Why the racial wealth gap won't go away

By Tanzina Vega, CNN | 1/25/2016, 4:41 p.m.
For many black and Hispanic families in the United States, achieving financial security remains frustratingly out of reach.
Cash, money, credit card Pixabay

NEW YORK (CNNMoney) -- For many black and Hispanic families in the United States, achieving financial security remains frustratingly out of reach.

A big reason for that is that blacks and Hispanics have far less wealth to start with than their white counterparts -- a concept known as the racial wealth gap.

Wealth, or net worth, is the value of assets including your home, retirement savings and income minus the debt owed against those assets. According to federal data, the median wealth for white families in 2013 was around $141,900, compared to Hispanics at about $13,700 and blacks at about $11,000.

"Everyone is pushing a boulder up a steep hill, but for African-American and Latino families it's a much steeper climb," said Jeremie Greer, the vice president of policy research at the Corporation for Enterprise Development, a Washington, D.C.-based economic think tank. Those families "are less financially secure than they've ever been," he said.

A new report issued by CFED paints a sobering picture of the economic future for many families of color, despite federal policies and programs that were created to help struggling Americans.

The report, called the 2016 Assets & Opportunity Scorecard, analyzed a handful of economic metrics across 50 states and the District of Columbia, including household savings, rates of small business and home ownership, and how much families are paying for housing as a percentage of their overall income. (Data was pulled from public sources, including the Census and the Bureau of Labor Statistics, as well as purchased from private sources.)

On average, blacks and Hispanics fared worse than whites in almost every category.

Take savings. Having less than three months of savings means a family lacks liquid assets that can cushion them in case of an emergency like the loss of a job, the death of a spouse or a serious illness.

While 44% of all Americans have less than three months worth of income saved, 67% of blacks and 71% of Hispanics lack adequate savings, compared to 34.7% of whites.

"Its sobering because it just shows the kind of shoestring that everyone is living on," Greer said. Families of color are also 2.1 times more likely to live below the poverty line compared to white families.

Part of the reason, said Greer, is that people of color are more likely to work in low wage jobs and they are also more likely to get paid less than their white counterparts in many industries, Greer said.

Rent is another factor affecting families. If a family is paying more than one third of their income towards rent, they are considered "cost burdened." Nationwide, 46% of white families are cost burdened compared to 57% of black families and 56% of Hispanic families.

Greer said part of the problem is that many black and Hispanic families live in cities like Washington D.C., New York, Los Angeles and Chicago, where the housing markets weren't impacted as severely by the housing meltdown as those in other cities and rental prices remained high. Wages, however, did not keep pace with the soaring costs of rentals, Greer said.