The U.S. Black/White Net-Worth Gap (E8)

Essays on the Color Line and the One-Drop Rule
by Frank W Sweet
July 18, 2010


his is the second of three papers on U.S. Black/White “gaps.” The first discusses the U.S. Black/White test-score gap. This one looks at the U.S. Black/White financial net worth gap. The third examines the U.S. Black/White crime gap.

Financial net worth is defined as the dollar difference between your assets and your liabilities. If you sold everything that you own (house, car, etc.) and used the proceeds to pay off all of your debts, how much money would you have left over?

Net worth is the most common measure of a family’s financial success. In this paper, we compare the median Black family’s net worth to that of the median White family. (“Median” means that just as many families have more net worth, as have less.)

Median net worth for everyone rises and falls with the nation’s overall economic situation. In order to focus on “racial” differences, we examine the ratio of median Black family’s net worth to that of the median White family, rather than on the absolute values of either.

Figure 1 (1)

As shown in Figure 1, in 1970 (at the end of the civil rights movement) the median Black family’s net worth was one-fourth (25 percent) that of the median White family. By 1980 the ratio had fallen to fifteen percent. By 1990 it had fallen to twelve percent, by 2004 to nine percent, and the latest measure (2007) is at six percent. African-American relative wealth is falling. The decline has continued unchecked for the past half-century. The plunge is accelerating.

Figure 2 (2)

Income difference does not explain this crash. As shown in Figure 2, although a difference between median African-American family and White family income exists, it is one-tenth the net worth difference. The ratio of Black-to-White income (the upper line) has ranged between 60 and 80 percent during the same period that the ratio of Black-to-White net worth (the lower line) fell from 25 to 6 percent.

Figure 3 (3)

Another way of seeing this puzzle is to compare White families making under $30K per year with African-American families making over $50K per year. As shown in Figure 3, high-income African-American families save virtually nothing compared to middle-income White families. Indeed, they save no more than do middle-income African-American families.

Parental wealth also fails to explain the crash. Consider generational class mobility. The American dream is that children grow up with more opportunities and greater financial success than their parents. If half of children wind up better off than their parents (and half worse off) there would be zero generational mobility. Positive generational mobility means that more than half of children achieve more than their parents. Negative mobility means that most children wind up poorer than their parents.

Figure 4 (4)

As shown in Figure 4, over two-thirds of middle-class White children accumulate more wealth than their parents. Fewer than one-third descend the economic ladder. This shows the positive class mobility of the American dream. But for Black children the numbers are reversed. Fewer than one-third of middle-class Black children accumulate more wealth than their parents; over two-thirds descend the economic ladder. The numbers are similar for families in poverty. Two-thirds of poor White children escape poverty in one generation. But most poor Black children born into poverty remain in poverty. As a result, African-American family net worth falls with each passing generation. This is the same information shown in Figure 1, just depicted differently.

Another way of seeing the difference is that Black and White families allocate approximately the same fraction of their money to home ownership (the largest asset for most U.S. families). But fewer African American families then put cash into savings accounts, money market accounts, certificates of deposit, bonds, or stocks. In short, African-American families use their money to cover expenses instead of accumulating savings. (5)

Figure 5 (6)

The accelerating collapse was not always the case. We can estimate net worth ratio in the early colonial period by comparing what fraction of African Americans owned land and slaves to the fraction of European Americans who owned land and slaves. Estimated in this way, as shown in Figure 5, the Black/White net-worth ratio was 61 percent in 1660.

African-American net worth then fell for the next two centuries, as the slave system took hold, bottoming out at about 4 percent in 1860. After slavery ended, Black families’ net worth rose steadily. The improvement continued throughout the Jim Crow era of state-sponsored terrorism against African Americans.

Today’s plunge began shortly after the Jim Crow era ended. The past four decades have witnessed the economic collapse of African-American families to poverty levels of the Jim Crow era and before.

The proximate cause is trivial. For any given level of income, the typical African-American family spends more and saves less than the corresponding White family. That is how net worth is computed, after all.

The deeper cause is not obvious. What is behind the huge discrepancy between the relatively small, stable difference in income and the catastrophic fall in net worth? What causes the negative generational mobility? That is the puzzle of the net-worth gap.

The two most popular hypotheses for the discrepancy are: (1) It is due to racism on the part of White society and (2) It is due to wastefulness on the part of African Americans. We discuss both of these at the very end of this paper.

Seven other popular hypotheses are: no generational nest egg, homes depreciate rather than appreciating, more single-parent households, worsening overall U.S. inequality, poor relatives, higher interest rates, and oppositional culture.

No generational nest egg — According to this hypothesis, due to Jim Crow era oppression, especially “redlining” after WW-II, (7) today’s African-American families lack the capital that others pass down from one generation to the next, either in the form of college tuition or home mortgage down payments. Consequently, Black families have less college education, less home equity, and pay more in loan interest. Unable to accumulate capital, they have no nest egg to pass on to their children and so the cycle continues.

