Why the Racial Wealth Gap Exists (and What You Can Do To Help)

August 11, 2020

Build Family Wealth and Happiness.

Fill out this form to receive our free 39-page Family Wealth and Happiness guidebook. You'll also receive periodic updates from me to help you take your family to the next level.

Disclaimer: This post may contain affiliate links or links from our advertisers where we earn a commission, direct payment or products. Opinions are the author's alone, and this content has not been provided by, reviewed, approved or endorsed by any advertiser. Information shared on this site is for entertainment purposes only and should not be considered as professional advice.

Over the past few months, I have been trying to do my best to learn more about the racial inequalities that exist in our country and around the world. One area of major interest for me has been the racial wealth gap.

As I was reading more articles, listening to more podcasts, and watching documentaries about the subject, I received an email from Anne-Lyse Wealth (awesome last name). She is the founder of the personal development and finance platform, Dream of Legacy

After working in Accounting and Finance for 10+ years, she identified a personal finance knowledge gap in the Black community. She is passionate about increasing financial literacy and closing the racial wealth gap … and I am too.

Anne was kind enough to craft this guest post on why the racial wealth gap exists and what we can do to help close it. Please enjoy, learn and grow (like I'm trying to do). This is a pivotal moment in time where we can be the change we want to see in our country.

Here's Anne-Lyse Wealth!

How the Racial Wealth Gap Came to Be

With the recent uprising in the United States following the deaths of Ahmaud Arbery, Breonna Taylor, and George Floyd, the modern-day version of the Civil Rights Movement has picked up steam. For the first time in decades, there is increased national attention regarding the plight of Black people in the country.

Though considerable social progress has been made since the Civil Rights Act of 1964, the wealth disparity between White and Black Americans is more significant today than it was in 1964. While the country continued to prosper, little attention was given to the racial wealth gap; thus, it has continued to grow over the past 60 years.

In, “The economic impact of closing the racial wealth gap, ” McKinsey & Company highlights that the racial wealth gap between a White family and a Black family grew from $100,000 in 1992, to $154,000 in 2016. According to a recent study by Northwestern University for every dollar a White family has, a Black family has one cent.

For generations, Black Americans have faced racial discrimination, which heavily contributed to lower income levels and net worth than White Americans. There are extensive reasons why the wealth gap exists and continues to grow. Attempting to close the gap requires understanding the problem and the main drivers contributing to economic and social inequalities.



In 1619, the first enslaved Africans arrived in the United States. For centuries, enslaved Black Americans built the country for free, contributing to its economic advancement. In the mid-1800s, when cotton was the largest commodity, free labor provided by enslaved Black Americans helped the United States export cheap cotton, which accounted for more than fifty percent of the country's exports. White slave owners saved trillions of dollars in labor, and wealth was built in the White community until the end of slavery in 1865.

In 1865, at the end of the Civil War, President Abraham Lincoln signed a document promising to grant enslaved Americans abandoned land as reparation for slavery. However, he passed away shortly after, and President Andrew Johnson refused to honor the agreement.

While owners of formerly enslaved people received monetary compensation for losing “property,” enslaved Black Americans were released without being given a fair shot at success.

Wealth was built on the back of enslaved Americans. But when slavery was abolished, they were left without any possessions or even a place to stay. They were one crime away from being legally subjected to involuntary servitude as specified in the 13th Amendment, which abolished slavery “except as a punishment for a crime.”


Shortly after the “end” of slavery in 1865, black codes, local and state laws dictating Black Americans’ behavior around different aspects of life, started to appear in some parts of the country. These codes were a way to ensure that African Americans would keep providing cheap labor post-slavery and that white supremacy would continue.

In Mississippi, African Americans were forced to sign a yearly labor contract that stipulated that they could not leave their employer before the end of the year. Violating the contract resulted in being forced to give up wages they had earned earlier in the year and risk being beaten and arrested. These black codes slowly became the norm in most Southern states. They created room for Jim Crow laws, which made segregation legal in the South and expanded to some Northern states.

In areas where Black people were not allowed to co-exist with White people, the Black Community learned to be self-sufficient.

