Despite a robust job market and significant government support during the pandemic, the financial wealth gap between white individuals and Black and Hispanic individuals has continued to widen. This is according to a recent report by the New York Federal Reserve Bank which revealed that the real net worth of white individuals grew by 30 percentage points more than Black individuals, and 9 percentage points more than Hispanic individuals from Q1 2019 to Q2 2023.
Racial Wealth Disparity and Stock Market Participation
One of the main factors contributing to this growing wealth disparity is the difference in participation in financial markets. The report showed that 65.6% of white households had investments in stocks, compared to only 28.3% for Hispanic households and 39.2% for Black households. This is significant as the stock market saw substantial gains in 2021, further exacerbating the wealth gap.
“The study really shows the difference between making gains when it comes to income, and closing that gap, versus when it comes to wealth,” said Janelle Jones, Vice President of Policy and Advocacy at the Washington Center for Equitable Growth.
Despite dips in market-linked assets in 2022 when the Federal Reserve rapidly increased interest rates, the increase in the value of these assets in 2021 meant that racial wealth disparities continued to grow.
Differences in Investment Choices
Another contributing factor to this wealth gap is the difference in investment choices. More than 50% of Black financial wealth is invested in pensions, compared to less than 20% in private businesses, corporate equities, and mutual funds. This is in stark contrast to white households, where only about 30% of financial wealth is invested in pensions, with 50% or so invested in businesses, equities, and mutual funds.
“Black workers are still more likely to be unionized, which may play a part in the pension story,” said Jones. “But how folks are exposed to the ability to invest in the stock market — whether or not it’s something they grow up doing — we know that’s different for white families than for people of color.”
Impact of the Pandemic on Black-owned Businesses
The pandemic has also disproportionately affected Black-owned businesses. While less than 10% of all U.S. business owners are Black, these businesses were more concentrated in industries hardest hit by COVID-19.
In April of 2020, more than 40% of Black business owners reported they were not working, compared to only 17% of white business owners. These businesses are often in industries that suffered the greatest job losses early in the pandemic, such as accommodation, food services, retail, health care, and social assistance.
Despite these challenges, Treasury Deputy Secretary Walley Adeyemo remains optimistic about the improving economic conditions for Black households, citing increased employment and wages, as well as increased participation in the stock market.
“The gap between Black and white wealth in America is still too great,” he said. Adeyemo suggested policy changes might be necessary to level the playing field in the distribution of financial wealth in the U.S.
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