When asked to describe the economic well-being of African Americans, there is a tendency to focus on income, employment, or poverty rates. While these factors are important, they are not the only measures of economic well-being. Wealth is another key measure. It is both a driver of other measures of economic well-being and a consequence of poor outcomes in those areas.

Wealth is the sum of all assets minus liabilities or debt. Wealth, in the form of savings, can tide families over during difficult times; fund an education; provide a down payment on a house; or act as seed capital for a business start-up. Without assets, individuals and families will find it much more difficult to get ahead, leaving them unable to provide their children with the necessary resources and tools to achieve economic success.

By all measures of wealth, African Americans entered the pandemic at a distinct disadvantage. According to data from the Federal Reserve Bank’s[i] 2019 survey of consumer finances, the typical African American household had less than 15% of the median wealth of the typical white household ($24,100 versus $188,200).

The largest source of wealth for most families is in their home. And here, African Americans are further disadvantaged in two ways: First, they are less likely to own homes – only 45% own their homes as opposed to 74% of whites. Second, their stake in those homes is traditionally lower. The median home equity for African Americans was $150,000 in 2019 versus $310,000 for their white peers.

Another prime source of wealth is business ownership. And for African Americans, the numbers are similarly discouraging. Only 4.8% of African Americans owned businesses in 2019 compared to 16.5% of their white counterparts; and those Black-owned businesses were smaller, with lower revenues and fewer employees.

While home and business ownership are ways to build wealth and pass it on to the next generation, liquid or near-liquid assets in the form of savings and investment accounts are important components of wealth. These financial vehicles provide individuals and families with resources to draw on when they lose their jobs or get sick. They are also a source of funds to pay for the kind of education or career training that gives them, or their children, access to better jobs. But, as with other measures, African Americans lag here ($5,500 vs. $49,510).

Given the numerous disadvantages, there was every reason to worry over how African Americans would fare during a year that was trying for everyone.

Although we do not have the data to assess the impact of the sharp economic downturn and acute health crisis, we can, however, look back at the country’s most recent experience of economic decline to get a sense of how wealth will be affected. The Great Recession of 2007-2009 resulted in a 26.2% decline in wealth for white households and a 47.6% decline for African American households.[ii]  Several sources of data suggest that it is very likely that we will emerge from this pandemic-induced economic decline with an even wider racial wealth gap.

Hardship data collected by the U.S. Census Bureau show that African Americans are more likely to have drawn down on their savings early in the pandemic (51.6% vs. 36% of whites).[iii] One year after the pandemic, they were more likely to face problems related to homeownership. African American households are nearly three times as likely as white households to be behind on their mortgage (17% vs. 6.7%) and almost one and a half times as likely to expect foreclosure if they are behind on their mortgage (22.1% vs. 15.7% of whites).[iv] 

A Federal Reserve survey, conducted in late 2020, of older, more established business owners showed that Black business owners over the age of 45 were more likely to have curtailed business operations, drawn on personal assets, borrowed from family or friends, and reduced their own salaries than white business owners.[v]  They were also less likely to have received Payroll Protection Plan funds. And if they received them, they were more likely to receive less than requested.

After centuries of overt discrimination and structural racism, African Americans are disadvantaged at generational wealth building. The theft of their land, the exploitation of their labor, and the role American businesses played by legally enforcing or sanctioning residential segregation all contributed to depriving African Americans of wealth.[vi] Given the agenda of the Biden administration to “redress systemic racism,” today, we find ourselves at an opportune moment to work on reducing barriers to wealth and supporting African American wealth building.

Historically, many federal policies designed to assist and support middle- and low-income families by improving their economic condition were not implemented equitably. On his first day in office, President Biden signed an executive order requiring that all government agencies review their programs to assess whether any of their regulations or practices result in inequitable treatment by race.[vii]  As part of that assessment, agencies will have to improve their data gathering and monitoring to identify patterns of service delivery and structures that might be barriers to equitable access. This will be an important tool for both assessing and monitoring progress.

Here are a few wealth-building proposals, including some embedded in the American Families Plan and the American Jobs Plan.[viii]

• Reduce or eliminate student debt:

While not a form of wealth measured explicitly in our data, human capital in the form of education or training is an important tool for economic advancement. The high cost of education precludes many individuals from accessing the training they need to get ahead. Many African Americans become saddled with a debt burden so heavy that it keeps them from building wealth for many years after they complete their education, leaving them far behind many of their white peers, whose educations were fully paid for or whose loan burdens were far lower.

• Make health care more affordable and increase wages:

While not directly related to asset development, there are policies that could make it easier for African Americans to build assets. These include implementing universal health insurance and reducing health insurance premiums, which would allow more people access to decent health care and decrease the need for families to draw down on limited savings to cover emergency medical expenses. Efforts to increase the number of jobs that pay living wages would also help because more workers would be able to save for emergencies and investments.[ix]

• Increase African American homeownership:

One way to increase homeownership is to increase outreach to potential homeowners, informing them of down payment support programs and financing options. In addition, we must reexamine the criteria to qualify for mortgages to determine if they are implicitly biased for reasons beyond creditworthiness.[x]

• Facilitate business ownership: 

Government resources that support minority business development have diminished over the past decade. As a candidate, Biden proposed elevating the Minority Business Development Administration, which would offer additional bandwidth to expand businesses owned by entrepreneurs of color. The administration should also reexamine federal programs such as the New Markets Tax Credit initiative to ferret out the ways in which its design and structure perpetuates structural racism, which would help eliminate barriers and improve African American entrepreneurs’ access to capital funds.[xi]

There are a variety of ways to increase access to opportunity for African Americans. Many of these prescriptions could come via the implementation of programs or policies put forth by then-candidate Biden. Since assuming office, other directives have come via proposals of now-President Biden. During the past 50 years, at worse, government policies neglected or impeded access to opportunity. At best, these policies managed to partially, if unevenly, combat discrimination and break down barriers. It is clear that much remains to be done if African Americans are to be afforded a chance at a better life through personal wealth creation.

[i] https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm

[ii] https://www.urban.org/urban-wire/how-policymakers-can-ensure-covid-19-pandemic-doesnt-widen-racial-wealth-gap

[iii] https://www.urban.org/urban-wire/how-covid-19-affecting-black-and-latino-families-employment-and-financial-well-being

[iv] Estimates derived from Census Bureau Household Pulse data tables for March 17-29. https://www.census.gov/data/tables/2021/demo/hhp/hhp27.html

[v] https://www.newyorkfed.org/medialibrary/FedSmallBusiness/files/2021/45-entrepreneuers-aarp-report  

[vi] https://www.urban.org/urban-wire/racial-inequities-will-grow-unless-we-consciously-work-eliminate-them

[vii] https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government

[viii] https://joebiden.com/racial-economic-equity/

[ix] https://www.urban.org/urban-wire/how-policymakers-can-ensure-covid-19-pandemic-doesnt-widen-racial-wealth-gap

[x] https://www.urban.org/urban-wire/2040-us-will-experience-modest-homeownership-declines-black-households-impact-will-be-dramatic

[xi] https://www.urban.org/events/past-present-and-future-new-markets-tax-credit-program