As discussed in recent blogs historically, the government has made intentional efforts to increase the wealth of certain demographics through past legislation, like the Social Security Act and the FHA, while systematically preventing other groups from gaining wealth. In addition, we have current policies in place that negatively affect minorities’ abilities to acquire wealth, such as our laws pertaining to our criminal justice system, or laws that excluded farmers from work place protections. Furthermore, we are currently in an affordable housing crisis, and some cities have called a state of emergency in regard to homelessness. It is estimated that only“65 affordable units exist for every 100 extremely low-income renters, and only 39 units are available per 100 extremely low-income renters”. Despite the lack of investment in affordable housing, for those of modest incomes the wealthiest people in this country receive the largest amounts of financial housing assistance, mostly in the form of the mortgage interest deduction. Moreover, the households with incomes of $200,000 or more receive a larger share of housing aid than households with incomes of $20,000 or less, which are disproportionately families of color. The aforementioned policies are just a few examples of government legislation that has contributed to the racial wealth gap, and has increased the wealth gap between the rich and the poor of all races.
The issue of wealth inequity in this country has been a growing topic of discussion in certain non-profit and community circles, in academia and politically. These disparities have been exacerbated due to the Great Recession. Collectively, Americans lost trillions of dollars due to the recession. However, the effects were especially damaging to the wealth of African-Americans, whose net worth fell by 34%, and Latino wealth, which fell 15% respectively; white wealth rose 2% during that timeframe. The inability to accumulate wealth directly affects the financial stability of families and can be seen through the fact that the average white household has a little over one month’s income in accessible savings, compared with only 12 days for the average Latino household and five days for the typical African-American household. These wealth disparities are so great that it puts Latinos and African Americans in a position where the slightest emergency, or change in work schedule, could have a tremendous impact on families’ savings. These issues need to be addressed in order to help families build wealth and become economically mobile. Currently, research is being conducted on how to decrease the wealth gap.
In January, the Annie E. Casey Foundation released a report listing four proposals on how to close the wealth gap. All of these suggestions have been shown to lessen the gap in the states where they were implemented. The first suggestion is making myRAs (My Retirement Account) permanently accessible through banks and employers, and increasing awareness about them. The purpose of this program is to jump-start people’s retirement savings. These accounts would be established by employers, and would be invested in government savings bonds, so they won’t have the risk of losing principal. Furthermore, myRAs wouldn’t require an initial fee. Another benefit of myRAs, is that if an emergency occurs, and the participates need to access the funds, they can do so risk free. Once $15,000 has been saved in the myRA, the funds must be rolled over into another account, and people should be encouraged to place their funds in vehicles where they can receive greater returns. According to the Annie E. Casey Foundation, “If everyone eligible saved the maximum, myRA could reduce the black-white wealth gap by 5% and the Latino-white gap by 7%”.
Another proposal that would reduce the wealth gap is raising asset limits for public benefit programs. Currently, people who have more than $1,000 in savings get dismissed from TANF. However, $1,000 is such a small amount; people need more money than that in their savings in order to be prepared for rainy days, or in order to make an investment that could help uplift themselves out of poverty. Consequently, this $1,000 limit creates a disincentive to earn more money or to save. “Federal policy should permit program participants to have at least $12,125 in savings — the equivalent of three months’ income for a low-income family of four.” In Ohio and Virginia, where the limits were raised, there was not an increase in the number of people who tried to use TANF. Furthermore, allowing families to keep assets that provide adequate transportation and housing, as they transition out of assistance programs, and work to become self-sufficient can have a positive impact in reducing the wealth gap.
The third proposal is “building savings from birth.” This proposal recommends that the federal government establish universal savings accounts for each child that is born. A modest deposit would be placed into each child’s account upon birth, with the greatest amounts of funding given to babies from lower-income families. The goal of this program is to have a system in which money is saved for children, so once they become 18, they can use the funding to pay for higher education, training, a business or a home. This program would be costly, but “depending on funding and participation, these accounts could reduce the racial wealth gap by about 20 to 80%, it would increase the wealth among all groups, and reduce dependence on public benefits, increase consumer buying power, boost investment in businesses and homes.”
The last proposal is a concept that MANNA knows well, which is expanding access to homeownership. In order to increase access to homeownership, The Annie E. Casey Foundation recommends expanding the Family Self-Sufficiency program. The program is implemented through the U.S. Department of Housing and Urban Development (HUD). The program helps those with housing vouchers, or who live in public housing, increase their income, build assets and increase their financial stability. “Through the program, an escrow account is established for participants. As their earnings rise, they pay more rent, but the amount of each increase is deposited in their accounts monthly over five years.” At the end of the five years, the money can be used for any purpose they would like. Participants of the program also receive coordinated services, such as “child care, transportation, education, job training, employment counseling, financial literacy, and homeownership counseling, among others”. Currently, 70,000 people use the program, but 3 million people are eligible.
The policies and programs I have discussed are a sample of some of the proposals out there, that the government could use to reduce the racial wealth gap in this country. I am not suggesting that these recommendations are the cure for the gap, but they are creative ways to address wealth disparities. These are not the only potential solutions that exist, but the aforementioned programs have been tried, and have successful results. Maybe the best policy for addressing this gap isn’t one that I have mentioned. Perhaps the best policy is one that has not been created yet. However, what I can assure you is that more than one policy is needed in order to close this gap. It will take multiple well thought out policies, and time to fix this problem, just like it has taken numerous policies and centuries of inequitable legislation to create these issues.