During that time, prominent Black communities were created in parts of the country such as “Greenwood” in Tulsa, Oklahoma, or “Sweet Auburn” in Atlanta, Georgia. By 1920, Greenwood nicknamed the “Black Wall Street,” which was home to six hundred Black-owned businesses and over a thousand residents, had its own school system, shops, restaurants, libraries, hospitals, etc…

However, in 1921, Greenwood was destroyed by a mob of white supremacists, leaving hundreds of residents dead and millions of dollars in damages. The survivors of Greenwood never received compensation for the losses.

Redlining and Subprime Mortgages


Redlining began in the 1930s with the Home Owners Loan Corporation (HOLC), a federal agency created to provide mortgage assistance to homeowners at risk of foreclosure or in default. The HOLC developed the “residential security maps” in which it marked neighborhoods with a large number of Black residents in red.

The Federal Housing Agency (FHA), which was created around the same time to insure mortgage companies, banks, and other lenders, would not insure mortgages in redlined areas identifying them as too risky. As of 2017, the median home price in communities deemed “best” in the 1930s, was $640,000, as opposed to $276,000 in redline areas

Though Housing Discrimination became illegal in 1968, Black people continued to suffer from the consequences of redlining and other forms of housing discrimination, such as subprime mortgages.

Before the 2007 recession, Black Americans were more likely to receive a subprime mortgage loan compared to White Americans, even when they had a good credit score. Following the recession, the Black Community lost close to fifty percent of its wealth.

As a result of redlining and subprime mortgages, most Black families could not build wealth through homeownership.

G.I. Bill

After World War Two, the G.I. Bill passed in 1944 to provide low-interest mortgages and education stipends to veterans to attend school. Though the G.I. Bill did not expressly exclude Black American Veterans, a large portion of the 1.2 million Black Americans who had served their country were prevented from benefiting from the G.I. Bill.

At the time, banks would not provide mortgages in Black neighborhoods, and it was difficult for Black people to buy properties in predominantly White neighborhoods due to racist practices. Under the G.I. Bill, Veterans were also guaranteed one year of unemployment compensation, but discriminatory practices blocked a significant number of Black veterans from accessing those benefits.

Drug Legislation and Mass Incarceration


During the 1980s, crack cocaine was mainly prevalent in Black neighborhoods. In response to the crack epidemic, lawmakers passed a series of legislations that continued to increase racial inequalities in the United States.

The Anti-Drug Abuse Act of 1986 created a “100 to 1” sentence disparity between crack and powder cocaine, two forms of the same drug. As a result, Federal law mandated a 5-year sentence for anyone carrying 5 grams of crack cocaine. But, to get a comparable sentence, a person would have to be caught with 500 grams of powder cocaine.

Subsequently, The Violent Crime Control and Law Enforcement Act passed in 1994, aimed to be tougher on crime. In 2010, the Fair Sentencing Act passed to reduce the statutory penalties for crack cocaine to a ratio of “18 to 1.” However, crack and powder cocaine sentencing disparity still exists today.

As a result of those legislations, there have been higher mass incarcerations of Black and Latino men than White men. While Hispanic and African Americans comprise 29 percent of the U.S. population, they represent close to 60 percent of the U.S. prison population.

An interesting parallel with the crack epidemic is the opioid crisis. As opioids have mainly affected the White community over the past decade, the Government has taken on a different approach to combat the issue. When faced with the crack epidemic in the Black community, the response was increased policing and prison sentencing. But with the opioid crisis, the Government has taken a therapeutic approach evidenced by the campaigns looking to address the issue outside of the legal system.

According to the 2018 “Report to the United Nations on Racial Disparities in the U.S. Criminal Justice System,” by the Sentencing Project. African Americans are 5.9 times more likely to be incarcerated than White Americans.  

Racially biased drug legislation has contributed to the growing wealth gap as well. The higher incarcerations also resulted in countless children in the Black community, growing up without a father at home.

Access to Resources

Education is the most common way out of poverty. However, the school that a child attends is usually tied to where they live. School spending has a positive impact on the quality of the education received. But, higher school spending tends to be in areas where property value and family income are higher.

Schools in predominantly Black communities are in lower-income areas and usually have fewer resources than predominantly White neighborhoods (sometimes up to $1,000 less per student). Black neighborhoods also tend to have a higher teacher to student ratio, less instructional time, and lower teacher compensation levels. As a result, students tend to test lower on standardized tests, which decreases their chances of attending college. According to a 2009 McKinsey study, the average score of Black and Hispanic students on standardized tests was two to three years behind the average score of a White student of the same age.

