Business Ownership Key to Addressing the Racial Wealth Gap

Posted March 1, 2017
By the Annie E. Casey Foundation
Blog businessownershipkey 2017

While many fac­tors con­tribute to the grow­ing racial wealth gap — includ­ing access to qual­i­ty edu­ca­tion, income and sav­ings — a new Casey-fund­ed report from the Aspen Insti­tute focus­es on one spe­cif­ic ele­ment: busi­ness ownership.

The report, Bridg­ing the Divide: How Busi­ness Own­er­ship Can Help Close the Racial Wealth Gap, high­lights key research and recent data on the con­nec­tion between busi­ness own­er­ship and wealth for Lati­nos and African Amer­i­cans, and pro­vides rec­om­men­da­tions to address the chal­lenges entre­pre­neurs of col­or face in start­ing and grow­ing their firms.

One of the rea­sons for the racial wealth gap is that Lati­nos and African Amer­i­cans hold rel­a­tive­ly low lev­els of busi­ness assets and sav­ings — which, com­pared to homes, cars and oth­er tan­gi­ble assets, pro­vide greater diver­si­fi­ca­tion oppor­tu­ni­ties and deliv­er high­er aver­age returns, accord­ing to the report. One-third of assets held by whites and Asian Amer­i­cans are in busi­ness­es or sav­ings, com­pared with 15% for Lati­nos and 8% for African Americans.

Rates of busi­ness cre­ation among entre­pre­neurs of col­or are increas­ing and now exceed those of whites — 39.3% of new entre­pre­neurs in 2015 were non-white, com­pared with 22.8% in 1996. How­ev­er, a com­bi­na­tion of fac­tors includ­ing low lev­els of per­son­al sav­ings, grow­ing stu­dent loan debt and chal­lenges in access­ing busi­ness cred­it con­tin­ue to lim­it the growth of firms owned by Lati­nos and African Amer­i­cans, the report finds. In 2014, for instance, 63.4% of white-owned busi­ness­es indi­cat­ed that they were prof­itable, com­pared with 57.7% of His­pan­ic-owned busi­ness­es and 45.6% of African Amer­i­can-owned firms.

The report presents sev­er­al short-term rec­om­men­da­tions to empow­er more entre­pre­neurs of col­or and to begin clos­ing the racial wealth gap while cre­at­ing a more favor­able envi­ron­ment for busi­ness own­er­ship overall:

  • Ensure that reli­able data are pro­duced to illu­mi­nate trends and dis­par­i­ties in busi­ness ownership.
  • Expand the avail­abil­i­ty of pro­grams and prod­ucts that estab­lish and build cred­it for entre­pre­neurs of color.
  • Build a reg­u­la­to­ry frame­work for non-bank busi­ness lenders that pro­tects against prod­ucts and prac­tices that under­mine the long-term health of businesses.
  • Con­sid­er short-term strate­gies for for­giv­ing or reduc­ing the stu­dent debt of entre­pre­neurs who cre­ate new firms.

Bridg­ing the Divide acknowl­edges the sig­nif­i­cant gen­der wealth gap in the Unit­ed States, par­tic­u­lar­ly for women of col­or, and says that many of these rec­om­men­da­tions could be adapt­ed to encour­age female entrepreneurship.

The Foundation’s Invest­ing in Tomor­row pol­i­cy brief offers oth­er solu­tions — includ­ing improv­ing access to retire­ment accounts, rais­ing asset lim­its for pub­lic ben­e­fit pro­grams, expand­ing access to home­own­er­ship and help­ing fam­i­lies build sav­ings from birth — to help close the racial wealth gap.

Entre­pre­neur­ship and busi­ness own­er­ship are key dri­vers of fam­i­ly wealth,” says Don Bay­lor, a senior asso­ciate at the Foun­da­tion. Expand­ing these oppor­tu­ni­ties for African Amer­i­cans and Lati­nos has the poten­tial to trans­form not only indi­vid­ual house­holds, but also entire com­mu­ni­ties of col­or. Casey will con­tin­ue work­ing with key stake­hold­ers to iden­ti­fy and scale promis­ing solu­tions so that all fam­i­lies can build assets and improve their long-term finan­cial security.”

Read the full report

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