How to Reduce the Black-White Wealth Gap

Monday, April 23, 2018
Bloomberg View

Even if black people earn a college or advanced degree, get a full-time job and own a home, they’re likely to have far fewer assets than their white counterparts.

The authors also address a second trope -- the idea that black Americans are less wealthy because they’re less frugal. Musician Kanye West might have been tongue-in-cheek when he sang, “You know, white people get money, don't spend it/ Or maybe they get money, buy a business,” but there’s little question that the stereotype has permeated popular culture. And white savings rates are indeed higher. The problem, as Darity et al. show, is that the only reason white Americans save more money than their black counterparts is that they earn more in the first place.

Basic economic theory says that rich people should save more of their money than poor people. If you’re a senior executive or wealthy entrepreneur making say $15 million a year, you can splurge on private jets and mansions, but ultimately you run out of things to buy -- so, instead, you save. But if you’re scraping by on $15,000 a year, every dollar you save comes at the expense of something essential -- food, rent, clothing, heat or payments on the car used to get to work. Since white Americans, on average, earn more than black Americans, we’d expect them to have higher savings rates even without being more frugal.

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