Debunking the Top 10 Myths about the Racial Wealth Divide

Funke Aderonmu, former RESULTS Fellow
August 07, 2018

Racial wealth inequality today has roots dating back to slavery and is manifested in everything from disparities in education access, entrepreneurship and even health outcomes. While there are many ideas about what it will take to close the racial wealth gap, it is generally unclear which ideas would effectively eliminate the racial wealth divide.

In a paper released earlier this year titled, What We Get Wrong About Closing the Racial Wealth Gap, a group of researchers at Duke University and the Insight Center in North Carolina rigorously examined and debunked 10 of the most widely held assumptions about what it will take to eliminate the racial wealth divide. They argue that these 10 misperceptions or myths are insufficient to address racial wealth inequality because they fundamentally place the onus on people of color to close the racial wealth gap without addressing the systemic and institutional factors that perpetuate the racial wealth divide. In light of this, the authors conclude that "Blacks cannot close the racial wealth gap by changing their individual behavior...if the structural sources of racial inequality remain unchanged." Rather than these myths, closing the racial wealth gap would require, “a major redistributive effort or another major public policy intervention to build black [and brown] American wealth.” 

What are these 10 widely held myths and how do they miss the mark in truly addressing racial wealth inequality?

Myth 1: More educational attainment by blacks will close the racial wealth gap.

This idea assumes that since higher education is often associated with higher income, increasing college attendance for blacks will lead to an increase in income and wealth that would shrink the wealth divide. However, research shows that at every level of educational attainment, the median wealth for blacks still pales in comparison to their white counterparts with the same levels of education. For example, the median wealth for a black college graduate in 2011 was $23,400 while median wealth for a white college graduate was $180,500. Even with a college degree, the black-white wealth divide remains staggering.

Myth 2: Disparities in homeownership are driving the racial wealth divide 

Underlying this myth is the idea that if blacks achieved homeownership at similar rates to whites, then the racial wealth gap would close. However, the evidence does not support this assumption. For blacks who do own homes, their homes tend to have lower property value and equity than whites. Additionally, whites on average have more  in virtually every other type of asset than blacks, such as stocks. While closing homeownership gaps would yield some benefits, it’s critical to recognize that homeownership is one piece of a portfolio of assets and wealth families can have. Therefore, equalizing homeownership rates would not address inequities in other sources of wealth apart from homes and ultimately would be insufficient to close the wealth gap.

Myth 3: Buying and banking black will close the racial wealth gap 

Also known as Black Capitalism, this myth proports that “buying and banking black” will generate enough wealth in the black community to close the racial wealth gap. However, for this to be the case, black banks and enterprises would have to consistently earn a rate of return higher than white-owned businesses and banks. Yet on average, black businesses tend to be smaller and less profitable than white firms largely due to insufficient access to start-up capital and the economic conditions of the communities in which they are based. Additionally, black-owned banks make up a much smaller portion of banks within the larger US banking system which means they lack the capacity to produce the substantial increases in black wealth needed to close the racial wealth divide. Since black banks and businesses constitute such a small part of the broader US economy, it’s unlikely that these institutions would be able to close the racial wealth divide without substantial investments in infrastructure and capacity building by an outside party such as the federal government.

Myth 4: Black families saving more will close the racial wealth gap 

This idea is predicated in a false narrative, as there is currently no evidence to suggest that black families have lower savings rate than white families at similar income levels. Rather, this notion largely stems from the myth of the “welfare queen.” Coined by former president Ronald Regan during the 1980s welfare reform era, this pejorative term characterized a subset of low-income, single mothers believed to misuse their welfare payments for lavish expenses. The “welfare queen” myth is part of a broader narrative that depicts people in poverty as financially irresponsible and, as such, underserving of societal support.

Myth 5: Better financial literacy in the black community will close the racial wealth divide 

The financial literacy myth is based on observations of blacks' disproportionate use of alternative financial service products like payday loans, which have been shown to diminish financial security and wealth building opportunities for users. However, the lack of financial and credit products available in many black and brown communities largely explains why blacks are more likely to use predatory financial institutions. As the authors write, "Meager economic circumstances — not poor decision making or deficient knowledge — constrain choices and leave asset-poor borrowers with little to no other option but to use predatory and abusive alternative financial services." While increased financial literacy training might yield benefits at the individual level, it is not enough to eliminate racial wealth disparities given the lack of access in many black and brown communities to mainstream financial institutions, products and resources.

