America’s racial wealth gap may cost Economy $1.5 trillion
‘Black families underserved, overcharged’
Charlene Crowell Center for Responsible Lending | 8/29/2019, 9:45 a.m.
America’s nagging racial wealth gap has been the focus of many research reports and economic policy debates. Now new research analyzes the strong connection between disproportionate wealth and financial services and products that are either shared with or denied from consumers of color.
Authored by the McKinsey Global Institute (MGI), “The Economic Impact of Closing the Racial Wealth Gap” identifies key sources of the nation’s socioeconomic inequity with its accompanying racial and gender dynamics along with family savings, incomes, and community context.
“Black families are underserved and overcharged by institutions that can provide the best channels for saving,” states the report. “For instance, banks in predominantly Black neighborhoods require higher minimum balances ($871) than banks in White neighborhoods do ($626). Unsurprisingly, 30 percent of Black families are underserved by their banks, and 17 percent are completely disconnected from the mainstream banking system because of a lack of assets and a lack of trust in financial institutions.”
Additionally, according to the MGI report, the nation’s overall economy is affected by racial wealth gaps, estimating that between 2019 and 2028, the cost of economic losses to the general economy will be in the range of $1.0-$1.5 trillion.
Black America’s “racialized disadvantage” was created through historical forces – including private business practices and public policies that together advantaged white consumers while often excluding or relegating Black Americans. For example, the National Housing Act of 1934 limited housing options for Black Americans by assigning a D-rating to neighborhoods in general decline and occupied by lower-income residents.
Fast forward to more recent times, the Federal Reserve in 2017 found that Black consumers are 73% more likely than whites to lack a credit score due to “credit redlining”. This term refers to where a consumer lives to be the central determining factor in whether to approve credit, rather than the actual credit profile.
Among the MGI report’s other key findings are that:
—Black Americans can expect to earn up to $1 million less than White Americans over their lifetimes;
—Black men with no criminal records are less likely to receive job interviews than are White men with criminal records;
—The median wealth of a single Black women is $200, while that of a single White man is $28,900; and
—Black families are up to 4.6 times more likely to live in areas of concentrated poverty, than are White and Latino families;
Geographically, 65 percent of Black Americans reside in one of only 16 states. The states are also areas that score below the nation’s national average of 77 state performance metrics spanning economy, education, economic opportunity, fiscal stability, infrastructure and more: Alabama, Arkansas, Delaware, Florida, Georgia, Illinois, Louisiana, Maryland, Michigan, Mississippi, New Jersey, New York, North Carolina, South Carolina, Tennessee, and Virginia.
“This study represents a critical look at the key components of wealth-building: access to community and family assets, ability to save, access to homeownership and availability of good jobs,” said Tom Feltner, director of research with the Center for Responsible Lending (CRL). “At every step it points to a widening racial wealth gap between Black families and white families.”