THE RACIAL WEALTH GAP - UNC Charlotte Urban Institute

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THERACIAL WEALTH GAPCHARLOTTE-MECKLENBURGPrepared by:120Lori ThomasSydney IdzikowskiAngelique GainesJustin 132011200902007Cover visualization: TotalU.S. Household NetWorth, 2007-2019,Dollars in Trillions;UnadjustedSource: DistributionalFinancial Accounts,Federal Reserve Bank2

THERACIAL WEALTH GAPCHARLOTTE-MECKLENBURGContributors:Jeremiah Prince, Opportunity InsightsLaura Simmons, UNC Charlotte Urban InstituteAlanna Williams, Opportunity InsightsKatie Zager, UNC Charlotte Urban InstituteReviewers:Bridget Anderson, UNC Charlotte Urban InstituteChristian Friend, C.A. Friend ConsultingRaquel Lynch, Goodwill Industries of the Southern PiedmontJeff Michael, UNC Charlotte Urban InstitutePatrick McHugh, North Carolina Justice CenterEly Portillo, UNC Charlotte Urban InstituteAlanna Williams, Opportunity InsightsDavid Williams, Opportunity InsightsKailas Venkitasubramanian, UNC Charlotte Urban InstituteBank of America partners with the UNC Charlotte Urban Instituteand the Institute for Social Capital on research that provides insightinto community initiatives.3

TABLE OF CONTENTS5132150IntroductionThe Racial WealthGapPathways of WealthAccumulationStrategies to Closethe Gap8 Historical Context15 Net Worth23 Education11 Terms18 Asset Types30 Income12 Measurement19 Negative Net Worth36 Home Ownership42 Business Ownership53 Children's SavingsAccounts54 Baby Bonds55 EmployeeOwnership Conversion45 Retirement Savings& Investments28 IntergenerationalTransfer4

INTRODUCTIONBrooklynUndated, Charlotte Observer Staff Photo

IntroductionWealth offers familiesopportunity & protectionand is "a paramountindicator of social wellbeing."1Previous & current pages:Brooklyn, no datePhoto Credit: CharlotteObserver Staff PhotoWealth opens doors. Familieswith access to diverse assetsbeyond their immediate incomeare able to purchase homes andbusinesses, pay for a collegeeducation, and care for youngand aging family members.Wealth also enables families toweather emergencies, serving asa safety net when job loss, illness,or other unforeseen tragediesoccur.The opportunities andprotections offered by wealth,however, are not universallyavailable. White households holda disparate share of wealth in theUnited States –at last measure 10times that of Black households2 and thus greater access to thethe benefits stemming from it.3Hamilton & Darity, 2017Dettling, 20173 e.g., Killewald et al., 201712 6Introduction 6

Despite its importance inunlocking a number of social andeconomic benefits, wealth particularly the racial gap - iscomplex and a relatively newfocus of research. 4Wealth is difficult to measureand address because it isconceptually complex in severalways. First, it is multifaceted,rather than unidimensional.Wealth is about more thanincome, home equity, or any oneasset alone.Second, it is cumulative in nature,rather than a point-in-timephenomenon. Wealth developsover time. The wealth ofgrandparents and greatgrandparents helps build wealthin subsequent generations.Third, wealth is structural, ratherthan individual. Conventionally,efforts to address gaps in wealthand income have focused at anindividual or household level,assuming that the underlyingproblem is in individual behavior,beliefs, or values. However, theroots of the racial wealth gap aresystemic, erected by historiceconomic and social policies.5This report focuses on thestructure of the racial wealthgap. We briefly document thehistorical context of the racialwealth gap, describe recentwealth statistics, examinenational and local evidenceacross various components andprocesses of wealth, and discussstrategies to address the racialwealth gap.Wealth is multifaceted,cumulative, and structural,presenting challenges forresearch and intervention.45Killewald et al., 2017Hamilton & Darity, 2017 7Introduction 7

Historical ContextUnderstanding historicalcontext is necessary tounderstand the racialwealth gap.First day of UrbanRenewal demolition inBrooklyn, 1961.Photo Credit: CharlotteObserverStaff PhotoIn 1912, the Charlotte Observerpublished the headline, "Farsighted man believes thateventually this section, becauseof its proximity to the center ofthe city, must sooner or later beutilized by the Whitepopulation.“6 The man wasreferring to historic Brooklyn,now Charlotte’s Second Ward.He foreshadowed the destructionof the historically Blackcommunity through federallysanctioned policies and local,state, and federally fundedcontracts.The story of Brooklyn is one ofmany such stories in Charlotteand across the nation.Intersecting federal, state, andlocal policies dismantled wealthand wealth-growing potential inBlack, Latinx, and Nativecommunities. 68Pyke, 2016Introduction 8

