Even Further Behind the Joneses

The chips are in.

Every three years, the Federal Reserve, in its Survey of Consumer Finances, takes a look at how households in the United States are doing and reports on our assets and liabilities. The euphoria of our gambling spree is over. In the harsh glare of morning, the hangover’s tough. And the data are from 2007, so they don’t even capture the worst of the decline.

The net worth of the average American family is less than it was in 2001. We borrowed more for that trip to Vegas than we brought home. Everyone knows this now.

But here’s something that is being talked about much less: The gap between the wealth of white Americans and African Americans has grown. According to the Fed’s data, for every dollar of wealth owned by the typical white family, the African American family has only one thin dime. In 2004, it had 12 cents.

This is not just a gap. It’s a deepening canyon.

The overhyped political term “post-racial society” is patently absurd when looking at these economic numbers. This week, experts on asset building in communities of color are meeting with members of Congress to talk about closing the racial wealth gap. While the government is rescuing failing financial institutions as a short-term measure, those at the two-day Color of Wealth Policy Summit will make the case that the nation's long-term economic future depends on the inclusion of all Ameicans to build wealth.

Why such a big gap? The biggest predictor of the future economic status of a child is the net worth of the child’s parents. Even modest inheritances or gifts within a parent’s lifetime—paying for college tuition or the down payment on a home—can give a child a lift up the economic ladder. Historically, white families have enjoyed more government support and tax-paid subsidies for their asset-building activities.

Let’s look at the rules of the game, for example, in homeownership.

During the Depression, the Home Owners’ Loan Corporation was formed to rescue families whose homes were in foreclosure. Not a single loan went to a family of color. The black section of Detroit was simply excluded. After World War II, GIs received government-subsidized home mortgages, but there was no oversight to ensure that soldiers of color got their fair share. Of the 67,000 mortgages issued under the GI Bill in New York and northern New Jersey, 66,900 went to white veterans, as documented in Ira Katznelson’s When Affirmative Action Was White.

Recently, there have been other sins of both omission and commission. White families are five times as likely as a family of color to have a bank account and access to responsible loan terms. Because of the lack of federally insured and regulated financial institutions on reservations and in inner cities, rural areas, barrios and Chinatowns, payday lenders and other shady financial dealers operating without government oversight have preyed on people of color, fueling the economic and foreclosure crises. African Americans and other people of color were more than three times as likely as white borrowers to be steered to a high-interest loan, even when they qualified for a prime loan. A Harvard University study showed that in Massachusetts, a high-income African American was more likely than a low-income white borrower to get a subprime loan. And many more such studies abound.

Additionally, rules in our tax code have strengthened the hand of those who already have assets. You can get a tax deduction for the interest paid on home mortgages of up to a million dollars—a nice break for those who hardly need it. But if you own a home and make too little to itemize, the Home Mortgage Interest Deduction (HMID) doesn’t help you at all.

So what can we do? We need a Financial Product Safety Commission, to act against discriminatory lending policies and to stop the marketing of dangerous loans like exploding adjustable rate mortgages. We also should cap the HMID and make it refundable so low-income homeowners are able to benefit. And mandating that new schools and transportation and commercial projects that are supported by federal dollars be located only in areas with racially inclusive zoning policies would do much to create and grow neighborhoods of opportunity.

Building wealth is essential to the American promise of opportunity for economic mobility and security regardless of the accident of one’s birth. In the 21st century global marketplace, the diversity of our population is an asset—if we play our cards right.

The chips on the table reflect the fact that the game was fixed. It’s time to start an honest game with a new deck. All of our futures depend on it.

Meizhu Lui is director of the Closing the Racial Wealth Gap Initiative at the Insight Center for Community Economic Development in Oakland, Calif. The center is organizing the Color of Wealth 2009 Policy Summit, to be held in Washington on March 23 and 24.