The gap between the wealth of Black and white Americans, one of the starkest benchmarks of inequality in the U.S., is on track to widen substantially after the pandemic exacerbated wealth concentration, according to new data that details 160 years of racial wealth disparities for the first time.
Black Americans in 2019 had one-sixth the wealth of white Americans on a per capita basis, according to analysis in a paper this month from economists Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn and Moritz Schularick. Though that’s a drastic improvement from the 60-to-one ratio in 1860 on the eve of the Civil War, it’s still less than what they had in the 1980s.
“The recent role of capital gains in the widening of the racial wealth gap paints a sobering picture for the future of racial wealth convergence,” the authors wrote in the paper, circulated by the National Bureau of Economic Research.
“In the absence of policy interventions or other forces leading to improvements in the relative wealth-accumulating conditions of Black Americans, wealth convergence is not only a distant scenario, but an impossible one,” they said.
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Black Americans in 2019 had one-sixth the wealth of white Americans on a per capita basis.
The pandemic saw wealth concentration reach its highest level since World War II, Derenoncourt, from Princeton University; and Kim, Kuhn and Schularick, of the University of Bonn in Germany, said.
Should current wealth-accumulating conditions continue for coming generations, they estimate the level of white-to-Black wealth could reach 8.4 by 2200 from around 5.6 in 2019. In that year, Black wealth stood at $60,125.58 compared to $338,092.80 for non-Black households.
The failure of the Black and white wealth gap to narrow since the 1980s can in large part be attributed to the types of assets that make up each group’s holdings. Black households hold nearly two-thirds of their wealth in housing and very little of it in stocks, while white Americans own shares of publicly traded companies in much greater numbers. In the past 70 years, stocks have appreciated five times as much as housing prices.
But the vast chasm between white and Black wealth following emancipation — when Black Americans were freed from bondage without receiving reparations for the nearly 250 years of U.S. enslavement — would ensure a wealth gap today even if Black Americans hadn’t been left out of major wealth-building opportunities in the past 160 years, the authors found.
“Even under equal conditions for wealth accumulation after slavery, in other words, identical savings rates and capital gains across the two groups, our convergence model portends a racial wealth gap of 3 to 1 today,” they wrote.
The authors find that policies that marry reparations with ones targeting portfolio composition changes could one day lead to a convergence in white and Black wealth, but it could take hundreds of years.
“Nevertheless, we argue these approaches are complementary, as policies that redistribute stocks of wealth without addressing racial gaps in savings and capital gains have but a transient effect on the wealth gap,” they wrote.
The Federal Reserve has published wealth data by race since 1989, but not much data is available before that. The economists created their dataset, which dates back to 1860, in part by using census figures and by digitizing 50 years’ worth of Southern state tax reports.
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A last-minute way to reduce your 2021 taxes right up until Tax Day
You can’t forget to save if it’s automated. Whether it’s your 401(k) contribution taken pretax from your salary, or automatic transfers from your checking account into a savings account or money market account, automating will help you save without even thinking about it.
Lauren Zangardi Haynes, CIMA, certified financial planner at Spark Financial Advisors, says your employer may be able to also split your paycheck so it goes into both your checking account and a savings account.
“And then you can automatically transfer that money to an investment account, or to an IRA, or to a Roth IRA,” Zangardi Haynes says.
You can’t forget to save if it’s automated. Whether it’s your 401(k) contribution taken pretax from your salary, or automatic transfers from your checking account into a savings account or money market account, automating will help you save without even thinking about it.
Lauren Zangardi Haynes, CIMA, certified financial planner at Spark Financial Advisors, says your employer may be able to also split your paycheck so it goes into both your checking account and a savings account.
“And then you can automatically transfer that money to an investment account, or to an IRA, or to a Roth IRA,” Zangardi Haynes says.
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A last-minute way to reduce your 2021 taxes right up until Tax Day
Review your savings account to make sure that you’re earning a competitive annual percentage yield, or APY.
It’s going to be difficult to keep up with inflation. But a high-yield savings account at a competitive bank is your best option for an emergency fund or other cash you might need on short notice.
Also, take a look at your checking account. If you’re incurring a monthly maintenance fee for going under a required minimum balance, you should be able to find a way to avoid that – whether through a low minimum balance checking account or by having a recurring direct deposit.
Compare savings accounts and checking accounts to make sure you’re maximizing yields and minimizing fees.
Review your savings account to make sure that you’re earning a competitive annual percentage yield, or APY.
It’s going to be difficult to keep up with inflation. But a high-yield savings account at a competitive bank is your best option for an emergency fund or other cash you might need on short notice.
Also, take a look at your checking account. If you’re incurring a monthly maintenance fee for going under a required minimum balance, you should be able to find a way to avoid that – whether through a low minimum balance checking account or by having a recurring direct deposit.
