WASHINGTON -- The booming economy has done much to boost the fortunes of many long-disadvantaged Americans. But the gap in well-being between whites and nonwhites didn't budge over the 1990s and remains huge, especially when measured by wealth.
In 1998, the most recent year for which data are available, the median net worth for Hispanic, African-American, Asian and other minority families was $16,400. That was less than one-fifth -- 17.28% to be precise -- the $94,900 median net worth for non-Hispanic white families. The ratio was up only slightly from 17.23% in 1992, according to a recently released survey of 4,309 families conducted for the U.S. Federal Reserve.
Stockholdings Make Up Almost a Third of Americans' Total Household Wealth
The racial divide in wealth -- the value of all assets, including homes, cars, stocks and savings accounts -- was much greater than that of income, the Fed data show. Median income for non-white and Hispanic families -- the household in the middle of the pack for those groups combined -- was $23,300 in 1998. That was 61.8% of the white non-Hispanic median income of $37,700 -- a slightly narrower gap compared with 1992, when those minorities earned 60% of what whites did. (The report, like most other research on the issue, combines data for all racial minority groups and doesn't calculate details for individual minority groups).
Why is the gap between races in wealth so much greater than the gap in income? Economists and researchers point to numerous reasons, including historical patterns of discrimination in wages, job opportunities and access to the credit needed to start a business. But differences in the way whites and nonwhites invest appear also to be key. Minorities own homes at a much lower rate than whites and are far less likely to tuck their earnings into higher-risk investments such as stocks, which have generated a huge portion of the nation's new wealth over the 1990s.
"The robust stock market has made racial differences in wealth even more pronounced," said Dalton Conley, a sociology professor at New York University who studies wealth and race. Furthermore, "even though everyone is doing better now, those who have the money to begin with are doing the best."
In other words, it takes money to make money, and research has shown that whites inherited far more money than minorities.
Looking at Inheritance
In 1994 -- the most recent year for which complete data are available -- an annual survey conducted by the University of Michigan found that whites were three times as likely to have inherited more than $10,000 within the previous five years as blacks. Among families that had inherited, the survey found the average value of a white family's inheritance was $74,000, more than double that of blacks' $33,000.
"Minorities and whites simply aren't starting from the same place," says Thomas Shapiro, a sociology professor at Northeastern University and an expert on racial wealth disparities. "Not inheriting puts them at a significant disadvantage."
Part of the gap is simply the result of statistical quirks. Wealth figures are calculated by household, not individual. More blacks, for example, are single than whites and so household net worth, and income, is likely to be lower even if the individual members are equally well off. Still, experts say differences in the two groups' financial behavior offer a more complete explanation for the differences.
Take stock ownership, for example. In 1997, 48% of whites owned stock, and stock portfolios accounted for 21% of their overall wealth, according to New York University Economics Professor Edward Wolff, an authority on wealth distribution. Only 10.4% of blacks owned stock, by contrast, and stocks accounted for just 9.7% of their overall net worth, he found.
Wealthier African-Americans are more likely to invest, but differences remain. For households making more than $75,000 per year, 66.7% of blacks owned stock, compared with 80.5% of whites, Mr. Wolff found. Stock accounted for 23.5% of these whites' total net worth and 15.1% for these blacks. New data show that Americans continue to pour money into the stock market. Stockholdings at the end of last year accounted for a record 31.7% of overall household wealth, up from 28.3% in 1998, according to a Fed survey released Friday. (Those data aren't broken out by race.)
Take Sabrina Moore, a 42-year-old African-American controller for a Chicago steel company. Despite majoring in finance in college, Ms. Moore didn't begin investing until relatively recently, focusing first on amassing money for a down payment on her home. Ms. Moore's parents -- her father is a retired social worker while her mother is a retired schoolteacher -- scrimped and saved to send her and her brother to college, so investing was not something the family discussed. "They always talked about saving money and living within our means, but stocks never came up," she says.
Getting Into the Game
But about six years ago, with her house mostly paid off and her parents enjoying a comfortable retirement due to their pensions, Ms. Moore says she finally felt ready to invest. Since then, she has limited her portfolio to mutual funds, joking that "when it comes to individual stocks, I'm still a bit of a chicken." Still, very few of her friends have even been willing to go that far. "Since investing is not something that's staring them in the face, it's just not something they tend to discuss," she says.
The racial differences are narrower but still significant -- when it comes to owning a home, the other main asset used for building wealth. In 1998, 46.6% of blacks and 44.9% of Hispanics owned their own homes, compared with 72.2% of whites, according to the Joint Center for Housing Studies at Harvard University.
Offering further evidence of this gap, college-educated blacks and Hispanics are less likely to own their own homes than whites possessing only a high-school degree, the center found.
Also hurting many minorities' financial security: Their homes tend to appreciate much less quickly than those owned by whites, making it harder for them to build the equity needed to fund major purchases or refinance more-expensive loans.
Citing the wealth gap in a recent presidential debate, Vice President Al Gore pushed for stronger affirmative-action programs, saying "to me, that justifies making available capital for young entrepreneurs and making available advancement in every sphere." He has also called for expanding the earned-income tax credit and creating an array of small programs aimed at increasing Internet access and technological know-how among low-income Americans.
Some experts say the only way to truly eliminate the gap is by encouraging blacks to take advantage of the very instrument that has helped maintain it: the stock market. Several have proposed cutting capital-gains taxes for minorities as part of a broader effort to encourage blacks and Hispanics to invest.
On that score, there may be some reason for optimism: Since retiring, Ms. Moore's father has become an avid investor, tracking her mutual funds and pestering her with stock picks. She and her son frequently discuss stocks, and the 16-year-old runs a mock portfolio he set up online in preparation for real-world investing. That day isn't far off -- a few years ago, Ms. Moore opened a mutual fund that he will have access to when he turns 21. "His upbringing will be totally different from mine," she says. "Investing is something that he's already comfortable with."