While white families largely recovered from the Great Recession by 2013, black and Hispanic families did not begin to see economic gains until now. And still, the median income for black and Hispanic households has not yet reached 2007 levels.
So what explains the simultaneous truths of black and Hispanic families accumulating wealth at a higher rate than white families AND the increasing racial economic disparities? Simple math, economists say.
Black and Hispanic families have far less money than whites to begin with, so any bump as a result of the nation’s economic recovery would appear to be disproportionately large.
“White households had a head start in rebuilding wealth relative to black and Hispanic households,” said Valerie Wilson, director of the Economic Policy Institute’s program on race, ethnicity, and the economy. “Black and Hispanic households see larger percentage gains simply because they were starting from a lower level.”
While net worth for all racial groups fell by about 30 percent during the Great Recession, black and Hispanic families experienced an additional 20 percent decline between 2010 and 2013 at a time when wealth stabilized for white families.
“If you’re poor and you go through a tough period, you use all your savings to get through it,” said Jeffrey Eisenach, an economist and managing director at NERA Economic Consulting, which released a study in December on Latino prosperity. “If you go from having very little to doubling that, you still may not have very much, but you see a big percentage gain.”
Between 2013 and 2016, net worth increased 46 percent for Hispanic families, 29 percent for black families, and 17 percent for white families, according to Wednesday's Fed report.
But the wealth gap between black and white families grew by 16 percent during that time, and by 14 percent between Hispanics and whites. In 2016, white families had a median net worth of $171,000, compared with $17,600 for blacks and $20,700 for Hispanics.
Put another way, nearly half of black and Hispanic households had a net worth of less than $50,000 in 2016, compared with about a fifth of whites. At the other end of the income spectrum, 15 percent of white households reported a net worth of more than $1 million, compared with about 2 percent of blacks and Hispanics.
Incomes also increased across all racial groups between 2013 and 2016, marking a dramatic shift from the previous three-year period, when income fell for all groups except whites.
In 2016, white families earned a median income of $61,200, a 6 percent increase from 2013. Black family income rose 10 percent to $35,400, and Hispanic family income rose 15 percent to $38,500.
The Fed reports its Survey of Consumer Finances every three years, surveying more than 6,200 households about their income, debt, stock holdings and other financial assets. It's considered one of the deepest dives into the total net worth of American families.
Among the factors that contribute to disparities in net worth: homeownership rates, retirement savings and student debt.
More than 70 percent of white families own their homes, compared with less than half of black and Hispanic families. White families also hold higher levels of equity in their homes.
However, the percentage of black families whose homes were underwater fell dramatically, from 14 percent in 2013 to 4 percent in 2016. Hispanic families experienced a similar drop in negative equity, from 12 percent in 2013 to 3 percent in 2016. But they still lagged behind white families, with less than 2 percent owing more than the value of their homes in 2016.
Sixty percent of white families reported having retirement savings, about double the rate of black and Hispanic families. White families are also twice as likely to own a business.
And black families were the most burdened by education loans, with 31 percent reporting college debt, compared with about 20 percent of Hispanics and whites.
Fed economists offer other potential reasons for the racial wealth gap: white households are older, more highly educated, more likely to have received an inheritance, and are less likely to be headed by a single parent than their black and Hispanic counterparts.
But even among families headed by someone with a college degree, median net worth for white families is substantially higher at $397,100 — compared with well below $100,000 for black and Hispanic families.
“In dollar terms, blacks and Hispanics are continuing to fall further behind,” said Caroline Ratcliffe, a senior fellow at the Urban Institute who focuses on asset and wealth building.
Many black and Hispanic families were stripped of their wealth in the aftermath of the housing crisis, when they were disproportionately preyed upon by subprime lenders and lost their homes, she said. Nonwhite families were also more likely to withdraw money from their retirement savings during the recession.
“They were pulling money out while more affluent people could continue putting their money into the stock market when the value was low so they won on the upside,” Ratcliffe said.
Tax policies favoring homeowners and people saving for retirement also are tilted to benefit wealthy, mostly white Americans, further helping them build their assets, she said. The tax code allows homeowners to deduct their mortgage interest and gives preferential treatment for retirement savings.
“There is a tendency to think that people who have lower wealth can be cured by individual behavioral changes such as spending more wisely, but that’s not what is driving this wealth gap,” said Kilolo Kijakazi, an Urban Institute fellow whose research focuses on the racial wealth gap. “It really requires getting at the underlying problems that contributed to the huge gap in the first place. And that’s about structural barriers, policies, institutional practices and programs that created this huge divide.”
Ted Mellnik and Heather Long contributed to this report.