The generational nest egg hypothesis has been tested and disproved. At most, it explains 10-20 percent of the B/W net-worth gap, mainly in the form of higher interest rates for the same loans. The remaining 80-90 percent of the gap remains to be explained. (8) In addition, the hypothesis predicts that the African-American children of wealthy parents would be more successful than children of poor parents. But as shown in Figure 4 above, precisely the reverse is the case.

Homes depreciate rather than appreciating — Most U.S. household capital is in the form of home equity. Home equity grows as real estate values increase. According to this hypothesis, Black neighborhood deterioration makes African-American homes fall in value, so African-American household capital evaporates. The depreciating homes hypothesis has been tested and disproved. There is no “racial” difference in the likelihood that homes will appreciate or depreciate. “According to [Gittleman and Wolff (2000), PSID wealth supplements: 1984, 1989, 1994], blacks actually earned a higher rate of return on capital than did whites from 1984 to 1994: 41 percent compared with 32 percent. Home prices increased faster for blacks than for whites, as did business equity, stocks, and real estate.” (9)

More single-parent households — Single-parent households are less profitable than two-parent households, even when only one parent works outside the home. This hypothesis says that the net-worth gap reflects that more Black than non-Black households are headed by single parents. The single-parent hypothesis has been tested and disproved. The net-worth gap measure is unchanged even after correcting for the prevalence of single-parent households. (10)

Figure 6

Worsening overall U.S. inequality — Over the past half century, U.S. society has become increasingly unequal. A shrinking fraction of the populace holds a growing lion’s share of the wealth. As shown in Figure 6, at the end of World War II, the richest ten percent of the nation’s population earned 35 percent of the income. By 2007, the same ten percent earned 50 percent of the national income. The rich became richer and fewer, the middle class became poorer, and the poor became more numerous. This hypothesis says that, since African-American families were already poorer four decades ago, worsening overall inequality impacted them more.

The overall inequality hypothesis has been tested and disproved. Figure 3 showed an ever-widening gap between high-income and middle-income White families. This is predicted by worsening inequality. But it also shows a narrowing gap between high-income and middle-income Black families. This contradicts the hypothesis of widening inequality causing the Black/White gap. (11)

Poor relatives — Black families, even successful ones, have more impoverished relatives than do non-Black families. This hypothesis says that much African-American spending is for financial assistance to less fortunate members of the extended family, an expense that is rare among non-Blacks. The hypothesis has not been tested.

Higher interest rates — African American families pay higher interest rates than do White families for the same loans. This hypothesis has been tested and confirmed. (12) But this explains only about ten percent of the discrepancy. In addition, this is a proximate cause, not a deeper cause. Higher interest rates seem to be driven by higher lender risk.

Figure 7 (13)

As shown in Figure 7, African-American families are nearly twice as likely as Whites to default on home loans.

Figure 8 (14)

As shown in Figure 8, the higher African-American rate of foreclosures is not due to lower income. In fact, loan default is more common among high-income Black families than among lower-income Black families. (15)

Oppositional culture — Many researchers have shown that an “oppositional culture” arises among adolescent African Americans during their middle-school years. It lasts at least through high school and probably beyond. It takes the form of peer attacks on children who get good grades. Attacks usually take the form of violence against male students, and sexual harassment against females. Attackers accuse peers who strive for scholastic excellence of “acting White,” “selling out,” or “betraying their race” by being “Toms” or “Oreos.”(16) Consequently, there is a serious, consistent, and replicable Black/White test-score gap in the United States in every intellectual skill yet measured.(17)

The oppositional culture phenomenon has inspired two hypotheses regarding the net-worth gap. First, is the possibility that a similar oppositional culture exists among adult African Americans who see financial success as “selling out.”(18) Second, is that the adolescent oppositional culture dissuades children from learning basic money-management skills, just as it dissuades them from learning math, science, or literature. Consequently, this hypothesis says that a large fraction of adult African Americans do not know how to live within their means. Neither of these hypotheses has been tested.

White racism or Black wastefulness — These are not testable hypotheses because they cannot be defined in an objective, measurable way. One or both may well be accurate, but their measurement cannot be objectively replicated. This makes them non-falsifiable. These two hypotheses are like saying that vanilla ice cream tastes better than chocolate. They may well be true, but they cannot objectively be measured, and so they fall outside the realm of science. At best, they present proximate causes that lead nowhere. At worst, they are meaningless labels. For example, merely labeling support of poor relatives, higher interest rates, or oppositional culture as “racism” helps determine neither factual accuracy nor cause. Similarly, labeling the same phenomena as “Black wastefulness” is equally sterile.

*  *  *  *  *

In conclusion, this paper presents little-known, recently uncovered facts about the U.S. Black/White net-worth gap: It has been worsening at an accelerating rate for four decades. It is unrelated to income, lack of generational nest egg, overall inequality, depreciating homes, or single families. It is related to higher interest rates (which are caused by loan higher default rates). It may possibly be related to supporting poor relatives or to some aspect of oppositional culture.

