Eradicate the Black White Wealth Gap

The Black-white wealth gap in the United States is shocking. The net worth of a typical Black family is $24,100; that’s only 13% of the $188,200 net worth of a typical white family. This gap has been stubbornly persistent—in fact, the ratio of white family wealth to Black family wealth is higher today than it was in 2000.

The strategies for ending occupational segregation are critical elements to increasing Black employment and income. While these strategies will contribute to narrowing the Black-white wealth gap, it’s necessary to do much more to make meaningful progress to close the gap and expand opportunities for Black economic advancement.

The Black-white wealth gap has been created by centuries of structural social and economic advantage for white Americans—starting from the legacy of slavery and the missteps of Reconstruction leading to the legalization of segregation in the Jim Crow era. The wealth gap was later exacerbated by the deliberate exclusion of Black Americans from the federal subsidies of the New Deal policies of the 1930s, which created no-cost and low-cost mortgages that made white Americans homeowners, as well as the exclusion of Black veterans from equitably accessing the education and home-ownership benefits of the G.I. Bill of 1944. More recently, policies related to policing and sentencing have been designed and implemented to disproportionately impact Black Americans. The cumulative effect has prevented Black Americans from leveraging critical wealth-generating assets—including business loans, home ownership, and college education.

Because wealth is passed from generation to generation, these compounding economic advantages have contributed to white Americans being much more likely to have the social and financial capital to start new businesses, purchase real estate, invest, and pass wealth on to their children and grandchildren. Inheritance and intergenerational wealth transfers are one of the largest drivers of the wealth gap, accounting for more than any other demographic or socioeconomic indicator. Increased education and training and traditional employer-employee arrangements are not enough to close the gap.

We can’t achieve racial equity without addressing some of the structural challenges that are exacerbated by this wealth gap, such as disparities in access to housing, transportation, capital, and more. Truly advancing economic mobility for Black Americans requires a multi-pronged approach that promotes sustainable wealth-building strategies and cutting-edge ideas to help mitigate the impact of the wealth gap in childhood and beyond. While this has not been part of JFF's work in the past, we now realize that acknowledging and addressing the impact of the wealth gap is a critical element of any meaningful racial equity effort. With support from our advisory council and additional partner organizations, we will continue to develop and scale these ideas and approaches.

This section explores three approaches to eradicating the Black-white wealth gap:

Invest in Black Entrepreneurs

Increasing successful Black entrepreneurship is a promising and necessary strategy to address the Black-white wealth gap because of the potential for wealth generation for Black business owners and the spillover effects for Black communities. On average, Black entrepreneurs accumulate more wealth than their peers who do not own businesses, are much more likely to hire Black workers from their communities, and are more likely to actually serve Black communities, providing access to goods and services and contributing to economic growth in Black neighborhoods.

Black people are equally or more likely than white people to have the desire to start businesses. But barriers erected by structural racism, including lack of access to financial capital, lack of access to credit, and lack of access to business networks, have resulted in dramatic racial gaps in successful entrepreneurship. In comparison to the percentage of Black individuals in the overall population, Black businesses are woefully underrepresented in the U.S. economy. If the share of Black businesses in the economy matched the share of Black individuals in the population, 615,000 additional Black-owned businesses would exist, potentially generating $1 trillion in revenue.

Fortunately, there are a number of creative ideas for leveraging financial capital to increase Black business ownership and Black employee ownership through stock options. Ariel Alternatives, a subsidiary of Ariel Investments, a Black-owned mutual fund company, has secured $200 million from JPMorgan Chase to launch Project Black, an initiative to buy out middle-market companies at which a majority of employees are people of color, install Black company leadership, and provide stock options to employees as a strategy to close the Black-white wealth gap. In another example, Apis & Heritage Capital Partners, a venture fund with founders of color, secured $30 million in investments to start a fund to help employees of color become business owners by helping them buy companies from retiring owners. In addition, organizations like BLCK VC have created initiatives such as Black Venture Institute to help educate and create more Black VC checkwriters.

The Facts

Survey results indicate that, compared with white youth, Black youth are more likely to want to start businesses and are more likely to believe successful entrepreneurs have a responsibility to give back to the community.
Black businesses with more than one employee make up only 2% of the businesses in the nation.
Even with record amounts of venture funding going to Black founders in 2021, only about 1% of venture capital went to Black entrepreneurs. And only one-third of this investment goes to Black women.
Even with strong personal credit, Black business owners and other entrepreneurs from marginalized groups are about half as likely as their white counterparts to receive full business financing.
Government contracts at the federal, state, and local levels are disproportionately held by white-owned businesses.

