One of the most astounding economic statistics is the wealth gap between black and white Americans. According to a Pew Research Center analysis of government data from 2009, the total wealth (assets minus debts) of the typical black household was $5,677 while the typical white household had $113,149. Why is the median wealth of white households 20 times that of black households?
Plummeting house values were the principal cause, says Pew Research. Among white homeowners, the decline was from $115,364 in 2005 to $95,000 in 2009 and among black homeowners, it was from $76,910 in 2005 to $59,000 in 2009. The fact that only 46% of black Americans own a home, compared to a homeownership rate of 76% for whites likely affect the gap too.
But in a paper published last month, Princeton graduate student Rourke O’Brien suggests another reason: the generosity of black families.
O’Brien argues that middle and upper-income black families don’t accumulate wealth as quickly because rather than investing their money, they give more of it to poor friends and relatives. Another study, cited in O’Brien’s paper, suggests that as much as 27 percent of the black-white wealth gap can be explained by the greater financial claims made on middle-income blacks.
According to the Boston Globe, middle-income blacks are more than twice as likely as middle-income whites to have a poor sibling and more than four times as likely to have parents below the poverty line. O’Brien’s research finds that black families earning more than $100,000 a year are about twice as likely to have given money to friends and family compared to white families.
While I certainly have no idea how to close the racial wealth gap, I think it does highlight how most economic debates miss the financial reality in America. Since the Occupy Wall Street crowd started focusing on the fact that investment bankers earn more income than bongo-playing hippies who spend their days protesting investment bankers, the economic buzz has been about “income inequality.” But that misses the true income inequality gap in America. It doesn’t matter at all that the Gordon Gekkos in New York makes millions more than the gas station attendants in Portland. But it does matter when there is a significant disparity in income within families and neighborhoods.
It’s difficult to accumulate wealth when you’re helping to pay your sister’s rent and your father’s utility bill. It’s also difficult to implement a policy solution to alleviate the problem since the money is likely going to shore up people who are already supported by the government’s safety net. Aside from applauding the generosity, what can be done?
Perhaps one solution would be to offer tax deductions for verifiable support giving to poor family members. If a millionaire philanthropist can get a tax break for donating to her alma mater, why shouldn’t middle-class workers be able to deduct what they give to their real mothers?
As Proverbs says, “Whoever is generous to the poor lends to the Lord, and he will repay him for his deed.” The Lord will certainly reward the generosity of black Americans who help their friends, family, and neighbors. But since all Americans benefit from their sacrifice, we should find a way to repay them too.