Click here for an animated YouTube version of this topic.


  1. Paul L. Menchik, Nancy Ammon Jianakoplos, “Black-White Wealth Inequality: Is Inheritance the Reason?” _Economic Inquiry_, Vol. 35, 1997; Andrew Hacker, _Two Nations: Black and White, Separate, Hostile, Unequal_ (New York: Ballantine, 1995), 108; (Wolff, 1992) as quoted by Paul L. Menchi and Nancy Ammon Jianakoplos, “Black-White Wealth Inequality: Is Inheritance the Reason?” in _Economic Inquiry_, V. 35, (1997); Melvin L. Oliver and Thomas M. Shapiro, _Black Wealth/White Wealth: A New Perspective on Racial Inequality_ (New York: Routledge, 1992) as quoted by Robert A. Margo in _The Independent Review_, V. 1:3 (Winter 1997); <>.
  2. Same as note 1, plus: Brookings Institution (2004) as quoted by Michael B. Katz and Mark J. Stern, “Beyond Discrimination: Understanding African American Inequality in the Twenty-First Century” in _Dissent_ (Winter 2008); <>.
  3. Thomas M. Shapiro, Tatjana Meschede, and Laura Sullivan, “The Racial Wealth Gap Increases Fourfold,” Research and Policy Brief, Institute on Assets and Social Policy, Brandeis University (May 2010).
  4. Katz and Stern (2008).
  5. Margo (1997).
  6. Same as note 1, plus: Theodore Allen, _The Invention of the White Race_, 2 vols. (London: Verso, 1994) 2:182-5.
  7. “Redlining” was the Federal Housing Administration (FHA) policy of not approving home mortgages in Black neighborhoods.
  8. Menchik and Jianakoplos (1997).
  9. As quoted in John Karl Scholz and Kara Levine, “U.S. Black-White Wealth Inequality: A Survey” Dept of Economics and Institute for Research on Poverty, University of Wisconsin (June 9, 2003) p. 29. This may seem counterintuitive. As reported by Hacker, Keating, and others, real estate often loses value when White neighborhoods become Black neighborhoods. But the losers in such cases are the former White owners who bought high, not the new Black owners who bought low. The Scholz and Levine report can be downloaded from
  10. John Karl Scholz and Kara Levine, “U.S. Black-White Wealth Inequality: A Survey” Dept of Economics and Institute for Research on Poverty, University of Wisconsin (June 9, 2003).
  11. A clarification. The point being made is not that worsening inequality does not strike Black families disproportionately. It clearly does. At the start of the period of worsening inequality, African-Americans were at the bottom of the economic ladder. They are still at the bottom, but the top has moved out of reach. The point being made is that worsening inequality cannot be the _cause_ of the plunge in Black net worth. If it were the cause, we would see a widening of the rich/poor gap among African Americans.
  12. John Karl Scholz and Kara Levine, “U.S. Black-White Wealth Inequality: A Survey” Dept of Economics and Institute for Research on Poverty, University of Wisconsin (June 9, 2003).
  13. Debbie Gruenstein Bocian, Wei Li, and Keith S. Ernst, “Foreclosures by Race and Ethnicity: The Demographics of a Crisis,” Center for Responsible Lending (June 18. 2010) <>.
  14. Ibid.
  15. It is worth noting that high interest rates penalize responsible Blacks by lumping them with defaulters, while irresponsible Whites benefit by being grouped together with reliable Whites. Whether this phenomenon is best labeled “lenders’ business acumen” or “lenders’ prejudice” is beyond the scope of this paper. Also, whether some Afro-descended loan applicants can avoid the stigma by claiming a “biracial” or “Hispanic” self-identity is beyond our scope as well.
  16. Stuart Buck, _Acting White: The Ironic Legacy of Desegregation_ (New Haven: Yale University, 2010), see chapter 1, “Does ‘Acting White’ Occur?” for a survey of recent studies. See also “The U.S. Black/White Test-Score Gap” in this series of papers by the present author.
  17. Christopher Jencks and Meredith Phillips, _The Black-White Test Score Gap_ (Washington DC: Brookings Institution, 1998).
  18. Randall Kennedy, _Sellout: The Politics of Racial Betrayal_ (New York: Pantheon, 2008).

Frank W. Sweet is the author of Legal History of the Color Line (ISBN 9780939479238), an analysis of the nearly 300 appealed cases that determined Americans’ “racial” identity over the centuries. It is the most thorough study of the legal history of this topic yet published. He was accepted to Ph.D. candidacy in history with a minor in molecular anthropology at the University of Florida in 2003 and has completed all but his dissertation defense. He earned an M.A. in History from American Military University in 2001. He is also the author of several state park historical booklets and published historical essays. He was a member of the editorial board of the magazine Interracial Voice, and is a regular lecturer and panelist at historical and genealogical conferences. To send email, click here.

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