Actions

Financial institutions must review their practices to promote equitable access to capital investment and credit. Investors and entrepreneurship communities must evaluate both their business owner and venture capital networks for diversity and equity in access, keeping in mind both race and gender. Institutions should explore alternative capital financial solutions for Black entrepreneurs, such as character-based and community-centric lending and streamlining crowd-funding approaches.

Financial institutions and investors must commit to raising and allocating capital earmarked for Black entrepreneurs to be able to advance beyond the startup stage and to successfully scale and hire employees. Those efforts should include initiatives that increase opportunities for Black entrepreneurs to launch successful businesses in industries associated with higher revenues.

Investors and philanthropy must support accelerators, incubators, and other targeted initiatives that build community among Black founders and that provide coaching and support with capacity-building at the start-up stage, including marketing, networking, and staffing assistance.

Educators must help raise awareness of entrepreneurship as a career option—a strategy that will help increase the economic value of Black Americans’ skills, credentials, competencies, and relationships. Such strategies could include efforts to standardize entrepreneurial skills as an accessible digital credential.

Policies

Support programs and policies that create equitable opportunities for Black entrepreneurs to compete for government contracts.

Promote collaboration between government agencies with similar aims, such as the U.S. Small Business Administration and the U.S. Department of Commerce, to streamline the processes required to access business loans and other forms of investment, including partnering with Black-led community organizations to provide application support.

Address the Social Determinants of Work

Strengthen Wraparound Support Systems and Build Social Capital

Closing the Black-white wealth gap must extend beyond increased educational attainment, good jobs, and high earnings. It’s critical also to develop an increased understanding of conditions that must be in place for economic advancement for Black Americans more broadly. These include investments in infrastructure in Black communities, such as expanding access to high-quality broadband internet connections, banking and other financial services, and affordable, high-quality housing, transportation, child care, and health care—all of which are less accessible in Black communities. The pervasive wealth gap between Black and white Americans exacerbates these structural challenges, hindering Black participation and success in education, training, and the workplace. To truly achieve economic advancement for Black Americans, we must explore creative strategies to provide equitable access to these foundational resources.

Numerous programs and policies to address access to health care, child care, and other social determinants have narrowed but not eliminated equity gaps by race. Furthermore, these policies are costly and time-consuming to enact. While solving these issues at scale will ultimately require policy solutions and significant investment, there is also a need and opportunity to pursue innovative pilots to tackle these challenges. Moonshot competitions like the Ivory Prize for Housing Affordability or the RWJF Culture of Health Prize, and start-up social enterprises such as Kinside or Chime, are examples of how innovation can help address these challenges in the absence of broader policy change.

The Facts

Social Capital
- Studies show that Black Americans, particularly including Black men, have smaller social networks than other racial groups, and that their networks are predominantly composed of other Black Americans.
Social Determinants
- One out of five Black households are in a food desert, a low-income community without inadequate access to food.
- 54% of Black renters pay over 30% of their incomes in rent, which meets the threshold for being defined as cost burdened.
- In comparison with their white peers, Black Americans experience a wider range of health inequities.
- 29% of Black Americans do not have high-speed internet service in their homes.
- Black populations centers typically have less access to public transportation than white communities.

The unprecedented level of private investments committed to racial economic equity for Black Americans since 2020 also offers an opportunity to support new ideas that will help Black learners and workers understand the myriad paths to economic advancement. This must include strategies that expand Black Americans’ social capital, including awareness, exposure, and mentorship in the pursuit of various careers. It must also include opportunities to expand career navigation strategies that are specifically designed to help Black learners and workers optimize their prospects for economic advancement through targeted coaching supports and tools.

We must ensure that all Black learners and workers have the tools they need to succeed in education, work, and entrepreneurship, especially in today’s shifting landscape. This includes ensuring that all Black Americans can access foundational supports, such as early childhood education and child care, affordable housing, food and nutritional resources, and affordable and reliable transportation.

Without equitable access to these basic resources, and without strategies to promote social capital, Black Americans will never be able to achieve economic advancement at rates that are similar to those of their white peers.

Actions

The learn-and-work ecosystem must contribute to research and thought leadership to improve policymaker and public awareness of the economic biases Black Americans face to increase support for establishing the conditions for economic advancement in Black communities.

Nonprofits, community-based organizations, postsecondary education and training providers, employers, and financial institutions must partner to explore innovative solutions to providing the wraparound supports that contribute to Black Americans’ prospects for economic advancement through moonshot competitions, incubators, and more.

