AFRICANGLOBE – The gaps in wealth and income between white and Black Americans are stark – and haven’t narrowed significantly in 50 years. There are even big gaps among Black and white business owners.
According to data from the Federal Reserve Board’s Survey of Consumer Finances (SCF), white Americans’ median incomes were 70% higher than Black Americans’ in 2010. Overall net worth was 7.9 times larger for white Americans.
Credit Suisse and Brandeis University’s Institute on Assets and Social Policy took a closer look at that dataset to figure out whether there were similar disparities be found among the wealthiest households. The short answer is yes.
Here’s another way of looking at it. If you’re white and have a net worth of about $356,000, that’s good enough to put you in the 72nd percentile of white families. If you’re Black, it’s good enough to catapult you into the 95th percentile.
(The researchers decided to focus on the 95th percentile, rather than the 99th, because the 99th percentile in the SCF data was only 12 Black families – not a large enough sample size to support significant conclusions.)
The researchers then took a closer look at how the top 5% of Black households allocate their wealth, and compared it with the wealth strategies of comparatively wealthy white households. (So, not the top 5% of whites – but the whites with about the same amount of money as the top 5% of Blacks – in other words, about $356k.)
Before diving into those differences, it’s worth pointing out that there are a lot of similarities between these two groups – relative to the general Black and white populations, both are more likely to be older, college educated, married, and either retired or running their own business. The biggest single category of wealth for both groups is their retirement accounts. And among the top 5% of Black households and comparatively wealthy white households, both groups have a median income of about $100,000 per year.
But there are some notable differences in how each group approaches their money. Here are a few:
- The wealthiest 5% of Black Americans are slightly less likely to hold financial assets (stocks, bonds, and so on) in their asset mix. Of the financial assets they do invest in, wealthy Blacks are more likely than wealthy whites to invest in safer assets, preferring CDs, savings bonds, and life insurance to higher risk (and higher reward) assets.
- Wealthy Black Americans have more money in real estate holdings than equally wealthy white Americans. The former hold 41% of their non-financial assets in (non-primary residence) real estate, while the figure for the latter is just about 22%. Adding in primary residences brings those numbers to 57% and 34%, respectively. Even after the housing bust, real estate is considered a lower-risk investment.
- Wealthy Black Americans are less likely to hold equity in business assets. Looking at this group’s non-financial assets, 9% are equity in business assets. That figure is 37% for comparably wealthy whites. The numbers are similarly stark if you look at this as a percentage of total assets: 21% of the wealthy whites’ total assets are invested in their own businesses, versus just 6% for wealthy Blacks. Because both groups are equally likely to run their own companies – 23% in both cases – the researchers calculate that this means white business owners are investing in their businesses at a rate 7 times higher than Black business owners. In raw dollar terms, it means that Black business owners have about $68k in their businesses, while white business owners have roughly $468k.
This all adds up to a more conservative investment strategy for wealthy Black Americans. But as the study points out, that actually makes a lot of sense – given that even at the top of the economic ladder, Black Americans still find themselves in a precarious position.
Consider some other findings from Brandeis University’s Institute on Assets and Social Policy. In 2009, 57% of the top-third of Black Americans had been in that economic bracket since 1984. But 8% had fallen into the bottom third. Those numbers for the richest white families? 73% and 1%, respectively.
A 2003 study out of NYU, by Dalton Conley and Rebecca Glauber, showed similar findings: that 60% of white families who were in the top quartile of wealth in 1984 were still there in 2003 – but that figure for Black families was only 24%.
Another possible explanation for Black families taking fewer financial risks: they have less financial support from the previous generation to rely on. Only 7% benefit from an inheritance; but 36% of white families do, according to the Panel Study of Income Dynamics. And white families’ inheritances are about 10 times as big. For these reasons and more, it makes sense for a wealthy Black person to be conservative with his or her investments.
What is less easily explained away is the much lower rates of business equity among Black business owners. Since both the wealthiest Black people and similarly wealthy white people are equally likely to be running their own business, why does the white group have so much more equity?
One possible explanation floated by the Credit Suisse/Brandeis researchers is that whites have more access to start-up capital when they found their businesses, which translates into greater business success down the line. (This hypothesis is based on findings by economists Robert W. Fairlie and Alicia M. Robb.)
The upshot is that Black and white families’ wealth tracks about the same to the 50th percentile, and then whites’ wealth takes off exponentially. In America, in other words, the super-rich are also super-white.
By: Sarah Green