What are your thoughts on the points made in this essay?

There are undeniable inequalities between African Americans and white Americans. One that is particularly interesting is the wealth inequality. The average wealth of a black household is only equal to 22.7% of total wealth, and is only worth 20% of the average the average wealth of a white household. (Menchik & Nancy, 1997) Black household income in 1989 averaged to be only 63% of white household income, yet that ratio has been persistent for the past 20 years. (Wolff, 2002) How and why could there be such a gap between the wealth of white Americans and black Americans? Menchik & Nancy researched studies from various articles and authors such as Wolff to find that 25% of the wealth differential is due to economic variables such as household income, location, and demographic factors, while the remaining 75% of the gap is unexplained. The goal of this paper is to find more factors in the wealth inequality between African Americans and white Americans that can help explain part of the 75%.

One major factor that contributes to the wealth inequality and may explain part of the 75% is health. Gaskin, (2006) found that on average, African Americans have lower life expectancies and have higher death rates due to chronic diseases compared to non-Hispanic white households. Comparing apples to apples, low income black men have higher rates of death to do serious illnesses such as heart disease, cancer, and diabetes versus comparable low income white men. Gaskin also found a strong positive correlation between health and wealth. Those who are healthy have 2.5 times the household income and 5 times the household wealth of those who are in poor health. They are also more likely to have a pension versus having to be on social welfare. (Gaskin, 2006) Therefore, if African Americans generally have poorer health than comparable white Americans, they will also have less wealth.

Housing inequality is another important factor in understanding the wealth gap. It is important because it can help explain part of the 75%. A very important way that wealth is acquired and transferred from generation to generation is through home ownership. Housing and mortgage markets contribute to segregation by "funneling demand toward racially homogeneous neighborhoods" and contributes to "racial disparities in household wealth, since home equity is a major source of wealth accumulation." (Lincoln & Lee, 2020) For years African Americans were discriminated against while buying homes. Prior to the Civil Rights Act of 1964, fewer than 1% of all home mortgages in the United States were issued to African Americans. (Herring & Henderson, 2016) The Fair Housing Act was a crucial step toward reducing racial discrimination in the US housing sector. Yet even with this law passed, Blacks and Latinos on average continue to live in much poorer neighborhoods than comparable white Americans, suggesting that discrimination in housing and mortgage remain significant. (Lincoln & Lee, 2020) When there is discrimination in where African Americans can buy homes or what mortgages they can take out, they are forced into lower income neighborhoods that are majority black. African Americans are still three times more

likely to live in poverty. (Gaskin, 2006)

Wealth is passed down from generation to generation in the form of inheritances. When a family member passes, they often have a will and divide assets to their remaining family. This wealth transfer of inheritances are also contributing to the wealth inequality. A study in 1989 looking at wealth transfers found that 25.6% of white households received an inheritance while only 10.4% of black households received an inheritance. (Menchik & Nancy, 1997) This ratio has remained pretty consistent throughout the years. In 1998, Wolff (2002) found that the proportion of white households receiving an inheritance was more than two times as great as the number of black households receiving one. More recently, it was found that about 25% of white families inherited wealth averaging to be $10,000 while only 8% of African American families inherited wealth averaging out to be $900. (Grant, 2010) Along with the proportion of white families receiving any inheritance is greater than black families, the amount of that inheritance is also significantly greater. This can be explained through compounding.

"Using economic data taken from a nationally representative set of 2,000 families tracked from 1984 to 2007, researchers found that an initial wealth gap of $20,000 between black and white families mushroomed over the 23 year period to $95,000." (Grant, 2010)

Hypotheses

H1: Wealth inequality between African Americans and white Americans increases over generations

H1a: Past events such as slavery, segregation, and mass incarceration have resulted in less wealth and assets for African Americans

H1b: Compounding of wealth negatively affects African Americans and contributes to the wealth gap

H1c: African Americans are less likely to receive an inheritance than white Americans

Methods

I will use literature reviews from sources to put together a story of the wealth inequality between African Americans and white Americans. My next steps are to find sources outlining how segregation and mass incarceration have resulted in less wealth for African Americans, and then to use compounding to show that the wealth gap is only increasing.