us vulnerable to the politics of blame and deflection.
The good news is we can reverse these trends through public policies that both reduce overall inequality and close the racial wealth divide.
First, we should fix the upside-down system of tax incentives that currently flows almost exclusively to wealthy households. We should redirect the $650 billion a year Congress allocates in tax subsidies to support first-time homebuyers and first-generation college students.
Additionally, taxing multi-million dollar inheritances and investing in tuition-free higher education are approaches that can expand wealth and opportunity for everyone.
We can reverse the racial wealth divide if we understand our history of racial discrimination and press lawmakers to stand on the side of opportunity, not inequality.
Dedrick Asante-Muhammed directs the Racial Wealth Divide Initiative at the Corporation for Enterprise Development. Chuck Collins is a senior scholar at Institute for Policy Studies and author of Born On Third Base. They are co-authors of the report, The Ever-Growing Gap. Distributed by OtherWords.org. This oped was originally published by OtherWords.org.
Looking More Closely at Microbusinesses Sheds Light on Other Aspects of Financial Security & Inequality
By David Meni, Graduate Intern on 08/23/2016 @ 10:00 AM
Being supportive of small businesses in the United States can often be like supporting apple pie or baseball. With every election season comes the inevitable parade of campaign commercials with B-reel footage of a smiling baker or construction worker, evoking the American entrepreneurial spirit.
However, many efforts to support “small” businesses in the United States don’t help the country’s millions of microbusinesses—those with 1-5 employees, including the owner. These firms constitute more than 90% of all small businesses and are responsible for a significant share of national employment relative to their size. In fact, during the Great Recession, microbusinesses were the only kind of firm that were still creating jobs.
If there’s one thing to know about microbusinesses, it’s this: if just one in three of them hired an additional employee, the United States would reach full employment.
Despite the fact that microbusinesses are such a powerful force in the U.S. economy, a minority of federal funds for small business go to these firms, and microentrepeneurs face barriers to financial stability in everything from financing to everyday cash flow.
CFED’s newest Fact File on microbusinesses highlights the importance of these firms in the national economy, diagnoses their financial challenges and elevates the potential of microentrepeneur support in advancing goals of racial and gender equity.
Here’s an overview of how microbusiness development is informed by some of CFED’s other work.
Predatory Lending Regulation Should Help Businesses, Too
One of the biggest hurdles facing microbusinesses and the entrepreneurs that run them is a lack of appropriate financing. Many traditional lenders are only providing business loans of $1 million or more. Since the Great Recession, that amount of smaller loans given out by traditional lenders has gone down year after year, even as larger loans have rebounded.
But demand for smaller business loans is high: 68% of small businesses are seeking loans less than $250,000, and 50% want loans less than $100,000. With the Small Business Administration’s financing of small loans remaining nearly flat since 2010, many business owners (and soon-to-be business owners) have had to turn to high-cost alternative lenders like Merchant Cash Advances (MCAs).
These loans have all the issues we’ve written about with predatory payday loans to consumers, but are for many thousands of dollars instead of a couple hundred. On average, an MCA has an interest rate of 94%, saddling business owners with monthly payments that are nearly double their income. These unsustainable loans prevent many microentrepeneurs from hiring or growing their business.
While the Consumer Financial Protection Bureau has come out with a proposal on how to rein in the debt trap of small-dollar consumer lending, such rules would not apply to these predatory business loans—despite the fact that they’re essentially mega-payday loans.
Microbusiness Support Could Address the Women’s Wealth Gap
My fellow graduate intern, Anna Mahathey, published a great blog series this summer about the harsh realities of the gender wealth gap in everything from retirement savings to asset limits. Though the growth of new women entrepreneurs since the recession has been high, women-owned businesses have more difficulty securing equity financing, accessing reliable networks and mentors, and growing their enterprise.
Since women are over-represented in the microentrepreneurship space, additional support, research and funding for businesses of this size could go a long way towards helping address the gender wealth gap and ensuring women entrepreneurs gain a more stable foothold in their retirement savings and other personal assets.
The Racial Wealth Divide is Also Fueled by Business Assets
“The Ever Growing Gap,” a report CFED and the Institute for Policy Studies published this month to illustrate how far-reaching the racial wealth divide is in the US, paints a bleak picture. The report finds that it will take centuries for Black household wealth to catch up to where white wealth was in 2013. Other households of color don’t fare much better.
