Why It’s So Hard to Close the Racial Wealth Gap

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The wealth gap is where historic injustice breeds present suffering.

The net worth of a typical white family is 10 times greater than that of a black family – $171,000 to $17,150. Black and Latino families also earn about half as much as their white counterparts.

There are dozens of academics, institutions, policy makers etc…who have studied this issue in great detail.

There are also great books like The Color Of Money and The Color of Law that break down how the US government, since the inception of slavery, played an active role in maintaining this wealth gap.

From a real estate standpoint, land grants, mortgage subsidies and redlining played a critical role in helping white Americans build wealth while not providing those same opportunities for black people.

Some may wonder why this gap persists since it’s clear that income levels historically have improved.

Surely, a black person doesn’t make 1/10th of their white counterpart doing the same work at the same job. Sidebar, there’s a lot more work to do.

That’s why it’s important to understand the difference between income and wealth. Rich vs wealthy.

Wealth Begets Wealth – Income vs Wealth

Where does wealth come from? Yesterday’s wealth mostly.

Income can change pretty quickly. You can get a promotion at work, or lose your job. Your business could suddenly skyrocket or you could go out of business.

However, wealth is more so a function of time. It’s the magic of compound interest that does the heavy lifting of building wealth. The more time that money has to grow itself, the better the outcome.

This is why you hear all of those examples of a young person with little money to invest end up having the same retirement portfolio of someone twice their age who invested more money later in life.

The advantage is time. That’s exactly where African Americans fall short. White America had a 400 yer head start. Even after segregation was outlawed and Fair Housing Laws were enacted, all it takes is a head start to build a lead that becomes insurmountable.

Here’s a simple way to think about it:

Let’s say in the race of life, you have two runners. The gun goes off indicating the start of the race and the first runner takes off. The second runner, however, is being purposely held back and not allowed to compete.

Finally, after the first runner has had a chance to build a considerable lead, the second runner is allowed to start running the race.

Now they’re athletic, in great shape and a really good sprinter so they start to gain ground on the first runner. But at some point, a sprint turns into a jog because nobody can run at top speed forever.

When people are competing long distance vs a 100 yard dash, time becomes the most important factor in winning the race. The 2nd runner would have to consistently run faster than the first runner in order to make up ground.

In other words, a black person would have to accumulate wealth and compound gains at a faster rate than their white counterparts just to catch up to them. They would have to have some sort competitive and likely unfair edge just to catch up.

That’s why the racial wealth gap will never close.