Slavery and the seizing ofindigenous lands and resourcesfueled the economic system thatseeded the racial wealth gap inthe U.S.7 The Reconstructionperiod after the Civil War offereda brief window of wealthbuilding opportunity for formerslaves, but following Lincoln'sAssassination, land grants andother wealth-buildingmechanisms were revoked anddismantled, often violently.8Photo: Tom Hanchett; Page 316 from Homer Hoyt's1933 dissertation that informed federal housingpolicy.In their place, Jim Crow laws andBlack Codes were enacted toexplicitly limit freedoms,including economic freedom.Subsequent New Deal reformsthat were to address theeconomic needs of citizensfollowing the Great Depressionimplicitly limited benefits forNonwhite citizens as did postWorld War II programs throughthe G.I. Bill. The race-neutralpolicies of the Civil Rights eracould not erase the impact ofprevious policies on wealthdisparity.Broadly, a range of governmentalpolicies and practices havecreated and sustained the racialwealth gap, including, but notlimited to:Housing Policies “redlined”Nonwhite communities,preventing homeownership andthe flow and benefits of capitalinvestment. Redlining was thepractice of rating neighborhoodsbased on perceived financial riskand then systematically denyingloans or services in the areasmarked in red that wereperceived as too risky forinvestment.As the picture (left) of a pagefrom Homer Hoyt's 1933dissertation describes, Nonwhiteraces, particularly "Negroes" and"Mexicans," had a "detrimentaleffect" on their neighborhoods.9Hoyt's work and his role as ahousing economist in the newlyformed Federal HousingSacerdote, 2005Lui et al., 20069 Hoyt, 1933, p. 31678. 9Introduction 9

From housing to labor,the impacts ofgovernment policiesinteract and compoundto limit wealth.Authority shaped the country'shousing policy and mortgagepractices.10 Subsequent publichousing policies, including UrbanRenewal and Hope VI, razedmainly Nonwhite neighborhoodswith the promise of betterhousing and communitystructures.11Transportation Policiesidentified, appropriated, andrazed neighborhoods for federaland local highway development.In urban areas like Charlotte,targeted neighborhoods werelargely nonwhite.12Labor Policies excludedindustries dominated by Blackand Latinx workers from policyprotections and benefits thatcreate economic security, likeaccess to Social Security.13Criminal Justice Policies,including forced labor exclusionsand disparate sentencingguidelines, disproportionatelyimpacted Black communities.Black men are nearly 6 timesmore likely to be incarceratedthan White men.14Other policies, including a rangeof education and social welfarepolicies, have had similardisparate impacts on Black,Latinx, and Native communities.Some of these policies have beenoverturned or are currently beingchallenged, but their cumulativeimpact is not as easily undone.The cumulative impact ofmultiple policies is not easilyundone.Rothstein, 2017.Hud, 197412 e.g., Connerly, 2002; Pyke, 201613 e.g. Talen, 2014; Stoesz, 201614 e.g., Western & Wildeman, 2009.1011 10Introduction 10

TermsWealth, or net worth, is the totalof household financial and nonfinancial assets less any debt orliability.15Income is the regular flow ofmoney excluding capital gains.This definition includesgovernment cash transfers. TheCensus Bureau lists 15 alternativedefinitions for income.3Financial assets include interestearning and checking accounts,stocks and mutual funds,retirement accounts, andproceeds from the sell of abusiness.Income inequality is the extentto which income is unevenlydistributed within a population.Economic mobility is the abilityfor individuals to move up ordown the income distribution.Nonfinancial assets include realestate and durable goods likevehicles.16Asset Poverty is lackingsufficient savings or assets thatcan be used to pay for basicneeds for three months withoutincome.Liabilities include securedliabilities (e.g., mortgages on realestate; debt on business, andvehicle loans) and unsecuredliabilities (credit card debts,health-related bills, andeducational loans).Race and Ethnicity are defined invarious ways across differentmeasures. These differences aredescribed in-depth in theAppendix.Wealth inequality is the extentto which wealth is unevenlydistributed within a population.1516Federal Reserve Bank, 2019U.S. Census Bureau, n.d. 11Introduction 11

