Higher student loan debt and a seriously lower likelihood of getting large financial gifts from family members are two primary reasons why African-American families accumulate much less wealth than white families, according to a report by the Urban Institute.
The report uses nine charts that explores why wealth inequality hasn’t improved over the past 50 years and why the racial wealth gap has not closed. These charts go far in explaining why so many middle-class families in the Black community continue to struggle, even when parents hold solid jobs.
As the Urban Institute shows, Black adults start out in their careers already far behind their white counterparts because they have a much higher loan burden to contend with. In 2013, according to Urban Institute numbers, 42 percent of African-Americans ages 25 to 55 had student loan debt, compared with 28 percent of whites.
And why are African-Americans much more likely to need student loans to pay for their college education? Because they are less likely than whites to receive large gifts or inheritances to pay for college.
White families are five times more likely than African-American families to receive large gifts or inheritances. So it becomes a vicious cycle that threatens to repeat itself with each generation.
If African-American families are using a big chunk of their income every month to pay student loans, they are less likely to build up substantial savings, which families need to weather financial emergencies and to put toward retirement. The end result is that white families accumulate more wealth over their lives than African-American or Hispanic families, widening the wealth gap at older ages.
The report finds that in their 30s, whites have an average of $140,000 more in wealth than African-Americans (three times as much). By their 60s, whites have over $1 million more in average wealth than African-Americans (11 times as much).
This gap is exacerbated by the fact that whites have higher incomes than African-Americans and Hispanics. The typical white person earns $2 million over a lifetime, according to the Urban Institute, while the typical African-American earns $1.5 million and the typical Hispanic person earns $1 million.
On the earnings gap, the Urban Institute said: “These disparities partly reflect historical racial disadvantages that continue to affect later generations.”
In other words, it is institutional racism at work in corporate America.