Intergenerational transfers of wealth can play a pivotal role in helping to finance higher education, supply a down payment for a first home, or offer start-up capital for launching a new business.3 Because households of color have less wealth today, Black and Latino young adults are far less likely than young white people to receive a large sum—or any money at all—from family members to make these investments in their future.4 The result is that the racial wealth gap perpetuates from generation to generation, with profound implications for the economic security and mobility of future generations.
The racial wealth gap is reinforced by federal policies that largely operate to increase wealth for those who already possess significant assets.
For more on the Racial Wealth Audit see IASP’s 2014 paper, In this report, we define the racial wealth gap as the absolute difference in wealth holdings between the median household among populations grouped by race or ethnicity. Using the SIPP, we estimate that the median white household had $111,146 in wealth holdings in 2011, compared to $7,113 for the median Black household and $8,348 for the median Latino household.
In relative terms, Black households hold only 6 percent of the wealth owned by white households, which amounts to a total wealth gap of $104,033, and Latino households hold only 8 percent of the wealth owned by white households, a wealth gap of $102,798 (see Figure 1).
But which policies can truly begin to reduce our country’s expanding racial divergences?
Until now there has been no systematic analysis of the types of public policies that offer the most potential for reducing the racial wealth gap.Next, we look at the extent to which changes in housing, education, and labor market trends would affect the wealth gap—for example, the wealth impact of increasing the rate of Black and Latino homeownership to match white homeownership rates, and the impact of increasing the wealth returns that households of color receive as a result of homeownership to match white returns.We note policy ideas for reducing the racial wealth gap in each area.6 The greatest utility of the Racial Wealth Audit is evident in this policy analysis.This paper pioneers a new tool, the Racial Wealth Audit TM, and uses it to evaluate the impact of housing, education, and labor markets on the wealth gap between white, Black, and Latino households and assesses how far policies that equalize outcomes in these areas could go toward reducing the gap.Drawing on data from the nationally representative Survey of Income and Program Participation (SIPP) collected in 2011, the analysis tests how current racial disparities in wealth would be projected to change if key contributing factors to the racial wealth gap were equalized.Unless key policies are restructured, the racial wealth gap—and wealth inequality in general—will continue to grow.In this paper, we assess the major factors contributing to the racial wealth gap, considering how public policies around housing, education, and labor markets impact the distribution of wealth by race and ethnicity.Finally, the Audit provides insight into the impact of policies on the racial wealth gap within a discrete time period, such as 1 year or 5 years ahead.The Racial Wealth Audit is designed to fill the void in our understanding of the racial wealth gap and enhance our ability to reduce the gap through policy.But in a country where people of color will be a majority by mid-century, any successful push to reduce inequality must also address the structural racial inequities that hold back so many Americans.To create a more equitable future, we must confront the nation’s growing racial wealth gap and the public policies that continue to fuel and exacerbate it.