Racial Wealth Gap Widens as White Households Surge Ahead, Black Families Lag

New reports and analysis show that despite significant increases in employment and income during the COVID-19 pandemic, the wealth gap between white, Black, and Hispanic households has also increased.

Pandemic Changes

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There have been many studies on the financial changes that took place throughout the Covid-19 pandemic. One recent report has shown that ongoing trends in wealth inequality have become even more entrenched since 2019. 

New York Federal Reserve Reports

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A new report from the New York Federal Reserve Bank has shone a light on the increasing wealth disparities between racial groups in the U.S. due to outsized gains in the stock market. 

Racial Wealth Gap Grows

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According to the report, between the first quarter of 2019 and the second quarter of 2023, the median net worth of white individuals in the U.S. outgrew Black households by 30% and Hispanic households by 9%.

Entrenching the Gap

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These statistics have shown the entrenchment of pre-existing wealth inequality between these groups. The report asserts that this widening gap is a result of the different ways that people invest in financial assets.

Financial Assets to Blame

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“Much of the divergence in net worth by race and ethnicity since 2019 can be attributed to divergence in the real values of financial asset holdings,” the report reads. 

Different Investing Style

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While Black households tend to invest their wealth in pensions, white households are more likely to invest in stocks, mutual funds, and ETFs. A separate 2022 survey by the Federal Reserve supports this.

Stock Differences

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According to the Fed,  65.6% of white households invested in stocks, while only 39.2% of Black households and 28.3% of Hispanic households did the same. 

Financial Assets Soar

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After the U.S. economy was reopened in 2021, the price of financial assets soared in value, thus increasing these racial wealth disparities. 

Market Gains Maintained

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Even as asset prices fell in 2022 due to increased interest rates, “those declines did not fully offset the earlier rises,” the new report stated. 

All in the Upbringing?

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“How folks are exposed to the ability to invest in the stock market – whether or not it’s something they grow up doing – we know that’s different for white families than for people of color,” added the Vice President of Policy and Advocacy at the Washington Center for Equitable Growth Janelle Jones. 

Less Inheritance

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She also added that Black families are less likely to inherit wealth or assets than white families, which has also added to the wealth gap. 

Pandemic Effect on Business

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Not to mention, the impact of the Covid-19 pandemic had a disproportionate effect on Black-owned businesses, according to separate data.

Being a successful business owner is an important factor in accruing wealth. 

Black-Owned Businesses Hit Hardest

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According to government data and analysis by the Economic Policy Institute, Black-owned businesses were more active in the industries hit hardest by the pandemic, such as accommodation, food services, retail, and more. 

Clashing Economic Trends

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These wealth disparities between white, Black, and Hispanic households have increased despite steady increases in income and employment. 

More Employment, Higher Income

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At 5.3%, current Black unemployment is at near-record lows, and income for the average full-time Black worker has increased by 7.1% over pre-pandemic levels.

Financial Assets Fall

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Unfortunately, in 2022, the real value of financial assets for Black households dropped lower than pre-2019 levels and continued the decline, whereas financial assets of Hispanic households also dropped and have since stagnated. 

Income Gains vs. Wealth Gap

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“The study really shows the difference between making gains when it comes to income, and closing that gap, versus when it comes to wealth,” said Jones.

Treasury Deputy Secretary Speaks

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But there are still optimistic signs on the economic horizon, according to Treasury Deputy Secretary Walley Adeyemo, who has reported that economic conditions are steadily improving for the average Black American.

Signs of Improvement

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According to Adeyomo, increasing employment levels and wages above pre-pandemic levels were a signal of improvement, as were the notable increase in Black-owned businesses and stock market investing. 

Is Policy the Answer?

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Still, he acknowledged that “the gap between Black and white wealth in America is still too great,” and some “policy prescriptions” may be called for to address the distribution of wealth that causes these issues.

The post Racial Wealth Gap Widens as White Households Surge Ahead, Black Families Lag first appeared on Swift Feed.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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