America's yawning racial wealth gap, explained in 9 charts

The statistics on the wealth gap between black, Hispanic, and white Americans are nothing short of shocking. A new report from the Urban Institute shows that this gap has widened dramatically over the last few decades. Today, white families have around 12 times the wealth of African-American families and 10 times the wealth of Hispanic families, by the institute's numbers.

(Urban Institute)

This data, from the Federal Reserve's Survey of Consumer Finances, parallels findings in other recent reports (the SCF only separates out these three groups, which is why other groups like Asians and Native Americans are not mentioned).

Using the SCF data and information from a variety of other sources, we've put together a list of factors that play into this yawning gap. It's a complicated tale, with many causes interacting with each other, but it boils down to a history of discrimination, combined with the many factors that keep poorer Americans (who are disproportionately nonwhite or Hispanic) from getting ahead.

Homeownership

Americans hold a huge share of their wealth in the form of owner-occupied real estate. As of 2010, homes accounted for 42 percent of the median homeowner's wealth, according to the National Association of Home Builders. So when white non-Hispanic Americans have homeownership rates more than 20 percentage points higher than black or Hispanic people, that plays a huge part in creating a wealth divide.

But white families aren't just more likely to own homes. They're likelier to have owned them for more time than black and Hispanic families. When researchers from Brandeis University in 2013 tried to enumerate the culprits behind the racial wealth gap between black and white homes, they found that years of homeownership topped the list.

But why is there a racial gap in homeownership? Well, for one thing, white people tend to have more family inheritance and financial help, which helps them buy homes earlier, giving them more time to build equity, the Brandeis researchers found.

In addition, racist housing policy for decades kept minorities away from buying homes, as Ta-Nehisi Coates wrote last summer in the Atlantic. "From the 1930s through the 1960s, black people across the country were largely cut out of the legitimate home-mortgage market through means both legal and extralegal," he writes. The FHA had a rating system for loan eligibility, Coates writes, and the lowest-rated neighborhoods, which were largely African-American, also were often ineligible for FHA loans. This helped set up huge wealth disparity even today — if your parents couldn't get a house then, they couldn't pass it on to you decades later.

There's also the issue of property values. A new study from Zillow showed that property values in black and Hispanic neighborhoods — where home values are also lower than in predominately white neighborhoods — fell more in the recession and still remain below their pre-recession peaks, while white neighborhoods have rebounded.

Education

College is a great investment — four-year diploma-holders have far higher earnings and lower unemployment rates than those without degrees. Knowing this, young adults have flooded America's colleges and universities as a way of securing their futures. But while numbers have grown across the board, there remain some huge gaps by race and ethnicity, as is evidenced by young college grads.

And it's well-known that a college degree contributes to higher earnings. Pay for college graduates has grown over the years, but just as importantly, pay for those who don't finish college, as well as those who don't even go, has fallen off.

That's important because black and Hispanic Americans are less likely to finish college once they have started, according to the College Board:

(College Board)

College drop-outs make less than graduates, so lower college completion rates for black and Hispanic students translate into lower wages later on. That, in turn, contributes to the wealth gap.

Student debt

Perhaps the most striking gap here is between white people and African-Americans. White graduates may be more likely than African-Americans or Hispanic people to have bachelor's degrees, but African-American families are more likely to have someone with student loan debt than white families, the Urban Institute reports. Among adults with student loan debt, black adults have more on average ($10,300) than white adults ($8,000) or Hispanic adults ($3,400).

(Urban Institute)

Net worth, of course, includes debts like these, so black adults' higher student debt burdens translate into less wealth overall for that group.

Earnings

Black and Hispanic workers tend to earn far less than their white counterparts. White people 16 and older earned a median of $823 per week at latest count, compared to $621 for black people and $600 for Hispanic people. Add up all of the disparities in earnings over time, and you can see how it's far easier for non-Hispanic white people to amass far more wealth than African-Americans. A white person born between 1943 and 1951 would have earned around $2 million by age 61, according to the Urban Institute. That's around 33 percent more than a black person and 100 percent more than a Hispanic person.

You can chalk those earnings gaps up to the educational gaps explained above, but that only explains a part of it. As Demos' Matt Bruenig showed last year, median incomes are lower for black and Hispanic people than white Americans everywhere on the educational spectrum.

(Demos)

All sorts of things could factor into these discrepancies, but what it amounts to is a lifelong hit to wealth-building.

Inheritance

White people tend to pass on far more wealth to their children than Hispanic or black people. The Urban Institute found in 2013 that both black people and Hispanic people were five times less likely to receive large gifts or inheritances (of over $10,000, in either case) than white families, and that those gifts were thousands of dollars larger for white families than the minority groups. This factor is closely tied to housing and college — many young adults in the US get help with tuition or down payments from their parents or other family members. When that kind of gift isn't available, it means more debt, meaning a lower net worth for a lifetime.

Retirement savings

On average, non-Hispanic white Americans have vastly more money saved up for retirement, according to the Urban Institute's calculations — seven times that of black Americans and nearly 11 times that of Hispanic Americans.

To be clear, this is a chart of averages, not medians. This means a few super-rich white people's huge 401(k)s could be pulling their retirement average far away from those of black and Hispanic people.

But it is still true that white Americans, first off, have those higher earnings to contribute to these plans. In addition, they have an advantage on retirement savings accessibility. Lower use of automatic savings vehicles like retirement accounts (as well as homes), says Urban study coauthor Signe-Mary McKernan, is one big reason why black and Hispanic people lag behind white people in wealth.

Sixty-two percent of white workers had access to an employer-sponsored retirement plan, according to a 2013 study from the National Institute on Retirement Security. In comparison, 54 percent of black workers had access, and Latino workers were far behind, at 38 percent.

Government

There's also a case to be made that the government's main wealth-building programs — namely, in housing and retirement — are helping those who already have a pretty easy path to wealth.

"The federal government spends billions of dollars each year to support asset building through the mortgage interest deduction and the preferential tax treatment of retirement savings," says McKernan.

The Annie E. Casey Foundation made this point in a 2010 study: "Low-income households, who don't make enough money to itemize deductions or even to accrue much tax liability, receive next to nothing" from tax-code incentives to build wealth, like the mortgage interest deduction, they wrote. And many low-income workers simply don't have access to 401(k)s and other tax-incentivized vehicles for retirement.

Moreover, even saving a small nest egg can render a family ineligible for federal benefits. In some states, saving up just one or two thousand dollars makes a family ineligible for programs like welfare or SNAP. When policy makes saving money dangerous, it makes wealth-building into a bad thing — just the opposite of what low-income households need. And since the lowest-income Americans are more often minorities, this is one more factor that skews the nation's huge wealth gap.

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