MeasurementAbout a dozen surveys measureU.S. household wealth,17 butmost reports rely on the threesurveys described below. Thesesources, however, do not providelocal estimates.Panel of Income StudyDynamics (PSID), University ofMichigan. Nationallyrepresentative, longitudinalsurvey. Does not track the upperend of the wealth and incomedistribution. Surveys wereconducted every year from 196897 and every other year from1999-2017.Survey of Consumer Finances(SCF), Federal Reserve Bank.Nationally representative, crosssectional survey. Oversampleshouseholds at upper end of theincome distribution. Conductedevery 3 years. Last survey was in2016. Classifies race andethnicity as White, Black,Hispanic, and Other.Survey of Income and ProgramParticipation (SIPP), U.S. CensusBureau, Nationally representativeseries of continuous 2.5-4 yearpanel surveys. Oversampleshouseholds at the lower end ofthe income distribution. A newsurvey design launched in 2014.Classifies race and ethnicity asWhite only, Black only, Asianonly, Hispanic or Latino, andResidual (Other).Distributional FinancialAccounts is a new source onwealth from the Federal ReserveBank. It combines the SCF wealthmeasures to the FinancialAccounts of the U.S., providingquarterly estimates on thedistribution of aggregatehousehold wealth.18Wealth to Income Ratio is theratio of household wealth tohousehold income. The currentaggregate household ratio is 6.6.1718Killewald et al., 2017Batty et al., 2019. 12Introduction 12

THE RACIALWEALTH GAPFill with Flickr PhotoUndated, Photo credit

The Racial WealthGapNationally, the medianwealth of Whitehouseholds is 10 timesPrevious & current page:Brooklyn, 1963, Brevard atStonewall;Photo credit: UNCCharlotte Atkins LibrarySpecial Collectionthat of Black householdsand 8 times that of Latinxhouseholds.19Key economic indicatorsdemonstrate persistent racialand ethnic disparities in wealth.Information on net worth, assets,and debt describe wealthdisparities from slightly differentperspectives but together definethe problem.20The most comprehensive sourcesfor wealth measurement areavailable only at the federal level.However, local numbers onnegative net worth and assetpoverty can give additionalinsight into the extent of theracial wealth gap in CharlotteMecklenburg.1920Dettling, 2017Darity, 2019 14The Racial Wealth Gap 14

Median & Mean Net WorthU.S. Households, 2016 dollars 933,700The median net worth ofWhite households in the U.S.exceeds that of any otherracial or ethnic group.Net worth is typically measuredby the median, or middle value ineach distribution, rather themean or average of all values inthe distribution. Median valuesbetter represent the typicalgroup member. However, thetypical values may obscure theextent of wealth or lack of it inthe highest and lowest ends ofthe distribution. For example,97% of White wealth is held byhouseholds above the median, ortypical, number.21 457,800 138,200 64,800 17,600White21 191,200 171,000Black 20,700LatinxOtherWhiteBlackLatinxOtherDarity, 2019MedianSource: Federal Reserve Board, Survey of Consumer Finances, 2016Mean 15The Racial Wealth Gap 15

Median Net WorthU.S. Households, 2007-20162016 DollarsFrom 2007 to 2016, Mediannet worth fell 13.9% for Whitefamilies and 29.5% for Blackfamilies.White 198,620 171,000 143,420The Great Recession (20072010) negatively impacted thenet worth of all households.Immediately after therecession (2010-2013), Whitehouseholds were able to beginrecovery sooner. Overall,White households lost 13.9%of their wealth between 2010and 2016, while Blackhouseholds lost 29.5% of theirwealth in the same period,further widening the racialwealth gap.-13.9% 146,310Other-8.4% 70,520 64,620 47,200Latinx 42,230 24,430Black 18,290 24,3202007 17,5702010 14,230 13,490 20,720 17,1502013-15.2%-29.5%2016Source: Federal Reserve Board, Survey of Consumer Finances, 2007-2016. 16The Racial Wealth Gap 16

Median Net WorthU.S. Households, 2007-2016Percent changeBlack and Latinx householdsonly recovered a small portionof their pre-recession wealthin the period following therecession.2013-20162010-20132007-2010In the period following therecession (2010-2013), Whitehouseholds stopped losingwealth and began to recover,while Nonwhite households,particularly Black and Latinxfamilies, continued to lose prerecession wealth. Between2013 and 2016, median networth rose more amongNonwhite households, butgains have done little to closethe wealth gap, whichworsened considerably afterthe 3%WhiteBlackLatinxOtherSource: The Federal Reserve Board, Survey of Consumer Finances, 2007-16 17The Racial Wealth Gap 17

Asset TypesU.S. Percent of Householdswith Asset, 201690%80% 80%73%White households have amore diversified wealthportfolio.48%34% 30%WhiteLatinx73%RetirementOtherVehicleBlackMore than 60% of White familieshave retirement accounts anddirect or indirect equity. Blackand Latinx families have roughlyhalf of these assets. With moretypes of assets on hand, Whitefamilies are better protectedagainst market forces andsudden decreases ininvestments, as well as betterpositioned to expect highergains from existing assets.60%61%54%45% 46%47%31% 28%15%13%7% 6%Primary residenceBusiness EquitySource: Federal Reserve Bank, 2018Direct & Indirect Equity 18The Racial Wealth Gap 18