While the racial divide in homeownership is one of the biggest drivers of this wealth gap, it is also driven by differences in business value between white entrepreneurs and entrepreneurs of color. The average value of a white-owned business is more than eight times larger than that of a Black-owned business. Much of the reason for this persistent gap in business value comes from a vicious cycle of financial insecurity facing microentrepreneurs who lack sufficient credit and savings to launch and sustain their businesses. Since entrepreneurs often leverage their own savings or the equity of their home to start and maintain a business, lower levels of wealth for people of color translates into more difficulty in sustaining entrepreneurship.
The silver lining here is that a bit of support for businesses owned by people of color goes a long way. Research conducted by FIELD at The Aspen Institute found that microenterprise development programs helped level the playing field for non-white business owners, increasing business survival rate to be on par with white-owned firms, and boosting business revenues and owner take-home pay.
Microbusinesses and entrepreneurship have always been important issues for CFED. As our new Fact File shows, the field of microbusiness intersects with so many of our other policy and advocacy areas.
The Asian American Wealth Gap: Too Often Ignored
By Lillian Singh and Karishma Shamdasani, Intern on 08/10/2016 @ 10:00 AM
Editor's Note: This article originally appeared on the Huffington Post.
Why is there only one check-box on official forms for Asian Americans when, as a group, they represent 48 culturally diverse countries and have a population of over 17 million people?
Last year, The Pew Research Center reported that by 2055, Asians will be the largest immigrant group in America. Yet the term “Asian American” often evokes an overly specific image. It is one of tiger moms, students with perfect SAT scores, white collar jobs, a proclivity towards math and science, and economic statuses that surpass even some of the wealthiest white Americans. In all, Asian Americans often are presented as the model minority.
The model minority myth is an egregious pigeonhole that ultimately diverts attention and resources from overshadowed Asian American subgroups. This is demonstrated by the sharply lower median incomes and higher poverty rates for Southeast and South Asian ethnic groups. To say that all Asian Americans have the same economic or social experiences would be far from the truth. Many Asian American subgroups struggle financially, and the model minority myth only worsens the narrative of the truth.
Asian Americans Advancing Justice and the National Coalition for Asian Pacific American Community Development (National CAPACD) are both working to address the frustrating depictions that lump all Asian Americans into a single category, especially when it comes to understanding their financial lives. Surveys and reports that treat Asian Americans as a homogeneous group do damage by placing a refugee from Cambodia in the same category as a software engineer from India, or a physician from China. These groupings skew the data for all Asian Americans. Indian Americans, for example, had a national median income of $92,418 in 2011, while for Bangladeshi Americans, it was $45,185. When economic reports show Asian Americans with incomes equal to or surpassing that white Americans, they fail to consider the struggles of people whose families immigrated from places that face immense economic challenges.
Let’s consider metropolitan Los Angeles County. Tongan (78%), Bangladeshi (57%), and Cambodian Americans (53%) in Los Angeles County have higher rates of poverty than any other racial group, including Latinos (51%) and African Americans (40%). Yet the overall Asian American poverty rate—significantly lower than other groups at 27%—is skewed by high-performing groups, such as Taiwanese (19%), Indian (19%) and Japanese Americans (18%).
The recent study, “A Community of Contrasts: Asian Americans, Native Hawaiians and Pacific Islanders in Los Angeles County,” that 16% of Asian American families in Los Angeles County have three or more workers contributing to income, a significantly higher proportion than white families (10%). This is not uncommon for Asian American families across the country, whose cultural principles lend towards multi-generational households with several working adults. But data collection methods are not ideal for understanding these nuances. In other words, data can actually hide the truth instead of revealing it: failing to consider these cultural differences makes Asian Americans’ income seem higher than it is.
“But Los Angeles is an anomaly,” you may be thinking. But, if we look to metropolitan Dallas, which has a lower overall population of Asian Americans, we see that Burmese (31%) and Nepalese Americans (33%) have higher poverty rates than any other racial group, again including Latinos (23%) and African Americans (21%). Yet the Asian American poverty rate in Dallas is 11%, about a third of the poverty rate of the Asian American subgroups most in need. A third of Burmese and Nepalese Americans live in poverty and yet both, are still subject to a constrictive stereotype of academic and financial success. This stereotype tells us that these groups are a privileged minority, and thus they have no reason to protest or seek help.
Head east to the nation’s capital and the trend continues. In the D.C. area, Nepalese (16%), Indonesian (16%), Pakistani (14%) and Burmese (14%) Americans have the highest rates of poverty. The only other ethnicity that comes close is African Americans, whose poverty rate stands at 14%. With the Asian American poverty rate at 6% (almost the same as the poverty rate for whites, at 5%), the struggles facing Asian American subgroups is easily swept under the rug and out of sight.