There's also a disparity in student-loan debt; Black college graduates owe, on average, $7,400 more than their White peers upon graduation. A few years after graduation, the student-loan debt gap between Black and White college graduates increases even further. Black students are more likely to be the first to graduate from college in their family and to end up financially supporting family members.

When Black students can navigate through the hurdles they have to overcome to graduate high school and college, they also have to face employment discrimination. Based on the 2018 Census survey, Black professionals with bachelor's degrees earn, on average, 25 percent less than White professionals with the same level of education.

It is also harder for Black applicants to receive job offers compared to White applicants. Based on a 2017 study by Northwestern and Havard researchers, White applicants receive, on average, 36% more callbacks than their Black peers.

Black professionals are also less likely to receive funding for their businesses. There are over 2 million Black-owned businesses, which represents roughly 7 percent of the country’s businesses. However, according to a report released by the National Community Reinvestment Coalition (NCRC) in 2019, Black business owners only received 3 percent of Small Business Loans compared to 8 percent in 2008. Also, while Black women make up approximately 8 percent of the U.S. population and are the fastest-growing group of entrepreneurs, they receive less than 1 percent of Venture Capital funding.

What You Can Do to Help with the Racial Wealth Gap

march for equality

The widening racial wealth gap is the result of centuries of systemic racism. Continuing to put a band-aid on the issue is unlikely to bridge the gap and bring about long-term change. If the racial wealth gap continues to widen, based on past trends of downward intergenerational social mobility highlighted by Brookings, 70 percent of Black middle-class children are expected to fall out of the middle class as adults.

Recognize the Gap is More of a Chasm

Yemi Rose, Founder of “OfColor,” a racial wealth focused fintech company, suggests that the lack of attention to the growing racial wealth gap is partially explained by the term chosen to describe the issue.

Most people are comfortable with gaps. To increase focus and action to solve the problem, we should consider naming the issue appropriately. The racial wealth disparity is so wide that the racial wealth canyon might be more fitting.

Yemi Rose suggests that the first step is to acknowledge that we are dealing with more than a gap, but a “Pustulant Cavity of Economic Apartheid.” 

A name change is not enough to solve the issue but it might help bring more focus and resources to tackle the problem as a country. Anybody willing to be part of the solution should also be proactive starting at home.

Have Uncomfortable and Important Conversations

Educating yourself on the issue to understand White privilege and its impact is essential. Having uncomfortable conversations and educating the people around you, your family, including your kids, about race is also a step in the right direction.

Being part of the solution is also using your knowledge to speak out against systemic racism and speak up in favor of fixing a system failing its Black citizens.

Related Podcast: How We're Handling Coronavirus, Job Changes and Racism at Home

Invest Your Time and Money

Numerous organizations are fighting social and economic injustices, others are promoting financial literacy in underserved communities which are usually predominantly Black. Consider investing your time and money to help bridge the gap.

The wealth disparity between White Americans and minorities is an American problem. It will take involvement from Americans of all races to work to solve the issue. Below are additional ways you can help.

Learn Racial Awareness

Can you think of any stereotypes about Black people in the workplace (i.e., “angry,” “unprofessional,”) or Black people's work ethic (i.e., “lazy,” “Welfare queen”) that you've heard or used?

Are you willing to stand up against stereotypes often used to explain racial disparities?

Do you believe that you have a good grasp of the reasons behind racial inequalities in the country?

Do you feel that you received an adequate education on Black history in school?

How do you plan to educate your kids, so they grow up aware and actively work to solve the issue?

If you love this post, you will love “How Companies Can Be Anti-Racist.”




  • 13th (Netflix)

Organizations and Museums

  • Black Lives Matter
  • Until Freedom
  • National Civil Rights Museum – Memphis, TN
  • Martin Luther King Center – Atlanta, GA
  • Civil Rights Museum – Atlanta, GA
  • National Museum of African American History & Culture – Washington D.C.

racial wealth gap

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.


  • I appreciate the difference in opinion but my article is based on centuries of evidence.

    I know how uncomfortable it might be to realize that some people have a privilege just based on their skin color, but it is the sad reality.

    As you mentioned Oprah, I would like to note that she did not make it regardless of her skin color. She made it in spite of her skin color.