Myth 6: Bolstering black entrepreneurship will close the racial wealth gap 

For this myth to be true, the researchers argue, “the composition of [entrepreneurs] would need to be dramatically different in terms of ethnic and racial class makeup to have a net positive effect on racial wealth gap.” Unfortunately, the reality of who becomes an entrepreneur is much different. Not surprisingly, race and class are strongly linked to entrepreneurship success. As mentioned in Myth 3, black businesses face many barriers to growth and success such as insufficient access to startup capital. On average, white business owners start out with $106,702 in capital while black owners start out with $35,205. Further, black-owned businesses on average are under-resourced (lack of access to capital) and have lower employment rates than white-owned businesses. That means they rarely have the level of economic impact in terms of job and wealth creation necessary to close racial wealth gap. Considering this, federal investment is needed to create the necessary support for a thriving ecosystem of black businesses. Additionally, it’s important to note that while entrepreneurship can be a source of wealth creation and spark economic prosperity in communities, entrepreneurs can also have the opposite effect of disrupting already existing local economies, which could further deepen inequality.

Myth 7: Emulating the successes of "model minorities" will close the racial wealth divide 

This notion is predicated on harmful and racist paradigms that paint the achievement of certain ethnic groups in the US, namely the Asian American community, as proof that if black and Latino Americans “got their act together” in emulating model minorities, they can close the racial wealth gap by their own efforts. Yet research shows that many successful minority groups came to the U.S. already having advantages such as education level and financial resources, which enabled them to be successful. Further, certain policies that historically discriminated against black Americans by default had the opposite effect of assisting Korean entrepreneurs in many US cities where they shared urban spaces. It is crucial to understand is that many of the minorities and immigrants who have attained success did so with the help of initial investment in capital -- whether human capital (education, skills), financial or otherwise. Closing the racial wealth divide would likely require a similar investment in communities of color. 

Myth 8: Improved "soft skills" and "personal responsibility" on the part of black workers will close the racial wealth gap 

Underlying this myth is the idea that black people on a whole lack the soft skills needed to succeed in the workplace. Accordingly, if blacks improved their soft skills such as teamwork or customer service then they would get better paying jobs with higher incomes that ultimately would close the racial wealth gap. There are two main reasons this idea is false: 1) The idea that blacks lack soft skills is inconsistent with the overrepresentation of black and brown people in low wage service sector jobs which rely heavily on soft skills like customer service and interpersonal communication. 2) The statement assumes income as the key determinant of wealth, when the data show that wealth is most commonly attained from family inheritance or the passing down of resources across generations. While some individuals of color are able to beat the odds and attain more wealth through work, the larger structural conditions along with wage and employment gaps demonstrate that even being the most adept worker will not close the racial wealth gap.

Myth 9: The rise of black celebrities proves the racial wealth gap is shrinking 

Some have come to see the rise of black celebrities especially in film, music, and sports as evidence that the racial wealth gap is shrinking. However, this idea proves to be a myth because black celebrities make up a minute portion of the overall black population and therefore cannot close the racial wealth gap with their wealth alone. Further, the sectors in the economy with the most wealth—tech and finance—are significantly lacking in representation of people of color. Lastly, the wealth held by those who control the entertainment and sports industries is far greater than the wealth of individual celebrities which highlights the wealth gaps that exist within these industries.

Myth 10: Addressing black family disorganization will close the racial wealth divide 

The increase in the share of children living in single-parent households has given rise to the idea that certain family structures are the main cause of wealth gaps between blacks and whites. Yet the researchers point out that single motherhood is more of a reflection of inequality than a cause. Case in point, median wealth for white single-parent households is more than twice as much as median black and Latino two-parent households. Additionally, wealth can influence family structure, as college educated people tend to have college educated spouses which leads to greater wealth accumulation and inequality. The assumptions behind this myth essentially confuse consequence with cause and are rooted in racist implications that the family structures and choices of blacks are what hinder them from wealth building and closing the racial wealth gap. 

The insights from the report underscore how the dynamics of racial wealth inequality are extremely complex and largely misunderstood. At the same time, they expose the false narratives that must change to better reflect the limitations of individual efforts to build wealth, and highlight the role of systemic and institutional forces in shaping who has access to resources and opportunity in America.

Funke Aderonmu is formerly the Bill Emerson National Hunger Fellow at RESULTS.