The Hidden Cost of Being
African American
The Hidden Cost of Being African
American
by: Thomas M. Shapiro
Examining racial inequality as
expressed through wealth
Amy Shier
Andrew Fitts
Jessika Allen
Methodology
• 2 types of data
– Quantitative
– Qualitative
• 3 Cities
– Boston
– Los Angeles
– St. Louis
• 180 families interviewed
– ½ from the suburbs and ½ from the city
– ¾ middle class and ¼ working class and poor
Chain of wealth reinforcement
Wealth
Location
Education
Wealth
• Wealth - the total value of things families own minus their
debts.
• Wealth is an integral part of racial inequality due to the
benefits of having them and consequences of not
having them.
• Wealth represents the inequality of the past and predicts
the inequalities of the future.
• Wealth discloses the consequences of the racial
patterning of opportunities.
The Importance of Income
• Income – earnings from work, interest and dividends,
pensions, and transfer payments.
• The difference of income and wealth are insurmountable.
Wealth refers to ownership and control resources and
income refers to salary or its replacement.
• Income is seen as a tool to support basic life.
• Income is a indicator of the current status of racial
inequality.
Asset Poverty Line
Poverty- lacking adequate income and the basic capacities
for building and sustaining a better life.
The APL determines the asset conditions of American
families.
The asset poverty rate for a black families is double that of
white ones.
Baseline Racial Wealth Gap
• Net worth – all assets minus all debts, specifically home
equity. A family’s total asset balance, indicating all of its
financial resources.
• Net financial assets – assets that are immediately
available, excluding cars and home equity.
• Black families only posses 10 cents to every white
families dollar in wealth.
• The gap between white and black families grew by
$16,000 between 1988-1999.
Baseline Racial Wealth Gap cont.
• To analyze this racial wealth gap we must
– 1. indentify the most important factors in the creation of it
– 2. explore how much of the wealth gap is made out of a
combination of them
– 3. assess the contribution of merit and nonmerit factors in the
creation of it.
Baseline Racial Wealth Gap cont.
• Inheritance and having one full time job is the most
significant predictors of differences in net worth.
• Income is the most important factor in net financial
assets, and is the most important variable in determining
net worth.
• Blacks only accrue $1.98 in wealth for each additional
dollar earned while whites accrue $3.25.
The Middle Class
• Income: between $17,000
and $79,000
• Job ranking:
professionals, technical
workers, administrators,
managers, supervisors,
clerical workers, and
sales workers.
• Education: at least one
adult with a bachelor’s
degree
Middle Class in Black and White
•
Conways
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•
Income: $70,000
Suzanne (45) – operations
supervisor at a capital
management company
Frank (38) – worked at a
communications-marketing firm
but was laid off, now going to
school
Children: 1 daughter in private
school
House: Frank’s mom gave
$10,000 for the down payment.
Debt: none because their
parents paid for school
Inheritance: $95,000 and
expect to get more
Retirement: $53,000
Additional assets: worth
$125,000
Neighborhood: mostly black
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Barzaks
Income: $84,000
Richard (41) – consultant with his
own telecommunications and real
estate business
Kim – screen writer
Children: 2 children in private
school
House: paid for their down
payment with Richard’s 401k,
because they had no other assets
or ways to pay.
Debt: both have students loans =
$30,000
Neighborhood: predominantly
black
Financial Help
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Assistance from family.
Whites parents help their children
financially more than black
parents.
Blacks financially assist their
friends and family, all around,
more than whites.
A little over half (54%) of whites
paid the down payment from their
own savings, the other 46%
received help outside themselves.
9 out of 10 blacks down payment
was from their own savings.
Black parents help their children in
other ways.
Prospects of houses are different.
Inheritance
• Net worth is the most important factor in determining the
prospects of the capacity of parents to assist their adult
children.
• Transformative assets – resources that have the
potential to advance a family economically and socially
beyond the means provided to them by their salaries.
• Head-start assets – assets given to adult children to help
improve their class standing.
• Inheritance – wealth given between living people,
typically from parent to adult child.
– Types of inheritances – financial, cultural, social, and human
capitol.
The Black and White Inheritance
Gap
• Median inheritance figures showed that while a white
families inheritance amounts to approximately $10,000 a
black families average inheritance is $798.
• Blacks inherit 8 cents to every white inherited dollar.
• Typically, whites receive inheritances that are at least
three times larger than blacks.
• Inheritances are actually reversing gains earned through
the decreasing income gap.
Possessive Advantage
• Whites may see black disadvantage, but
they often do no see their advantage.
• Stereotyping
• Seeing the poverty of African-Americans
as their own fault.
• Choosing to see black’s status and
problems as a value judgment on them
and not a disadvantage placed upon them
Homeownership
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The percentage of blacks to
whites who own homes is 25%
less.