    As a Black person, she had to overcome many obstacles that most White billionaires are not even aware of. It does not mean that they did not work hard, but they had access to many more opportunities.

    I invite you to take a deep look at the extensive research provided in this article.

    Finally, you mentioned that there was no oppression in 2020. Outside of all of the economic points I mentioned, there are other symptoms of oppressions in everyday life. It has been over 150 days since Breonna Taylor was killed in her sleep. Her murderers have still not been charged. Oppression is still happening in 2020.

    • Anne-Lyse Wealth,

      My response is based on centuries of evidence as well. I’ve read all the same research. It’s a narrative that’s not supported by facts. I understand how uncomfortable it might be to realize that you’ve been fed an emotional narrative by popular media that’s not supported – at all – by any facts.

      Again, there is no such thing as “white privilege” in today’s society… In fact, you are discriminated against if your skin color is white. Candace Owens (black woman) just said this in a recent interview (The Candace Owens Show: Matt Walsh – 33:20 in). The Department of Justice, as reported Aug 13, 2020, accused Yale of discriminating against “Asian American and White Applicants In Admissions”. This is actually happening.

      I’m glad you mentioned Breonna Taylor. Breonna Taylor did NOT die because she was black. This is 100% false. She died because of the outrageous power of the Police to execute no-knock warrants, kill innocent people and not be held accountable…

      Her death is simply being used by the media to push a false narrative that black people are being killed because of systemic racism and I’ll prove it to you…

      Breonna Taylor was killed on March 13, 2020 during a no-knock raid on her home. Duncan Lemp was killed by police in his sleep during a no-knock raid on his home on March 12, 2020 – exactly one day before Breonna – and you’ve probably never heard of Duncan until I just told you his name. He was not mentioned on the news. His story is not being told. And it has also been over 150 days and there is no justice yet for Duncan either. That’s because he’s white. This is a systemic problem with the level of power that police have in this country, and they are also protected by the law when they make “mistakes” like murdering innocent people. Again, this is not a race issue, this is clearly a problem with our police. To argue otherwise, when the facts are so clear in this particular example that you handpicked is intellectually dishonest.

      In 2005, when Morgan Freeman was on 60-minutes he answered an interviewer who asked him “How are we going to get rid of racism?” and he said “Stop talking about it.”

      We all know there are individual racists in America, and we should continue to say those people are dumb and teach our kids to never be like that, but you can’t just invent or pretend there are problems in America because of “systemic racism” when there has never been a less racist place to be than 2020 America… I mean come on, we had a Black President for 8 years.

      It’s entirely dishonest to pretend that if a black person in America today works hard, saves money, stays out of trouble and invests that they won’t be outrageously successful the same as ANY other race. Again, see point #2 in my first post, the data supports this.

  • There’s no such thing as “White privilege”.

    This whole idea of a “Pustulant Cavity of Economic Apartheid” is just crazy.

    You now have Oprah, a MULTI-billionaire, lecturing white people about their white privilege. Oprah earned all her money, and it had nothing to do with her race, just like all the white billionaires earned all their money, and it had nothing to do with their race.

    To perpetuate these false ideas of oppression in 2020 is ridiculous…

    1. Asian Americans, as a race, rank higher than White Americans in all levels of wealth and success. This gap is not caused by “racial inequality”, it’s because Asian Americans do the right things to equal success in the vast abundance of opportunity that is present in America.

    2. As Coleman Hughes explains in this short YouTube clip, https://youtu.be/HBWJC7LWq7I, when you compare the outcomes of Black immigrants (especially black immigrants from the West Indies, and their children) and native-born Black Americans – who both look alike and would be subjected to the same “systemic racism” supposedly present in America – the black immigrants and their children rank higher in all levels of wealth and success. Again, it’s because they do the right things to equal success in America today.

    3. I could go on and on and on, but if you have not actually read or watched and listened to intelligent BLACK voices such as Thomas Sowell, Ben Carson, John McWhorter, Coleman Hughes, David Webb, Larry Elder, and tons more – who will all agree with me — then you’re doing yourself a disservice.

    You’re simply buying into a false narrative.

    To whatever degree “racism” exists in today’s America it’s no longer holding anyone back. Your life is your responsibility – and your outcomes (barring something tragic like early cancer/life destroying illness that bankrupts you and eventually kills you) are entirely yours.


Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to Top