The learn-and-work ecosystem must also develop strategies that expand social capital and provide robust career navigation supports to increase Black learner and worker awareness of the full range of their options for economic advancement.

Policies

Promote financial security and support for individuals during times of transition, (including incarceration and loss of employment) by continuing or expanding policies such as the Child Tax Credit and the Earned Income Tax Credit and by redesigning public benefits programs such as TANF, SNAP, unemployment insurance, and others to avoid benefits cliffs. In addition, aim to streamline eligibility processes for such benefits and to align them with high-quality skill development opportunities.

Expand child care solutions such as paid family leave and universal pre-kindergarten programs.

Promote policies to advance racial equity in housing, health care, transportation, food, and more.

Promote flexibility in funding models for education and training programs to allow for resources to be directed toward wraparound programming for students.

Explore Financial Innovations to Strengthen Black Communities

Increased awareness of structural racism has created a unique moment of opportunity to develop innovative solutions to address the historic and contemporary barriers to financial inclusion that have systematically impacted Black Americans. Developing new approaches to leveraging financial capital for Black business ventures and spurring financial institutions to support Black economic advancement are essential elements of this work.

It is critical to expand strategies for financial inclusion in Black communities. Because of the legacy of structural racism, Black Americans have less access to financial institutions and services than their white peers. As a result, unbanked Black families often have to pay high fees and incur other unnecessary costs, which reduces their ability to protect and grow the assets they have and decreases the likelihood that they will be able to recover from financial hardships when they arise. These challenges must be addressed because they are significant contributors to the wealth gap.

In addition, improving the infrastructure of Black communities through financial investments and dramatically decreasing the percentage of Black children who grow up in underresourced neighborhoods is one of the most powerful strategies to address the Black-white wealth gap. As noted above, Black Americans are disproportionately likely to live in neighborhoods with inadequate infrastructure; compared with other communities, they generally have fewer grocery stores, health care clinics, public transportation options, and green spaces—regardless of income.

There are innovative financial initiatives that are attempting to strengthen infrastructure in Black neighborhoods to increase access to goods and services, including education and workforce training opportunities. Community Development Financial Institutions (CDFI), while not new, are important investment vehicles at this time of dramatically increased funding for racial justice because they have gained insights through their years of experience in leveraging funding from public, private, and philanthropic sources to invest in Black communities.

The Facts

Nearly half of Black households are unbanked or underbanked—both a symptom and cause of the wealth gap.
Loans are generally harder to obtain and more expensive for Black Americans (who are twice as likely to be denied credit compared with white Americans), making it harder for them to weather financial challenges.
Approximately 70 percent of Black families’ financial portfolios are in illiquid assets, such as property, compared with 54 percent for white families. While the average white family has 31 days of liquid savings on hand, Black families have only five days.
Black college graduates on average owe $25,000 more in student loan debt after college than white college graduates.

Actions

The philanthropic community must take advantage of the unprecedented levels of financial investments for racial economic equity to expand efforts in the financial services industry to accelerate wealth accumulation for Black Americans (via initiatives such as Project Black and the Zero Gap Fund). 

CDFIs must leverage investments in racial economic equity to increase financial investments that build and strengthen the foundational infrastructure in Black communities, including programs that build healthy, resilient communities by expanding Black businesses, building affordable housing, improving access to education and training, and creating pathways to good jobs and careers. This might include exploring innovative loan funds for neighborhood development.

Financial institutions must expand their efforts to promote financial inclusion for Black Americans. Toward that end, they should review their policies and practices and update them to make them more equitable by, for example, reducing or eliminating fees, providing navigation support and guidance, reviewing their geographic presence to ensure that they have offices that are accessible to Black communities, and taking innovative approaches to credit scoring and loan forgiveness that avoid replicating racial disparities. In addition to traditional banking, these policies must be extended to support Black participation in the stock market, particularly for retirement savings.

The investment and entrepreneurial community must continue to explore financial technology solutions that enable equitable access to programs and services such as online and mobile banking and regulated investment.

Policies

Establish race-conscious policies that advance efforts to forgive, reduce, or cancel student loan debt.

Improve enforcement of anti-discrimination policies in the financial services industry and other sectors of the economy that offer asset-building opportunities. 

Give financial institutions incentives to adopt policies that promote equitable access to services and prevent predatory activities. 

Promote a strong but operable regulatory environment to allow for the safe and sustainable growth of online banking and credit solutions.