The racial wealth gap: how corporations are helping (in a very specific way)
Mind the gap... 2020 highlighted inequality in America, including one key element: the racial wealth gap. A legacy of slavery and discrimination contributes to the massive gap in generational wealth-building. Segregation affected educational and job opportunities for Black Americans. Redlining, a discriminatory practice that discouraged providing loans in areas with large Black communities, stunted Black home ownership. We’re still seeing the effects of those policies today:
- Wealth: The typical white family has eight times the wealth of the typical Black family ($188K vs. $24K), and 5X that of a typical Hispanic family.
- Ownership: Nearly 75% of white Americans owned their homes at the end of 2020, compared with less than half of Black Americans.
- Income: White workers, on average, are paid more than Black and Latino workers at almost every education level.
Closing the gap... is good not only for society, but also for the American economy: Citi found that if these financial gaps are closed today, $5T would be added to the economy over the next five years. From 2016 to 2019, median wealth for Black Americans grew 33%, compared to 3% for white households. But there’s still much left to be done.
Since 2020... more companies have started to help, through everything from diversity hiring efforts to educational grants and donations. But many of these corporate initiatives aren’t cash giveaways: they’re loans and investments.
- JPMorgan Chase pledged $30B over the next five years toward loans for Black, Latino, and underserved communities. Citi dedicated $1B to support home and business loans for communities of color.
- Twitter is investing $100M in "community development financial institutions," which are dedicated to providing lending and banking services to low-income, underbanked customers — many of whom are people of color. Netflix launched a similar effort.
- ServiceNow created a $100M racial equity fund to promote more lending within Black communities.
Equal access to capital is key... to narrowing the wealth gap. Homeownership has been one of the greatest contributors to wealth creation for families: the average homeowner in 2019 had a household wealth of $255K, compared to the typical renter, with ~$6K. But Black individuals and communities have traditionally been the most likely to be denied access to capital — and Black families are still much more likely to be denied mortgages. That's why lending to and investing in Black communities is crucial to closing the gap today.