We have all heard about the Black / White wealth gap. White wealth is about six times that of Black people. We know where the wealth gap comes from, a long legacy of injustice. But what is the wealth gap exactly and how is it measured? Well, today, it’s time to look.
The Black / White wealth gap comes from the Survey of Consumer Finances (SCF). The survey is the most accurate look into family finance in the US. It is published every three years and they just unveiled the results of the period 2019-2022 in October 2023. The US census publishes yearly data on wealth and income but not at the detailed level of the SCF.
The Black / White wealth gap shrank by three percent in the latest Survey of Consumer Finances. It was the biggest positive change since the survey was released in 1998. The improvement was due to the increase in real estate values and business ownership. The current survey is a “snapshot” of the Black / White wealth gap. The number moves around a bit, from a low of 9% in 2013 to the current 16% today.
According to the survey, in 2002, a typical Black family had about $16 dollars of wealth compared to White families which had $100 dollars. A median White family had a net worth(wealth) of $284,000, while a median Black family had a net worth of only $44,900. So, in 2022, the difference in net wealth between Black and White families was $240,000. White people have about 6 times the wealth of Blacks.
There was good news. The Black / White wealth gap is closing. Black net worth (wealth) increased by a huge 60% between 2019 and 2022. In 2022, the median Black household had a net worth of $44,900 dollars as compared to $28,000 in 2019. The average net worth also jumped by 28% in the same period. The gains were due to real estate ownership, business income and transfer payments during Covid-19. Most of the gains were by people in the lower half of the Black population. For comparison, Hispanics have a net worth equal to 21% of White net worth.
Sadly, Black incomes dropped by 1.5% as Blacks continued to earn 57 cents for every White $1.00 dollar earned. There has been little change since 1989. The drop in income was part of a continued trend in society of highly educated, high income and wealthy people earning far more money than everyone else. Inequality increased.
Black Family financial stability improved thanks to government transfer payments, but Black family debt increased by 25% because of a jump in the use of home equity lines of credit. Being able to access home equity lines of credit may be a good sign.
If the gains in Black wealth continue to improve at the current rate, the Black / White wealth gap would close in about 100 years. However, given post Covid-19 transfer payments, we are more likely to see a return to the long-term average of 1% percent improvement every three years.
Where did the gains in wealth come from?
The gains were due to the increased value of real estate owned by Black people. About 70% of the gain was due to owning real estate and real estate value appreciation. More interesting is the 20% of the increase in wealth due to the value of business ownership. Black people are starting businesses at record numbers. Wealth increases due to business ownership was highest among Blacks. A final factor was that non-retirement government transfer programs helped Black income during Covid-19. People were able to reduce debt during Covid.
Black Incomes
There is some bad news. Median Black incomes were stagnant: They dropped 1.5% from $47,210 in 2019 to $46,479 in 2020. White income rose by 1% and Hispanic income dropped by 1.5%, also. Black income was 57% of Whites and has been consistent since the start of the survey in 1989. Income for less educated people has been flat since 1989.
Black average income rose from $69,090 in 2019 to $70,950, or 2.7% meaning that high-income or highly educated Blacks captured most of the wage gains. Wages contributed zero to income growth for the average Black person. Instead, most of the average income increase came from investments and business ownership.
What is the Black / White wealth gap and why does it matter?
Wealth (along with life expectancy) is probably the single best way to measure Black economic success. And it measures economic success over the long-term. Government policymakers, politicians, the media and the public closely watch the wealth gap. Second, in the US, wealth grants power, choices and “freedom.” Wealth is power in the US.
Wealth is the difference between the net worth (assets minus debts) of a typical family. The survey of Consumer Finance surveys wealth across many different measures: education, income and race. The Black / White wealth gap is the difference in wealth (net worth) of the median White family as compared to the median Black family.
Using the median, a number in the middle, where 50% of the people are above the number and 50% below the number, is the best way to talk about income and wealth. Averages are destroyed by the Jay-Z-Beyonce “effect.” If they attend your party, then on average, everyone in the room is a millionaire, even though you are not personally richer. The median is more accurate when talking about wealth and income.
It may seem far off, but at the current rate of change, the wealth gap would close in about 100 years. The real truth is that upper-income families are just out-earning the rest of us, so things will really just stay the same.
Black Family Financial Stability
Required payments (rent and loans) for Blacks dropped between 2019 and 2022. Twenty-five percent of Blacks reported their income was “unusually low” during the survey period. And 60% of survey respondents said they were uncertain about next year’s income.
Finally, Blacks are much less pessimistic about the economy. If you are starting from a lower base, then everything looks good. Thirty-Two percent of Blacks believe the economy will be worse over the next five years. Much lower than Whites (48%), Hispanics (42%) and Other (42%).
Inequality in General
Inequality is a hot topic and the SCF knows it. For all families, median net worth increased by 37% and average net worth went up by 22%. So, lower net worth families had a larger increase.
But the data show that upper-income and highly educated people are leaving the rest of us behind. The recent SCF survey shows a huge jump in the wealth of high-income individuals. The net worth of the top 10% of income earners increased by 44%. The net worth of low-income earners increased by 57%. But those in the middle were not so lucky. If your income was 20 to 40 percent of average income, your net worth increased by only 15%
What is the survey of Consumer Finance?
Every three years the Federal Reserve Bank of NY conducts a large and detailed survey of consumer finance. The most recent survey was conducted in 2022 and covers the period of 2019 to 2022. The data was released on Oct 18th, 2023. The survey covers 6500 families, but because of high interest, they over sample Black, Hispanic and high net worth individuals. There were an estimated 900 Black families that participated in the survey. And a reported six billionaires completed the survey.
The Survey of Consumer Finances is without a doubt the best survey on consumer finances including wealth, debt, income, and savings in the survey world. It is simply the cream of the crop. The survey is so important in the economic world that hundreds of academics in education, government and business are pouring over the statistics in the survey.
More importantly, it has 33 years of data. You can clearly see trends in wealth and income inequality in the US. You can see the massive changes in net worth to upper-income individuals. You can see the effect of the 2008 financial crash. And you can see recent improvements in Black and Hispanic net worth relative to whites. But you can also see stagnant incomes among the middle-class and lower-income workers. And the explosions of the wealth gap by the top 10%.
Finally, it also covers important topics like family financial stability, property ownership, and retirement savings. When you talk about income inequality, this is who measures it. Accurately.
Summary
The Survey of Consumer Finances is the best tool we have to measure the Black / White wealth gap and the growth of income inequality. The results are revealing. Since the 1980s, income for the bottom 50% has stagnated. While incomes for the top 10% have jumped.
In the US, wealth, grants power, choices, and “freedom.” We have to make sure the “rich” don’t close off opportunities for the rest of us to enjoy the benefits of society.
Sources
Survey of Consumer Finances, 2019-2022
Also, highly recommended is the SCF chartbook, an interactive study of the data in detail. You can change different selections to dig deeper into the data.
Oh no a real, official reference
Please cite this report as Aladangady, Aditya, Jesse Bricker, Andrew C. Chang, Sarena Goodman, Jacob Krimmel, Kevin B. Moore, Sarah Reber, Alice Henriques Volz, and Richard A. Windle (2023). Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances. Washington: Board of Governors of the Federal Reserve System, October, https://doi.org/10.17016/8799.