Dec 6, 2019
The wealth gap and why it matters
Overwhelming evidence indicates that growing up in a family whose income is below the poverty line can have profound impacts on children’s short- and long-term outcomes. Also of critical importance for family and child wellbeing is household assets, or wealth, as highlighted in the recent Dialogue on Racial/Ethnic Equity and Policy Proposals to Reduce Child Poverty convening.
Income is what families typically use to meet their basic daily needs such as food, rent, and utilities. Assets, in contrast, provide a buffer that families can draw on when unexpected hardships – such as job loss or unanticipated medical expenses – occur. Assets also make it possible for households to “invest” in their future in ways that are likely to result in greater long-term financial security, such as supporting educational opportunities for their children or saving for retirement.
Although most research on racial disparities in wealth focuses on blacks and whites, recent work has found that Hispanics face similar disadvantages. In 2016, the typical Hispanic family had close to $21,000 in net worth (assets minus debts), while the typical white family had $171,000 in net worth, according to research by Thomas Shapiro and colleagues. In other words, a Hispanic family had about 12 cents of wealth for every dollar of wealth that a white family had.
Reproduced from: Tax Policy Center. (2019). “Median Value of Family Net Worth.” Fiscal Facts: March 11, 2019. Washington, DC: Urban-Brookings Tax Policy Center.
Reasons for these gaps, which have increased over the past decade, are complex, but evidence suggests they are rooted in disparities in home ownership, wages, inheritance, and familial financial support. The amount of wealth a family starts out with also predicts how much additional wealth accrues, creating a vicious cycle of inequity that can span decades. Historical policies (e.g., around housing and immigration) and structural racism likely also play a role in creating and perpetuating disparities. To interrupt this cycle, current policies and incentives need to be closely examined from a racial/ethnic perspective and designed to help build opportunities and wealth for all.