Anyone who believes Asian Americans are successful in this country is not completely wrong. However, for every Asian American person who manages to excel in this country, there is another who does not. Entire populations of Asian American subgroups are living below the poverty line, practically invisible, because of an overblown stereotype supported by misleading data.
Though data that accounts for ethnicity exists, they are few and far between. Ignoring subgroups of Asian Americans can have far-reaching consequences, but we can change that. National CAPACD suggests the best way to address Asian American poverty is to tailor efforts to each community by language and cultural approach and to empower each subgroup to become politically active and build networks with local institutions. We urge you to visit National CAPACD’s website to see how you can support their efforts to conduct research to help us better understand Asian Americans’ financial struggles.
Lawmakers, nonprofits and advocates can only target certain Asian American subgroups if there are data to direct and support their efforts. Without such data, the general population continues to see all Asian Americans as a single entity, meaning vulnerable groups do not receive external further support. Poverty in Asian American communities will continue to be ignored if we allow the damaging narrative of a homogeneous, upper middle-class Asian American population to perpetuate. Now is the time to disaggregate our data to understand the lives and financial struggles of Asian Americans.
The Wealth Gap Between Black and White Families Is Getting Worse
By Emanuel Nieves and Josh Hoxie on 08/09/2016 @ 11:00 AM
Editor's Note: This morning, CFED and the Institute for Policy Studies released The Ever-Growing Gap, a new report that shows just how significant the racial wealth divide has become and how, absent intervention, the divide will never close. The content you see here was originally published by TalkPoverty; read the original version here.
The U.S. Constitution was ratified a full 228 years ago. The cutting edge technology that year was the steamboat, and the country had not yet even had a presidential election.
If 228 years seems like a really long time, that’s because it is. But if current trends continue, that’s how long it will take for the average black family to reach the level of wealth the average white family has today.
The average Latino family fares slightly better—if the current trend continues, it would take them a little more than 80 years to amass the same amount of wealth white families have today.
Racial discrepancies in income and wealth are nothing new in this country. The troubling thing is that they aren’t improving. A new report by the Corporation for Enterprise Development (CFED) and the Institute for Policy Studies (IPS) compares data on white, black, and Latino households over the past 30 years to see just how big the gap is—and the findings are staggering.
Between 1983 and 2013, the average black family saw their wealth grow by a little less than $20,000. Latino families saw a bump of about $40,000. Meanwhile, the average white family’s wealth spiked by more than $300,000.
If current trends persist, the figures get even starker. By 2043, when people of color are predicted to outnumber white people for the first time in the U.S., the racial wealth gap will double—leaving the average white family with over $1 million more in assets than black and Latino families.
Wealth is an important barometer of long-term financial stability. It translates into a first home, retirement security, and the countless opportunities afforded by having savings and investments. Those without wealth lead a precarious existence – they have no cushion to fall back on if tragedy strikes or when they grow old.
So how did wealth become so skewed along racial lines?
The legacy of overtly racist public policy is partly to blame. Redlining, the practice of deliberately blocking non-white families from obtaining a mortgage, had a devastating impact on homeownership for black and Latino families. From 1934 to 1968—the period marking the biggest expansion of the American middle class—only two percent of Federal Housing Administration mortgages went to non-whites. The effects of that kind of discrimination are still reverberating today.
Unfortunately, current policy has exacerbated the problem. Consider, for example, federal tax expenditures. These tax breaks—all $600 billion of them—are designed to help families pay for college, buy a home, save for retirement, and start a business. The problem is, the people who need the most help tend to get the least. Working families get an average of $174 each year in tax breaks, while the typical millionaire gets $145,000.
The Internal Revenue Service does not collect data on race, but since we know income is heavily skewed towards white earners—four out of five earners in the top the top 20 percent are white—we can be reasonably confident that these tax breaks are disproportionately benefiting white earners.
The racial disparity continues to grow at the very top of the economic pyramid. On last year’s famed Forbes 400 list, which enumerates the 400 wealthiest people in the country, just seven people are black or Latino. That’s worth noting, since America’s wealthiest citizens control a tremendous amount of the country’s wealth: the top 100 members of the Forbes 400 list own about as much wealth as the entire African-American population (42 million people), while the top 186 members own as much wealth as the entire Latino population (55 million people).
In short, wealth is concentrated in very few hands. And those hands are mostly white.
But just as public policy played a role in growing the racial wealth divide, it can play a role in shrinking it. An important first step would be to conduct a government-wide audit, launched by an executive order from the next president, to understand the role current federal policies play in perpetuating (or closing) the racial wealth divide.
With that data, we can begin to overhaul inequitable policies and take the steps needed to ensure our nation’s wealth-building system works for all Americans.
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