Yahoo U: The racial wealth divide

Yahoo Finance’s Brian Cheung breaks down the racial wealth gap in America.

Video Transcript

ADAM SHAPIRO: Welcome back to Yahoo Finance "On the Move." Brian Cheung has the regular segment for us, Yahoo U, where he explains things that we may not fully understand. And one of those issues is the racial wealth gap in this country. Brian?

BRIAN CHEUNG: Well, Adam, the protests have really called attention to the systemic racism that's faced by our African-American and black communities here in the United States. And a large part of that is the racial wealth gap and the COVID-19 crisis that we find ourselves in really threatens to make that gap worse.

So obviously, when it comes to wealth, the biggest part of that is jobs. So I want to highlight the numbers that we got this morning from the jobs report. I'm going to pull up a chart here that you can see that shows the unemployment rate relative to, if you actually parse it out, by black and then also by white communities here in the United States.

So again, pretty shocking numbers that we saw this morning with 2.5 million jobs that were added. Also, with unemployment taken down to 13.3%. But actually, during that period of time, the black unemployment rate, which is denoted here by the purple line, actually ticked up during May from 16.7% just a little bit to 16.8%. It's actually really hard to see here, because this is such a quick sharp increase that actually, the line doesn't really reflect everything.

But during that same period of time month over month, the white unemployment rate actually fell from 14% to 12.4%. Now, we'll need to see more data. But if history is any indicator, recessions have tended to amplify effects actually in the job loss among black communities compared to white communities. And you can see that during the spikes in 2008 crisis. You saw that in the 1980s as well. During those periods of recession, you actually saw those black communities see higher job losses relative to white communities.

Now, job loss is just one of many factors that hold down net worth for black families, right? Income is not the same as net worth. That's really important to note. Net worth measures the value of all your assets minus any debts that you owe. But being able to hold onto a job is obviously a really big factor when it comes to actually amassing wealth, especially in those initial stages.

And this is a chart that uses data from Brookings and The Hamilton Institute and the Federal Reserve, which shows that over the past few decades the median white family-- denoted by the orange line here-- has always had a substantial lead over the median black family, which is the purple light here. Now, more importantly, black families actually have not been able to catch up. The median black family has effectively stagnated since the '80s or whenever we actually had this data, even when you look at 2016 dollars, which are in thousands, as denoted by the y-axis here.

Now today, where do we stand? The orange line, the median white family has a median net worth of $171,000. The median black family just $17,000. Now, if you stratify this data by household income, you actually see that this wealth gap is even worse.

If you get to higher income percentiles, a disparity between black and white net worth actually gets worse and worse. And this really illustrates how higher-paying jobs and opportunities for wealth creation and even preservation really get more and more inaccessible as you go up the socioeconomic ladder.

And there are really reasons for this. There are many reasons that you can point to, one of them being, for example, the lack of intergenerational transfers. Because there are black families in previous generations that haven't made any money, they obviously can't remit any of that to future generations, which kind of creates what you might call a trap when it comes to being able to actually elevate up the social ladder.

Now, the bottom quintile, interestingly, is the only quintile of these that I'm showing you here where there isn't a gap, because median net worth is zero for everybody. So a pretty bleak picture for black communities, based on this chart.

And what makes all of this so interesting is that within the discussion on Black Lives Matter, this is also happening at a time when stock ownership is largely inaccessible to black Americans, right? Consider this data from the Federal Reserve as well, which shows that only 31% of black families are invested in the stock market relative to white families at 61%.

But even among those by families that do have holdings in the stock market, they're extremely small. So the median holding for a black family was only $12,000 relative to a white family, which was $51,000. And as we know, investments are a key point in preservation of wealth, which is a big reason why we saw those gaps in the charts that I showed you earlier.

And this is a really poignant thought in the context of what we're going through right now. We're in the middle of a recession that's been induced by the COVID-19 pandemic. But then we're also facing this national discussion on Black Lives Matter at a time when the stock market is actually rallying. The S&P 500 has been up over 13% over the last month in the midst of a recession.

And this really highlights just the glaring inequality among those two groups between black Americans and the rest of the United States, and showing how really, that stock market is not benefiting many of those communities that are being marginalized but are such a big part, an important part of that national discussion right now. Adam?

ADAM SHAPIRO: Brian, I want to point out for everyone that in the next hour, in the 12:00 noon hour, we're going to speak with Michigan State University Professor and Economist Lisa Cook on this very issue. So you'll want to stay tuned for that.