The release last week of a Federal Reserve report showing a 70-fold gap between Black and white wealth in Massachusetts prompted one study sponsor to call the findings “the proverbial tale of two economies.”
The contrast could hardly be starker: White families reported a median net wealth of $549,200 while African American households had only $7,800. Coming on the heels of the National Urban League’s recent “State of Black America” report — which posed the question, “Is the American dream dead?” — the “Family Wealth in Massachusetts” study by the Federal Reserve Bank of Boston painted a harsh portrait of families living in a perpetual state of financial anxiety. Some 40 % of renters in the Bay State reported zero or negative net wealth, consigning their families — disproportionately people of color — to an emotional treadmill of debt and fiscal despair.
Over a decade ago, a Federal Reserve Bank of Boston study showed that Black families in the city had a median net worth of just $8, a shocking figure that turned out to be based on a statistically small sample. The latest report anchored its findings on a statewide survey of over 50,000 households, providing a more comprehensive but hardly less disturbing view of finances for Black and brown families living in the shadow of one of the nation’s strongest economies.
Among Black and Latino families, two-thirds of those surveyed can’t afford to cover a $400 emergency expense. A third of African American households have zero or negative wealth at a time of rising health care, food and energy costs. Not to mention unemployment rates moving higher and faster for Blacks than whites, according to the National Urban League.
Federal cuts under the Trump administration to Medicaid, food stamps, higher-education grants and federal employment have put further strains on families.
The Federal Reserve Bank of Boston dubbed its study a “descriptive analysis” and noted its partnership with the Greater Boston Chamber of Commerce, The Boston Foundation, the Barr Foundation and the Eastern Bank Foundation, whose support parallels their efforts to stimulate employment and economic growth in communities of color. The report’s “key metric” of median family net wealth was calculated by totaling such assets as money in the bank, stocks and bonds, retirement accounts and equity held in homes, businesses and cars and then subtracting debts like student loans and unpaid credit card balances. The report shows the importance of maintaining an independent Federal Reserve Bank, willing to engage in pioneering and useful statistical analysis even as President Trump tries to rein it in and shut off any discussion of diversity, equity and inclusion in American life, especially from the federal government.
Homeownership, as expected, was identified in the study as a key driving force in racial wealth disparities. About 70% of white households own their own homes. Just 39% of Black households and 32% of Latino households own theirs. The Bay State’s history of redlining — banks failing to offer home loans to creditworthy people of color — and racial covenants in communities which refused to sell properties to Black families account for some of the disparity. Racial bias in veterans’ home loan programs after World War II depressed Black homeownership rates in the postwar growth of America’s suburbs.
Other recent studies have shown how stock ownership, directly or through pensions and retirement plans like 401(k)s, has surpassed home ownership as the biggest contributor to the racial wealth gap. In a Banner editorial last month, we noted that reports from the academic journal Demography and from the Brookings Institution demonstrated that African Americans as a group have failed to benefit from record surges in stock market prices over the last few decades. The 2023 study published in Demography concluded that stock ownership has accounted for 35% to 40% of the racial wealth gap in the 2000s. Brookings reported that stocks made up 30% of white wealth but only 4% of Black wealth. African Americans, more likely to be employed in jobs that don’t offer pension or matching retirement fund benefits, have consequently missed out on the explosive growth of equity markets in the past few decades.
Ideas to narrow the gap, whatever its origin, have ranged from reparations to incremental policies aimed at increasing the rates of homeownership and stock participation. Public and private programs to create affordable homeownership opportunities, provide down payments and launch cooperative housing should be expanded. Making retirement accounts a standard part of employment would go a long way toward spreading the benefits of the stock market. Tax reforms could also have an impact — shifting the burden to a system based not only on income but also on wealth, thus allowing workers to keep more of their earnings.
None of these changes is possible without electing local, state and federal leaders committed to narrowing the wealth gap. Political and community engagement is essential in a long-term strategy to convert Black households from pure consumers to investors.
Households must also acquire financial literacy and be wary of spending practices in an economy where dollars fly out of accounts at the push of a button with little thought as to what remains. Building a stronger culture of entrepreneurship, especially in evergreen businesses that will always have customers, must be part of the equation.
At a time when our federal government spends way beyond its means, miring future generations in debt, counseling fiscal prudence and deliberate financial planning sounds out of touch. But saving for a rainy day through careful budget control that includes provisions for investing in homeownership and financial instruments like stocks and bonds is never out of fashion.
Ronald Mitchell
Editor and Publisher, Bay State Banner
