As Wealth Gap Between Whites, Blacks & Latinos Grows, What Can Your Company Do?

The median wealth of whites is 20 times that of Blacks and 18 times that of Latinos. What are the reasons-and, more importantly, what can be done?

The widening wealth gap between whites and Blacks/Latinos made the headlines when a study, published by the Pew Research Center and based on U.S. Census Bureau data, found that the median wealth of Latino households fell 66 percent and Black households fell 53 percent between 2005 and 2009. The median wealth of white households declined by only 16 percent. This is creating the biggest wealth disparities by race/ethnicity since the Census Bureau started calculating this 25 years ago. The median wealth of whites is now 20 times that of Blacks and 18 times that of Latinos.


The study and media coverage primarily attributed the growing gap to a failure to diversify financial holdings by Blacks and Latinos, who often put savings almost entirely into real estate and also overextended themselves far more to purchase real estate than whites did. Much of that, no doubt, can be attributed to subprime lending and the greed of certain financial institutions. But there are other socioeconomic and cultural factors at play—and there are solutions to remedy this gap.

DiversityInc interviewed Christian Weller, a senior fellow of the Center for American Progress, who has done considerable research on the wealth gap. Here are his arguments for the reasons for the gap—and solutions for what can be done, especially for corporate America.

Causes for the Growing Wealth Disparities Between Whites and Blacks and Latinos

Weller notes that the United States does have a strong culture of homeownership as a means to wealth, more than most countries. But he adds that for Blacks and Latinos, there has been very little savings outside of real estate. This is problematic, especially since many people in those communities borrowed more to buy and so had far less or no equity when the housing bubble burst.

"They lost a far larger share of their income," he says, adding that "there also isn't good housing stock for rental properties in a lot of the areas where Latinos are buying predominantly."

Homeownership rates for whites average about 70 percent, while they are at 50 percent for Latinos and 48 percent for Blacks. The difference, he says, is that whites usually have other income streams besides their homes. And homeownership rates for Blacks and Latinos have been declining in the last few years.

"A lot of families often see buying a home as forced savings. But whites are more likely to also have a 401(k) at their workplaces," he says.

To that end, unemployment is a key factor in the lack of alternative savings strategies. An issue brief entitled "The Black and White Labor Gap in America" that Weller co-authored for the Center for American Progress found that the unemployment rate for Blacks grew far more significantly than for whites during the recession and has continued to grow at a more accelerated rate, even during the recovery period.

"It is now painfully clear that African Americans are still facing depression-like unemployment levels," he wrote with co-author Jaryn Fields. "Policymakers should obviously address the overarching problem of unemployment in whatever plan comes together to raise the federal debt limit by August 2, but there are unique structural obstacles that prevent African Americans from fully benefiting from economic and labor-market growth—obstacles that deserve particular attention when unemployment rates for African Americans stand at the highest levels since 1984."

For April, May and June of 2011, Black unemployment was 16.1 percent, compared with 7.9 percent for whites. At the end of 2007, Black unemployment was 8.4 percent, while white unemployment was 4 percent.

An article that Weller co-authored earlier this year, "The State of Communities of Color in the U.S. Economy,"stated: "The recession and recovery quickly eliminated the modest gains that Latinos had seen during the last business cycle. Latino homeownership rates in 2010, for instance, were again close to their levels in 2001 even though Latino homeownership rates had risen from 2000 to 2007."

Weller also noted in our interview that Latino men have a higher prevalence of being employed in construction or construction-related jobs, which are more impacted by the housing decline than other industries.

Solutions: What Companies, Government and Communities Can Do

Weller believes the greatest solution to the wealth gap is to ensure that Blacks and Latinos have more access to full-time jobs and, thus, to 401(k)s and other means of savings in addition to homeownership. He urges corporations to automatically enroll employees in 401(k)s and to train and educate them on the benefits of saving for retirement and the future in several streams. And all financial-educational information should be available bilingually, he adds.

"One of the safest ways of saving in the United States has been through employment—savings and pension plans and 401(k)s. Whatever employers can do to get people to participate, the more wealth will be developed in communities of color," he says.

DiversityInc notes that education is the critical means to increase employment and corporations can do much to help low-income students, who are predominantly Black and Latino, to get good educations through programs such as the Rutgers Future Scholars.

Another solution is for government to increase regulations even further to eliminate predatory practices, such as prohibiting high-interest payday lending, and to create more stringent and transparent usury laws. Crackdown on subprime lending and other predatory practices has intensified but there still exists considerable leeway and lack of accountability for financial institutions.

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