Negative Net WorthCharlotte, Percent of Households29.4%29.2%27.7%More Black and Latinx familiesin Charlotte have zero ornegative net worth.Zero or negative net worthoccurs when total debts exceedtotal assets. In Charlotte, nearly 1in 3 Black and Latinx householdshave zero or negative net worth.About 1 in 7 White and Asianhouseholds have zero ornegative net e: Prosperity Now, 2019 19The Racial Wealth Gap 19

Asset PovertyCharlotte, Percent of Households201448%Black and Latinx householdsare more than twice as likelyto be asset poor.Asset poverty is another way tounderstand where wealth isabsent. Asset poverty is the lackof sufficient savings or assetsthat can be used to pay for basicneeds for three months withoutincome. In Charlotte, householdsof color are more than twice aslikely to experience assetpoverty as White households.Almost half of all Latinxhouseholds wouldn’t be able tocover basic needs after threemonths without urce: Prosperity Now calculations of ACS and SIPP data, 2014 20The Racial Wealth Gap 20

Pathways of WealthAccumulationFill with Flickr PhotoUndated, Photo credit

Pathways ofWealthAccumulationDisparities in multiple components ofwealth in Charlotte-Mecklenburg suggestracial and ethnic gaps.Previous & current page:Brooklyn, 1965, 1st StreetPhoto Credit: UNCCharlotte Atkins LibrarySpecial CollectionWealth is built through acombination of pathways, eachwith its own policy and practicehistory and sequence ofconsequences that enhance orhinder wealth building acrossracial and ethnic groups.Wealth is not built through singlemilestones or accomplishmentssuch as purchasing a home orearning an advanced degree.Rather, wealth grows through acombination of assets that arebuilt and maintained over timeand across generations.Disparities hinder or halt thegrowth of wealth on eachpathway.This section describes pathwaysof wealth accumulation includingeducation, income, homeownership, business ownership,retirement, and other savingsand investment accounts. Weprovide historical context andlocal statistics where available. 22Pathways of Wealth Accumulation 22

EducationalAttainmentEducation attainment is apredictor of wealth for allgroups, but differs acrossracial and ethnichouseholds with similarlevels of education.22Education is a powerful tool foreconomic stability that broadenscareer choice, enhancesspecialized skills, and raisesearnings. Higher education andobtaining an advanced degreeraises household income and iswidely recognized as an assetbuilding strategy.However the value of aneducation, and specifically itsimpact on household wealthvaries considerably across racialand ethnic groups. Withingroups, additional levels ofeducational attainment lead togreater net worth. Acrossgroups, however, similareducational attainment does notcorrelate with similar householdnet worth. In other words, acollege degree accumulatesmore wealth for Whitehouseholds than for Black andLatinx households.While higher education levelslead to higher net worth, wealthalso predicts college attendanceand degree attainment, due inpart to the greater ability ofWhite families to pay moretoward a college education,requiring less student loan debt.Black college graduates are alsomore likely to support theirfamilies than White collegegraduates, further impactingpotential gains to net worth. 23A college education does notclose the wealth gap for Blackand Latinx households2223Rumberger, 2010Meschede et al., 2017 23Pathways of Wealth Accumulation 23

Bachelor's Educational AttainmentMecklenburg County, 2017Distribution of Education across Races58.4%Some ool ce: U.S. Census Bureau, American Community Survey 1-Year Estimates10.9%7.4%3.9%Asian6.1%Other 24Pathways of Wealth Accumulation 24

36%36%23%31%LatinxBachelor’s degree attainmentfor both head and partner inBlack families is about 70%lower than White households.Further, White and Otherfamilies are much more likelyto have a parent with at leasta Bachelor’s degree.39%BlackBachelor’s degreeattainment is 40-64% lowerfor Black and Latinx headsof household.OtherWhiteBachelor's DegreeU.S. Percent of Households, 201617%19%18%16%14%5%6%Head Bachelor's (BA ) Both Head & Partner BA At least one the head'sparents had BA Source: Federal Reserve Board, Survey of Consumer Finances, 2016 25Pathways of Wealth Accumulation 25

Bachelor’s DegreeMecklenburg CountyPercent of Adults, 2017Percent withBachelor’sDegree44%43% of adults in Mecklenburg Countyhave a bachelor’s degree. People withthose degrees, however, areconcentrated in a southeast Charlottewedge. The reference map below depictsthe percentage of White residents.99%Percent White1%99%Source: Charlotte-Mecklenburg Quality of Life Explorer, 2017 26Pathways of Wealth Accumulation 26

Data note: Income categoriesrepresent children inhouseholds with incomesexactly at the 25th, 50th, and75th percentiles.50%Asian45%41% 41%36%34%29%27%Latinx25%BlackData from OpportunityInsights gives an indication ofthe educational success ofstudents who grew up inMecklenburg County and wholive in households at thebottom, middle, and top of theincome distribution. Their dataprojects the percent expectedto recei

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