The Political Economy of Education, Financial Literacy, and the Racial Wealth Gap

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Wealth disparity is a striking problem, one with numerous causes and just as many explanations. However, a majority of these justifications puts the onus on those populations, predominantly Black and Latino individuals, who have historically been deprived.

One subgenre of these explanations argues that a lack of financial literacy on the part of these populations, and similarly, a lack of prioritization of education is to blame. In this paper, the authors explore the dangers of this stubborn but misguided framing: that subpar decision-making is to blame for the wealth gap, rather than the reality that these individuals simply are given no choice but to rely on predatory financial services.

Key Findings

  • The Pew Charitable Trusts (2015) report on American debt concludes that the racial wealth gap has more to do with a lack of assets for Black and Latino families than racial variation in debt or an abundance of debt on the part of Blacks and Latinos. Instead, evidence suggests that inheritance and other intergenerational wealth transfers benefit Whites to a much larger extent.
  • Over the past 40 years, regardless of education, the Black unemployment rate has remained roughly twice as high as the White rate. White high school dropouts have lower unemployment rates than Blacks who have completed some college or earned an associate degree.
  • Black parents with more limited resources display a greater inclination to provide financial support for their adult children’s education than their White counterparts; however, these parents are working from a much smaller basis of wealth than White parents, even when compared to those who didn’t provide financial support to their children.
  • The median wealth for Black families whose head earned a college degree is only about two-thirds of the median wealth of White families whose head dropped out of high school.
  • In short, it is wrong to think that Black families don’t value education, and it is also wrong to think that heightened returns on education for Blacks will be the magic bullet that addresses the racial wealth gap.
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