“Racial redlining” is a factor in the
amount of blacks who own homes.
Mortgage companies often do not
go out of their way to get
mortgages and in fact sometimes
discourage, deny, and avoid
lending altogether to minorities.
Three stages in the process that
work to the disadvantage of
blacks.
~ Access to credit
~ Price of credit or interest
rates on loans
~ Inequality in the increase of
housing values
Homeownership: Access to Credit
• Racial discrimination
still persists
– Counterparts but not
equal
• The Federal Reserve
Board Study showed
blacks were denied
loans 80% more than
whites who were the
same in their
applications.
– Banks self-conscious
– Predatory lending
Homeownership: Price of Credit or
interest rates on loans
• Middle class whites generally have good income
and wealth in terms of assets, while most blacks
have only income to fall back on.
– African-Americans often must pay a slightly higher
interest rate than whites because they do not have as
many assets.
• Among all families whose assets are not enough
to make the down payment, whites own houses
59% more than minorities.
Inequality in the increase of
housing.
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The value of a house owned by an
average white family increases
$28,605 more than a house
owned by a black family.
“…homes lose at least 16% of
their value when located in
neighborhoods that are more than
10% black.”
“A 2001 Brookings study reported
that home values for black
homeowners were 18% less than
values for white homeowners.”
Increased segregation = higher
discrepancy between white and
black values of homes.
In essence, segregation is more
profitable for whites and less for
blacks.
White Flight
• Reasons given are
not racial
• Concerns racist and
unfounded even when
seemingly legitimate
the reasoning is selfcentered.
• Believe and it will
happen.
• Fear of declining
property value
Moving Up or Falling Behind
• Homeownership in wealthier
communities also is the way
families gain access to
important civic services like
public schools.
Example
Harvard, Massachusetts’s, public
schools had the best test
scores in the state in 2000. To
go to Harvard’s public schools
on must be a resident and a
homeowner. The typical home
price in 1999 was $377,000.
To qualify for a home loan to get
one of these houses a family
must have an annual income
of at least $120,000.
Tax Breaks for the More Wealthy
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Homeowners get five different tax
breaks that renters do not.
In the best known of these breaks,
the IRS allows homeowners to
deduct interest paid on
mortgages.
The higher the families tax
bracket, the bigger the deduction.
A solidly middle class family that
falls into the 28% tax bracket
would be able to deduct $3,236 on
a $161,000 home with a 30 year
mortgage at 6.5%.
A upper class family that falls into
the 39.6% tax rate would be able
to deduct $4,576 on a $161,000
home with a 30 year mortgage at
6.5%.
Bias in Picking Schools
• The most important indicators
in picking a school are
according to the U.S.
Department of Education:
school leadership, school
goals, professional community,
discipline, academic
environment, class size,
teacher experience, and
technology.
• However, repeatedly when
asked, parents identified
school reputation as the most
important factor in where they
send their kids.
Where People Choose to Live
• 984 of 1000 whites stay in
predominantly white areas or
move to them each year.
• Of the young whites that live in
racially mixed areas in 1984,
59% remained in integrated
areas 10 years later. However
the other 41% all moved to
predominantly white areas.
• In contrast to this over ¾ of
blacks living in racially mixed
areas in 1984 remained in
similar communities 10 years
later.
Education and Segregation
• Segregation at schools was
declining in the 80s, but do to
rising residential segregation
and lack of judicial interest it
has risen again.
• White students are by far the
most segregated in schools
dominated by their own group.
Whites on average go to
schools where 80% of the
students are white.
• In comparison blacks and
Latinos attend schools where a
little over half of the students
are black or Latino.
Inequalities Between Schools
• Research has suggested that
smaller class size in the first
few years of primary education
is critical for student
achievement.
• The best class size is in the
range of 13 – 20 students.
• In 1997 nearly 47% of
elementary classes had 25
students or more.
• The distribution of the higher
class sizes is not equal. It has
been shown that black,
Hispanic and Asian children
are enrolled in schools with
larger class sizes then white
children.
Overall Lessons From The Hidden
Cost of Being African American
• Racial inequalities stem from a difference in assets.
• Whites start out ahead due to inheritances
• Racially segregated housing boosts whites’ home equity,
while depressing blacks’.
• Parents are willing to pay a premium to live in a “good”
school district. However, few parents can judge schools
objectively and instead use easily observable markers
like the racial makeup and the relative affluence of the
area.
• Through this unconscious racism, blacks are forced to
go to poor schools and racial inequalities become larger
and larger.
So what is the hidden cost of being
African American?
The typical white family’s net worth is
$247,730 if you swap white functions
for black ones that family’s net worth
decreases to $111,556.
So… the cost of being African
American is $136,174 overall and in
net financial assets it’s $94,426.