Compare savings accounts and checking accounts to make sure you’re maximizing yields and minimizing fees.
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A last-minute way to reduce your 2021 taxes right up until Tax Day
If you have debt, make paying it off a priority. The interest you’re paying on a credit card is likely a lot more than what you’re earning on a savings account.
“If you have any credit card debt, you need to pay that off immediately without even considering anything else,” says Amy Hubble, CFA, certified financial planner at Radix Financial LLC.
The average purchase APR for all credit cards was around 16%, according to Bankrate data. Don’t count on credit card rates moving much lower. And they could move higher this year with the Fed planning on raising rates three times in 2022.
Paying off your debt and not running a balance are the only sure ways to avoid paying credit card interest.
If you have debt, make paying it off a priority. The interest you’re paying on a credit card is likely a lot more than what you’re earning on a savings account.
“If you have any credit card debt, you need to pay that off immediately without even considering anything else,” says Amy Hubble, CFA, certified financial planner at Radix Financial LLC.
The average purchase APR for all credit cards was around 16%, according to Bankrate data. Don’t count on credit card rates moving much lower. And they could move higher this year with the Fed planning on raising rates three times in 2022.
Paying off your debt and not running a balance are the only sure ways to avoid paying credit card interest.
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A last-minute way to reduce your 2021 taxes right up until Tax Day
When you make your purchases, make sure you’re being rewarded for them with cash back.
Weigh whether you’d be better off earning more cash back with a credit card that has an annual fee but higher cash-back rewards, or a no-annual-fee card that has a lower cash-back percentage.
Most bank debit cards don’t let you earn cash back. So in most cases, using a credit card for purchases is going to help you save money throughout the year. Credit card companies will often let you apply cash back toward your balance or some may let you directly transfer it to your checking account.
There’s more to it than just choosing the right card.
Credit card shopping portals are also places where you can potentially maximize your cash back. By going through your credit card’s website or through a site such as Rakuten, you can earn cash back in addition to what you earn on your cash-back credit card.
When you make your purchases, make sure you’re being rewarded for them with cash back.
Weigh whether you’d be better off earning more cash back with a credit card that has an annual fee but higher cash-back rewards, or a no-annual-fee card that has a lower cash-back percentage.
Most bank debit cards don’t let you earn cash back. So in most cases, using a credit card for purchases is going to help you save money throughout the year. Credit card companies will often let you apply cash back toward your balance or some may let you directly transfer it to your checking account.
There’s more to it than just choosing the right card.
Credit card shopping portals are also places where you can potentially maximize your cash back. By going through your credit card’s website or through a site such as Rakuten, you can earn cash back in addition to what you earn on your cash-back credit card.
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A last-minute way to reduce your 2021 taxes right up until Tax Day
Check that you’re not overpaying or paying for monthly items that aren’t being used. Go through your budget — or monthly expenses if you don’t have a budget.
It’s easy to start a budget, and it can help you maximize your savings. See if there are areas of opportunity, such as cutting back on dining out or on coffee or other spending, that adds up over time. Also, go through your budget and try to renegotiate items, Crystal Rau, certified financial planner at Beyond Balanced Financial Planning, says.
“I check our insurance just to make sure we’re still getting the best rate for the coverages that we’re carrying,” Rau says. “It’s just about doing a reset every year, just to make sure you’re getting the best deal and you’re taking advantage of all those things that are offered to you.”
Check that you’re not overpaying or paying for monthly items that aren’t being used. Go through your budget — or monthly expenses if you don’t have a budget.
It’s easy to start a budget, and it can help you maximize your savings. See if there are areas of opportunity, such as cutting back on dining out or on coffee or other spending, that adds up over time. Also, go through your budget and try to renegotiate items, Crystal Rau, certified financial planner at Beyond Balanced Financial Planning, says.
“I check our insurance just to make sure we’re still getting the best rate for the coverages that we’re carrying,” Rau says. “It’s just about doing a reset every year, just to make sure you’re getting the best deal and you’re taking advantage of all those things that are offered to you.”
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A last-minute way to reduce your 2021 taxes right up until Tax Day
You may be able to adjust some employee benefits options outside of open enrollment, such as how much you contribute to your employer-sponsored retirement plan, like a 401(k).
Adjusting your withholding for taxes or how much you’re putting away for retirement — which may reduce your taxable income — is a way to potentially save money, Rau says. Consult with a tax adviser to make sure that your strategy makes sense to save money on taxes.
You may be able to adjust some employee benefits options outside of open enrollment, such as how much you contribute to your employer-sponsored retirement plan, like a 401(k).
Adjusting your withholding for taxes or how much you’re putting away for retirement — which may reduce your taxable income — is a way to potentially save money, Rau says. Consult with a tax adviser to make sure that your strategy makes sense to save money on taxes.
