While it has been a challenge across the U.S. for decades, only recently has the racial wealth gap become common vernacular for both the media and politicians. Simply explained, the racial wealth gap is the shared experience of Black and Latino households earning half as much as their White counterparts and holding just 15-20 percent of the net wealth in the U.S, according to the Federal Reserve, as of 2021. 

Widening over the decades, along with the wealth gap, is wealth inequality, which coincides with the extreme concentration of wealth in one type of household. Aside from this accumulation of wealth in one group over another, what are the other causes of the consistent widening? Below, I explore some of the sources along with providing possible remedies to decreasing the gap. 

Overbearing inequalities

Closing the divide is already a social-justice issue, but with the U.S. set to become a “majority minority” nation by the mid-21st century, it is a much larger priority to implement broader and more effective economic policy. That being said, these inequalities are systemic in nature, deeply seeded in the fabric of the financial system. When it comes to overall wealth in the U.S., the median familial wealth of Black households is just $24,100, or 12.7 percent, of the average White household of $189,100. 

There is also the concept of zero or negative wealth, where the value of debts exceeds the value of assets. This gap has improved slightly, but Black and Latino families still have 28 percent and 26 percent, respectively — twice that of White families. 

To buy or not, that’s the question

As homeownership maintains a steady presence in the news cycle, many Americans are questioning their personal decisions to rent or buy. However, this is less of a consideration for Black and Latino communities, as the concept of homeownership is largely skewed to other groups. While the Latino community has drastically closed the housing gap to its White neighbors, Black buyers are still finding it difficult to apply, and qualify, for the same loans. 

That being said, I don’t believe this should stop those who want to be homeowners. Be mortgage ready and make your financial credentials hard to reject. Focus on legitimate areas, such as credit history, debt-to-income ratio, and job stability to better increase your outcome.

Fighting the student-debt crisis

You’ve likely heard it many times by now, but the concept of forgiving a specific amount of student debt per borrower would dramatically shift the racial wealth gap. On average, Black students have to take out more loans to get through the same amount of college compared to their White peers, according to Inequality.org, a project connected to the Institute of Policy Studies. Additionally, Black graduates are poised to see lower salaries — on average 27 percent lower with a bachelor’s degree and 14 percent with an associate degree. 

Pandemic disparities 

The COVID-19 pandemic was devastating across the nation, but disproportionately so for Black and Latino communities. During the shutdown, these workers were much more likely to be jobless than their White colleagues. In fact, as the world began to rebound in December 2020, unemployment rates were drastically higher for these communities — 9.9 percent for Black workers and 9.3 percent for Latino workers — compared to 6 percent for White workers and 5.9 percent for Asian workers. 

Solving what feels unsolvable 

When looking at the above statistics, closing the gap can feel like an insurmountable endeavor. However, it might be easier than we may think. Many financial experts agree that by making only a handful of federal changes, the gap would dramatically lessen with each step. One option, which many states have already adopted, is raising the minimum wage to $15 per hour by 2025. This would directly affect these populations as 44.1 percent of workers that would benefit from this increase are Black and Latino. Another way to narrow the divide is through student-debt forgiveness. Statistics show that Black women carry the largest student-debt burden, and Black students in general hold 15-25 percent more collegiate debt than their peers. Along with enacting these changes, we can support these communities further by helping current renters become homeowners through addressing housing-supply issues, understanding forces at the local level, and educating buyers on how to sustain their homeownership through all economic cycles. 

Other federally funded programs, like Baby Bonds that provide a strong and safe financial start to children, and strengthening government mortgage programs would go a long way to provide for the next generation. Also, encouraging K-12 schools to provide financial education as a part of the curriculum will give children of all races an even foothold on their financial future. 

While the racial wealth gap might appear to be a monumental divide, we as financial advisors are in the best position to share our knowledge and lay the foundation for a better future. Everyone is entitled to financial literacy and we encourage anyone interested in managing their own wealth to reach out to an advisor. With all of us working together, the gap will be chipped away, one inequality at a time.   

Jennifer Green is VP and managing director for Tompkins Financial Advisors, Central New York.