The Origins of the Racial Wealth Gap

Decades of voting, housing, job, and banking discrimination created a racial wealth gap in the U.S.

One of the hallmarks of this country is an opportunity to become whatever you want to be. But if we look at the racial wealth gap, it unravels a historical narrative of unequal levels of opportunity that continue to impact us today.

The Brookings Institute noted that “At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016.” Mehrsa Baradaran, the author of The Color of Money, puts it best when she states, “The wealth gap is where historic injustice breeds present sufferings.”

Looking at the racial wealth gap is like a cobweb. Each strand, or in this case, a reason for the racial wealth gap, can be overcome. But if you combine the strands—the reasons—it grows into a web. These strands are decades of voting, housing, job, and banking discrimination, to name a few, and years of this repeated pattern over generations creates a ripple effect that leads to racial wealth disparities today.

A Case Study: How The U.S. Systematically Prevented Black Veterans From Military Benefits In World War II.

Although there are many examples of how Black Americans were economically set back by the U.S., one tipping point in modern history is how lawmakers and business discrimination practices denied millions of WWII Black veterans access to GI bill benefits.

The post WWII GI Bill benefits included low-cost mortgages, educational grants, and low-cost loans to start a business, which are all key wealth building and wealth transfer vehicles.   

Ira Katznelson, author of “When Affirmative Action Was White,” said, “there’s no greater instrument for widening an already huge wealth racial gap in postwar America than the GI Bill.”

Here are some examples of how Black veterans were negatively impacted during this time period:

  • Housing discrimination left many Black veterans out of the suburban housing boom after WWII. In New York and northern New Jersey, there were about 67,000 post WWII GI Bill mortgages: non-white people made less than 100 of these mortgages.
  • Black people, as well as other ethnic groups, were denied access to vocational training and college education. Even Black veterans who were lucky enough to get GI Bill education benefits faced Jim Crow laws that prevented many from going to college.
  • No access to education benefits hampered many Black veterans from getting better paying jobs.
  • Low paying jobs, combined with living in neighborhoods where schools had fewer resources, had its ripple effect. Their children, the baby boomer generation, were less prepared for college, and their parents couldn’t afford to send them to school.

Today, the lack of inherited generational wealth also means that:

  • Fewer Black Americans are investing.
  • More Black Americans have high amounts of student loan debt.
  • More Black Americans have credit card debt, most of which have crippling interest rates.

While many of these issues require systemic changes to law, business, and legal practices, there are also tangible strategies Black Americans can adopt now to take charge of their finances. We delve into some of those in Betterment's annual look at Black wealth.