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In the U.S., wealth and whiteness increasingly go together

This 48,000-square foot mansion in Hickory Creek, Tex., cost $46-million to build and was modelled after a French landmark. The emulation of the wealthy by lower-income Americans may explain why the middle-class home got 50 per cent bigger in the past three decades.

L.M. OTERO/L.M. OTERO/AP

When it comes to wealth, the racial divides in the United States have widened, not narrowed, over the past generation, a new study says.

The Urban Institute, a Washington-based economic and social-policy think tank, issued a report Monday that found that white households in the U.S. average roughly six times the net wealth of black and Latino families in 2010, up from five times in 1983. The average household wealth among Caucasian families in 2010 was $632,000 (U.S.), compared with $110,000 among Latinos and $98,000 among African-Americans.

(Net wealth was defined as total value of assets, including bank and savings accounts and home value, minus total debts, including mortgages, loans and credit cards.)

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The wealth gap, the reports authors noted, is much wider than the income gap among people of different races – but the income gap is still alarmingly large. The average income of white households in 2010 was almost double that of blacks and Latinos ($89,000 versus $46,000). One small piece of good news: The income gap is virtually unchanged over the past three decades.

One big accelerator of the racial wealth gap, the Urban Institute suggested, is home ownership. In 2010, three-quarters of white families owned homes, compared with less than half of black and Latino families. Because the bulk of savings and wealth accumulation comes via property values and paying down mortgages, the ownership of a home is a huge advantage in accumulating wealth. Toss in the effects of compound interest, and the wealthy savers just get wealthier.

The report's authors concluded, in part, that social safety nets designed to ease economic inequalities may ultimately be targeting the wrong thing. They focus on income levels and consumption, with little regard to the longer-term value of wealth-building.

"The Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families, for example, try to ensure that families have enough food to eat and other basic necessities," they wrote. "Many safety-net programs even discourage saving: Families can become ineligible if they have even a few thousand dollars in savings.

"Wealth-building policies, on the other hand, are delivered as tax subsidies for home ownership and retirement. Since families of colour are less likely to be able to use these subsidies, they benefit little or not at all."

But race itself might not be the issue here. Wealth itself, it appears, may provide even greater advantages to create more wealth than racial divides do.

On the New York Times' "Opinionator" blog over the weekend, Stanford University professor Sean Reardon wrote that the children of wealthy families perform better in school, on average, than middle-class and poor kids; they have higher rates of college enrolment and completion, and get into better colleges. And, again, the gap has been widening since the 1980s, as competition for good schools has become tougher and early-childhood eduction options have grown.

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"In the 1980s, on an 800-point SAT-type test scale, the average difference in test scores between [children whose family incomes were in the top 10th percentile and the bottom 10th percentile] would have been about 90 points; today it's 125 points. This is almost twice as large as the 70-point test score gap between white and black children," Mr. Reardon wrote. "Family is now a better predictor of children's success in school than race."

High-income families, he said, are focusing increasing resources on their children's development and education, especially in preschool years – and that's giving their kids a tremendous leg up when they enter the school system. And as in the case of savings for wealth accumulation, these early advantages have a compounding effect – better grades leading to better schools, leading to better degrees and to better jobs. Leading to more wealth – and ever-widening advantages for the rich.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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