Two hundred twenty-eight years.
That’s how long it would take for the average household wealth of black families in America to reach the average wealth of white families today, according to a new report by the Corporation for Enterprise Development (CFED) and the Institute for Policy Studies. For Latino families, it would take 84 years.
This startling new perspective on economic inequality has grabbed headlines in recent weeks. But what is not making the news is that these statistics are based on the assumption that “white wealth” remains stagnant and communities of color slowly catch up. A closer look at the analysis reveals that if actual trends continue and “if we do nothing, the racial wealth divide will just keep getting worse,” the authors warn.
Considering that the United States is on track to become a majority-minority nation by 2050, the consequences of doing nothing about the racial wealth gap will be widespread. Wealth, together with income, is a key component of financial security. Sufficient assets enable families to cover unexpected hardship and meet their long-term financial needs. Conversely, households that are asset-poor often turn to costly high-interest alternative loans or dip into long-term savings that they may have to use for emergency expenses. Wealth is also associated with academic and career success and even the likelihood of moving up the economic ladder. It’s the idea that “ you need money to make money”: People with savings can improve their earning potential by investing in education and job training for themselves and their children.
Fortunately, it is possible to close the racial wealth gap — and it doesn’t need to take 228 years to do so. Public policy played a big role in creating the racial wealth divide, and better public policy can help mend it.
One key area where policy can be effective is in improving the ability of all families to save for today and for tomorrow. Despite the likelihood that most households will face at least one “financial shock” of $2,000 or more in any given year, public policies to enable and encourage emergency savings are few and far between. Expanding access to safe and affordable financial services, preventing financial exploitation, and rewarding savings for low- to moderate-income people are just a few ideas that can help more people prepare for a financial emergency.
Policy must also catch up to reality in the area of retirement savings. Nearly half of private-sector employees, including an even higher rate for those of color, work for an employer that does not offer a retirement plan. About half of the states are actively pursuing a solution to expand access to retirement savings in the workplace.
With policy changes like these on the horizon, the racial wealth gap could actually narrow, not widen, in the years to come.
Photo courtesy of iStock
Catherine Harvey is a policy research senior analyst at the AARP Public Policy Institute, where she works on savings policy, with a focus on improving retirement security for millions of Americans whose employers do not offer a retirement plan.