Jul 6, 2020 - Economy & Business

The myth of closing the racial wealth gap through increased savings

Reproduced from the Federal Reserve Bank of Cleveland; Table: Axios Visuals
Reproduced from the Federal Reserve Bank of Cleveland; Table: Axios Visuals

An oft-suggested reason for the massive wealth gap between Black and white families in the U.S. is that Black Americans simply don't save or invest enough. Data shows that is untrue.

What they're saying: A 2004 study by Maury Gittleman and Edward N. Wolff, using data from the Panel Study on Income Dynamics (PSID), tracked the financial position of Black and white families and found that if income is controlled, there is "a slight savings edge for Black households."

What's really happening: "The current racial wealth gap is the consequence of many decades of racial inequality that imposed barriers to wealth accumulation," the Cleveland Fed noted in a 2019 report.

  • And while white Americans' head start in amassing wealth plays some role in the wealth gap, the primary driver for its continued presence is "persistent systemic differences in economic opportunity."

Why it matters: "As of 2016, the most recent year for which data is available, you would have to combine the net worth of 11.5 Black households to get the net worth of a typical white U.S. household," the Washington Post wrote recently.

  • "The 2016 wealth gap is roughly the same as it was in 1962, two years before the passage of the Civil Rights Act of 1964, according to data from the Survey of Consumer Finances (SCF)," the Cleveland Fed wrote.

Yes, but: While Black families may save more, they tend to invest in lower risk assets that produce lower returns.

Yes, but, but: Even if Black investment patterns mirrored their white counterparts, that would close the wealth gap by just four percentage points, according to the 2004 study by Gittleman and Wolff.

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