Mon March 4, 2013
Wealth Gap: Wide And Getting Wider
Originally published on Mon March 4, 2013 1:51 pm
MICHEL MARTIN, HOST:
We'd like to talk now about new research on the wealth gap between white and black families in the U.S. According to a federal survey, the median black family has five cents for every dollar of wealth owned by their white counterparts. Now, that gap is obviously very large, but it is also growing. We wanted to talk more about this, so we've called Washington Post reporter Michael Fletcher, who wrote about this recently. And he's with us from The Washington Post's studios.
Welcome back to the program, Michael. Thanks so much for joining us.
MICHAEL FLETCHER: Good to be here, Michel.
MARTIN: You know, some of the figures in your piece are really eye-popping. A new study says the median income for white families is 10 times higher than the median black family. That's $265,000 for white families, compared to $28,500 for black families. So, first of all, tell us, what is wealth? Wealth is not the same as income, correct?
FLETCHER: No, it's not. No. It's, essentially, your assets minus your liabilities. So the value of your house, you know, minus your mortgage, you know, the value of your car minus what you owe on your car, that sort of thing- the amount of money you have in stocks and bonds and in your saving's account. Those things add up to be wealth.
MARTIN: Now, I think one of the reasons that this is so shocking to people is that it looked as though black wealth was on the rise. More African-Americans graduating from college, the black middle class booming, buying houses. I don't need - you don't need to say once again an African-American president, who, particularly, along with his wife, kind of an example of the rise of the black middle class.
But it turns out that the wealth gap between white and black families tripled in the 25-year study by Brandeis University. What happened?
FLETCHER: Yeah, it's really amazing. The biggest thing that's happened is the experience of homeownership for African-Americans has been almost a detriment for too many of them, and that's the big difference between whites and blacks. Whites tend to gain wealth from homeownership, and for many African-Americans, it's much more of a crap-shoot. That's been the problem.
Not only do African-Americans more often end up with expensive mortgages, but they end up in real estate that's less valuable. Often, you can have an identical house - and we can see this kind of when you look around metropolitan areas. If you're in Prince George's County, an identical house - you moved out to Fairfax - would be worth more.
In Atlanta, if that house is in the southern part of the metro region, you move that north, it's more valuable. And a lot of times, those things track racially. So blacks have essentially a bad experience of homeownership.
MARTIN: Now, I just - briefly, though, I want to point out the - kind of the relationship between intergenerational wealth and homeownership. One of the things that the report says is that black families are less likely to get inheritance money or to get help with things like down payments. Is that a factor here? Or is it the location of the house itself, where African-American families tend to live?
FLETCHER: All these things come together. It's a combination. Inheritances help. I mean, it's a very rare thing for an African-American to inherit money. And for whites it's not that common, but, you know, more than a third of whites do, according to the study. So they get money, and that helps you - first of all, it helps you bridge any kind of financial crisis you may have.
I think African-Americans tend to live closer to the financial edge, and that's probably underlying the problem here. So you'll see this wealth gap persist, even across income levels. You'll have people that are relatively well paid, but typically whites, in that same income bracket, will have much more wealth. And that's because they tend to have more of a financial cushion. Some of that comes from inheritance.
Some of that comes from the location of your home, where your home equity's going to sort of be more stable and increase more steadily through the years. So it's a combination of these factors. And even now, you still have these - despite all this progress, you still have these other disparities. Unemployment rates for African-Americans are double those of whites, typically.
And not only that, but that holds across education levels. So a black college graduate typically have an unemployment rate double that of white college graduates, and so forth. So you have all of these kind of historic legacies that we're still dealing with.
MARTIN: Speaking of historic legacies, in the time that we have left, I want to talk a little bit more about the housing piece. Because one of the points that you focus on is that African-Americans - well, the study focuses on real estate. You write that African-Americans moving into predominantly African-American neighborhoods, that it actually hurts black families on the long run.
Now, we know that black people were openly discriminated against in terms of policy, even federal housing policy, that neighborhoods were explicitly redlined. There were housing covenants saying black people can't buy here, and so forth like that. But how does that work today?
FLETCHER: Well, today, what happens is you sort of have a limited market in African-American communities. You think about it, if you buy a house in kind of a mixed neighborhood or predominantly white neighborhood, you'll have the white market looking there, the Asian market, Latino, African-Americans, everyone. Typically, in black neighborhoods, only black people are looking to buy homes there. So right away, you've eliminated much of, you know, many potential buyers, and you're not bidding up prices as much and that sort of thing.
Then you add to that what's happened in the last, you know, over the last several years in this country with foreclosures, African-American communities have been hit hard. So even if the homeowner who's fine with their mortgage, if they have neighbors who've been foreclosed upon or - that affects their housing value.
So, you know, we're kind of impacted from several sides.
MARTIN: Well, we've talked a lot about the problems. Does this new research point up any solutions other than buyer preference, which is that African-Americans should strongly consider avoiding predominantly African-American neighborhoods?
FLETCHER: Well, I don't even know if you necessarily need to avoid them, per se. But I think what African-Americans need to be very particular about the kind of mortgages they get. We need to get - yeah, and they're out there, but we need to get low-cost mortgages. Often, African-Americans are more frequently - and that's a fact - steered towards more expensive mortgages. If you get stable, good mortgages - and in some ways, it's a buying opportunity.
You can think of it this way, too: OK, prices are lower in African-American communities, and you can get in there. And if you plan to stay in your house for a long time and have a stable, sort of the old fashioned 30-year, self-amortizing mortgage, so that - you can build wealth that way. It's going to be a little slower than some others may have been, but you still can build wealth that way. And it's interesting: Even though homeownership has been the problem, they also see that as the solution going forward.
MARTIN: That was Michael Fletcher. He's national economics correspondent for the Washington Post. and he was kind enough to join us from the studios at the Washington Post. Michael Fletcher, thank you so much for joining us. Very eye-opening, very interesting.
FLETCHER: My pleasure. Transcript provided by NPR, Copyright NPR.