Report Describes the Racial Wealth Gap — and How to Start Closing It
A new report from the Aspen Institute Financial Security Program examines how various types of debt affect households of color and continue to fuel America’s racial wealth gap.
Debt and Households of Color
The report, Disparities in Debt, finds that households of color and white households have different experiences with debt. Within this comparison, households of color fare worse in two key ways:
- They are less likely to hold assets that build wealth, such as investments in the stock market, retirement accounts and residences.
- They hold less value in their retirement accounts, homes, vehicles and investment accounts.
Even when holding similar types of debt — like home mortgages — Black, Latino, and Native American homeowners build less wealth than their white counterparts.
Types of Debt
Economic inequity has long persisted in the United States, and the nation’s racial wealth gap continues today. The report’s authors explore this uneven landscape, the different types of debt and their impact on households of color.
Credit reports help determine access to and costs of debt, with low credit scores limiting the options available to borrowers. In the United States, racial discrimination in credit reporting has led to racial disparities in debt. Compared to white households, Black and Latino households tend to have lower credit scores. This divide is due to several factors — including lower rates of homeownership among people of color and greater exposure to court fines and fees. Damaging errors on credit reports are more common among residents of majority Black and Latino neighborhoods.
Black, Latino and Native American homeowners, who are much more likely to be offered high-cost mortgages, typically hold less equity than their white counterparts.
Medical debt hurts households by diminishing their ability to build wealth or credit, particularly in states that have not expanded Medicaid. Among adults ages 18–64, 31% of Black people hold unpaid medical debt compared to just 23% of white adults.
Student Loan Debt
Black households are more likely to hold student loan debt than mortgages. They are also particularly affected by student loan debt, with 30% of Black households holding outstanding loans compared to only 20% of white households.
Fines and Fees
State and local fines — from unpaid parking tickets to court costs — can hurt a household’s financial stability and disproportionately involve people of color.
Policy Recommendations to Reduce the Racial Wealth Gap
Disparities in Debt recommends how to address the harm caused by the racial wealth gap and help more households of color build personal wealth. This recommendation spans the following four strategies:
- Cancel federal student loan debt, which would eliminate debt for 43 million disproportionately impacted Black and brown households and immediately increase the wealth of black households by 40%.
- Increase access to homeownership and high-quality mortgages through policies that benefit and protect borrowers of color.
- Expand access to insured, affordable health care through Medicaid expansion and other policy solutions.
- Eliminate most public fines and fees and stop issuing bench warrants for unpaid fines.