A long-standing explanation of the racial wealth gap focused on homeownership, traditionally the biggest source of wealth for American families. More whites than Blacks own their homes, so more whites benefit from their equity rising as they pay down their mortgages and their property’s value rises. This pattern continues, with about 73% percent of whites owning a home vs. 44% of Blacks, reflecting the accumulated effects of discrimination in mortgage lending and real estate.

Over the last 40 or more years, though, stock ownership has gradually outstripped home ownership as the biggest contributor to the Black-white gap in wealth. This shift, discovered in relatively recent research, matters in defining the dimensions of this persistent economic disparity and devising possible solutions.

A 2023 study published in an academic journal Demography found that stock ownership, directly or through pensions, surpassed ownership of homes or businesses as the biggest factor in the wealth gap in the 1990s and has accounted for 35% to 40% of that gap since the 2000s.

Another study, from the Brookings Institution in 2024, determined that stocks made up 30% of white wealth but only 4% of Black wealth. Research shows that whites invest more in stocks and reap greater returns.

Multiple reasons appear to be behind this disparity in stock ownership. A 2024 study from the Federal Reserve Bank of Minneapolis, for instance, points to the shakier hold many Black workers have on the workforce. In the first place, they earn less and therefore have less money to invest. They are more likely to lose their jobs during an economic downturn and, consequently, when they do have money to invest, they tend to choose safer but lower-yielding securities like bonds. While they are unemployed, many tap those investments to make it until they can find another job.

That study concludes that “because Black families typically hold their wealth in housing rather than financial assets, the explosive stock market returns of the last 40 years have largely passed them by.” A dollar invested in housing in 1980 would be worth an average of $1.50 today, while a dollar’s worth of stock would be valued at $6. That’s four times as much.

Researchers may have overlooked a historical, cultural reason for the greater Black aversion to risk-taking in stocks. Boomers, who would have been in a position to invest in 1980, were raised by parents who lived through the Great Depression — which was set off by a stock market crash. The Depression was hard on almost everybody, but it was harder on Black folks. Many of those parents sent signals to their children that stocks were just too risky.

Other current practices have paid outsized benefits mostly to white investors, like corporate stock buybacks and income from long-term capital gains, with Black workers less able to hold their assets long term because of bouts of unemployment.

So, what is to be done to address what has become the dominant factor in the racial wealth gap?

Mark Cuban, who became prominent as a regular of the TV show “Shark Tank” and the former majority owner of the Dallas Mavericks basketball team, has proposed more companies extending stock ownership to employees to reduce the general problem of income inequality.

Cuban’s approach would not, however, narrow the racial wealth gap — unless the companies that adopt his proposal happen to employ more Black than white workers, a relatively rare situation outside of Black-owned businesses. Otherwise, all workers would make financial gains, but the racial gap wouldn’t close.

Some researchers have pointed to Baby Bonds like the new Trump accounts for newborns. Again, all children could benefit, although some gap narrowing could occur because Black mothers are having more babies than white mothers. But the modest gains from such bonds would not do much to close the gap anyway.

Other researchers have suggested changes in tax policies. A more progressive income tax would allow workers who earn less to keep more of their earnings, which they could invest. Or Social Security, instead of being funded by payroll taxes, could be funded by wealth or inheritances taxes, which would have the same effect in leaving workers more money in their bank accounts to invest.

But the more common recommendation is a targeted approach that comes down to a familiar word: reparations. The lead author of the Brookings study suggested the financial payments come from public and private sources, such as the companies and other institutions that reaped financial benefits from slavery.

The two authors of the Demography study acknowledged reparations payments “would certainly reduce the racial wealth gap and help to redress whites’ historical wrongdoings.” But they predicted the effect would be temporary because the country’s financial system would continue to benefit whites more than Blacks. These researchers suggested that “the establishment of a racial equity fund to manage reparation funds and distribute the returns to Black households in need or organizations effective in reducing racial inequalities.”

There may be other proposed solutions. Financial literacy lessons for students and young people that teach them about investing in stocks is a simple one. What’s important is that Black advocates and organizations and their allies adjust their thinking about closing the racial wealth gap to consider the shift in what has become biggest factor in that gap.

Ronald Mitchell
Editor and Publisher, Bay State Banner