Report Describes the Racial Wealth Gap — and How to Start Closing It

Posted April 11, 2022, By the Annie E. Casey Foundation

Close up of a black person sitting at a desk, in front of a laptop and papers. One hand is using a calculator

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:

  1. They are less like­ly to hold assets that build wealth, such as invest­ments in the stock mar­ket, retire­ment accounts and residences. 
  2. 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.

Down­load Dis­par­i­ties in Debt

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 Reporting

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.

Mort­gage Debt

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

Med­ical debt hurts house­holds by dimin­ish­ing their abil­i­ty to build wealth or cred­it, par­tic­u­lar­ly in states that have not expand­ed Med­ic­aid. Among adults ages 1864, 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:

  1. 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%.
  2. Increase access to home­own­er­ship and high-qual­i­ty mort­gages through poli­cies that ben­e­fit and pro­tect bor­row­ers of color.
  3. Expand access to insured, afford­able health care through Med­ic­aid expan­sion and oth­er pol­i­cy solutions.
  4. Elim­i­nate most pub­lic fines and fees and stop issu­ing bench war­rants for unpaid fines.

Learn How Fines and Fees Hurt Black and Low-Income Fam­i­lies in the South

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