Eradicate the Black-White Wealth Gap
A PURPOSE-BUILT CALL TO ACTION
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.
- 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 & Policies
We must invest in Black entrepreneurs, entrepreneurship, and investors to galvanize wealth in Black communities to make progress on closing the wealth gap. The following are recommendations for actions to take and policies to develop:
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 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 & Policies
The following are recommendations for actions to take and policies to develop:
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.
- 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.
We can’t close the Black-white wealth gap unless financial institutions make an effort to devise groundbreaking new ways to spur capital investments that create opportunities for economic advancement for Black communities. Increases in education, training, and entrepreneurship must be augmented with financial investments to create a strong community infrastructure that serves as an anchor for ongoing equitable economic inclusion and wealth accumulation in Black communities.
Actions & Policies
The following are recommendations for actions to take and policies to develop: