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Americans grossly underestimate the racial wealth gap between Black and white families — and it's making it harder to achieve financial equality

06:52 05 August 2020 Author :  

•             Americans of all backgrounds underestimate the wealth gap that exists between white and Black families, a 2019 national survey of over 1,000 US adults shows.

•             For every $100 in wealth held by a white family, a Black family has just $10, per research from the Fed's 2017 "Survey of Consumer Finances."

•             Yet, the average American thinks that for every $100 in wealth held by a white family, a Black family has $90, the survey found.

•             Some 97% of Americans underestimate the racial wealth gap, Michael Kraus, social psychologist at the Yale School of Management, told Business Insider.

•             This could be because Americans hold a rosy ideal of our country's past, or because they think progress is always linear, he said.

•             To address the wealth gap, people must educate themselves on modern systems of inequality.

They say to fix a problem, first you have to recognize that it exists.

When it comes to the racial wealth gap — that might be an issue. The disparity in money between white and Black Americans has become one of many important topics of public conversation amid the Black Lives Matter movement, but it's a problem that's been around for decades.

From slaveholders accumulating massive wealth to the decimation of Tulsa's "Black Wall Street" to Jim Crow laws, Black people have been routinely denied the opportunity to create wealth in the same way white people have. And many Americans are still unaware of just how bad it is, ongoing research from Yale University shows. That presents a huge problem if there's to be any hope in fixing it.

The median white family had more than 10 times the wealth of the median Black family in 2016, according to the Fed's 2017 "Survey of Consumer Finances." In other words, for every $100 in wealth held by a white family, a Black family has just $10.

Yet, a series of ongoing studies by the Yale School of Management reveal that Americans are largely unaware of this. Most Americans think that for every $100 in wealth held by a white family, a Black family has $90.

"Americans — they're inaccurate about the racial wealth gap's magnitude," Michael Kraus, social psychologist at the Yale School of Management, told Business Insider. "Our national survey found that 97% of Americans are overestimating racial equality."

Kraus and his colleagues have been surveying Americans since 2016 in an ongoing survey. Their largest, national survey of over 1,000 Americans was conducted in Sept. 2019. The racial and ethnic breakdown of the sample group of respondents was designed to be roughly representative of the country's population, in line with US Census data.

Americans think the racial wealth gap is closing, when it's actually gotten bigger

Americans also believe that the wealth gap is closing, the national survey found. When in fact, it's gotten bigger over time.

"The difference in median household incomes between white and Black Americans has grown from about $23,800 in 1970 to roughly $33,000 in 2018 (as measured in 2018 dollars)," the Pew Research Center said.

In Kraus's 2019 study, people were given 12 randomly ordered years and asked to estimate the wealth gap between white and Black Americans at those dates. For example, a person was asked to estimate the gap in 1963, in 2012, and in 1975. The vast majority of respondents answered in a way that showed the gap improving over time.

"In fact, the wealth gap has gotten larger since 1963, the earliest time point we used. The result is that people are overestimating equality in 1963 by 40 percentage points. At the most recent time point, 2016, the estimates are off now by 80 percentage points," Kraus told the Yale University's academic blog.

Why do people underestimate the racial wealth gap? Kraus and his research team are focusing on that question next. It could be a false understanding of progress, where people view it as linear, rather than a series of fits and bouts.

"There's this belief that we're marching steadily toward progress, when in reality people have to give up things, there's struggle, there's retrenchment: periods where you have lack of progress, you have things becoming worse," Kraus told Business Insider.

It's also because of how Americans view their country.

"We would like to think about our country's history in terms of overcoming racial injustice rather than having it be a part of our everyday lives," he said.

We can't move forward if we don't recognize modern systems of inequality

Addressing the wealth gap will be near impossible if Americans continue to deny it exists, Kraus said.

Black Americans still face racist lending practices from banks and financial institutions. Though the federal Fair Housing Act banned racial discrimination in lending in 1968, African Americans and Latinos continue to be denied mortgage loans at rates far higher than white people, Reveal, a publication of the Center for Investigative Reporting, found in 2018. Reveal analyzed millions of Home Mortgage Disclosure Act records and found evidence of modern-day redlining practices, or the routine denial of credit to nonwhite people, in 61 metro areas.

Black Americans also still face prejudice in the job market. They're underrepresented in high-paying jobs and overrepresented in low-paying jobs. Black people, especially Black women, are also promoted less often and paid less.

These discrepancies add up over time. White Americans can expect to earn a whopping $1 million more than their Black counterparts over their lifetime, a 2019 McKinsey study found.

In order to fix inequality, Americans need to get educated, and get honest.

"If you believe that we automatically move toward equality you will be more likely to endorse the use of symbolic and cosmetic actions for justice. Only when you view racial justice as a constant struggle, one that we all might lose, can you see how much commitment is necessary for real change, and similarly, how cosmetic changes won't get the job done," Kraus said.

Business Insider

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