The Hidden Cost of Being African American

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The Hidden Cost of Being African American
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The Hidden Cost of Being African Americanby
Thomas M. Shapiro

• Examining racial inequality as expressed through
  wealth
• Amy Shier
• Andrew Fitts
• Jessika Allen

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Methodology

• 2 types of data
• Quantitative
• Qualitative
• 3 Cities
• Boston
• Los Angeles
• St. Louis
• 180 families interviewed
• ½ from the suburbs and ½ from the city
• ¾ middle class and ¼ working class and poor

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Chain of wealth reinforcement
Wealth
Location
Education
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Wealth

• Wealth - the total value of things families own
  minus their debts.
• Wealth is an integral part of racial inequality
  due to the benefits of having them and
  consequences of not having them.
• Wealth represents the inequality of the past and
  predicts the inequalities of the future.
• Wealth discloses the consequences of the racial
  patterning of opportunities.

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The Importance of Income

• Income earnings from work, interest and
  dividends, pensions, and transfer payments.
• The difference of income and wealth are
  insurmountable. Wealth refers to ownership and
  control resources and income refers to salary or
  its replacement.
• Income is seen as a tool to support basic life.
• Income is a indicator of the current status of
  racial inequality.

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Asset Poverty Line

• Poverty- lacking adequate income and the basic
  capacities for building and sustaining a better
  life.
• The APL determines the asset conditions of
  American families.
• The asset poverty rate for a black families is
  double that of white ones.

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Baseline Racial Wealth Gap

• Net worth all assets minus all debts,
  specifically home equity. A familys total asset
  balance, indicating all of its financial
  resources.
• Net financial assets assets that are
  immediately available, excluding cars and home
  equity.
• Black families only posses 10 cents to every
  white families dollar in wealth.
• The gap between white and black families grew by
  16,000 between 1988-1999.

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Baseline Racial Wealth Gap cont.

• To analyze this racial wealth gap we must
• 1. indentify the most important factors in the
  creation of it
• 2. explore how much of the wealth gap is made out
  of a combination of them
• 3. assess the contribution of merit and nonmerit
  factors in the creation of it.

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Baseline Racial Wealth Gap cont.

• Inheritance and having one full time job is the
  most significant predictors of differences in net
  worth.
• Income is the most important factor in net
  financial assets, and is the most important
  variable in determining net worth.
• Blacks only accrue 1.98 in wealth for each
  additional dollar earned while whites accrue
  3.25.

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The Middle Class

• Income between 17,000 and 79,000
• Job ranking professionals, technical workers,
  administrators, managers, supervisors, clerical
  workers, and sales workers.
• Education at least one adult with a bachelors
  degree

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Middle Class in Black and White

• Conways
• Income 70,000
• Suzanne (45) operations supervisor at a capital
  management company
• Frank (38) worked at a communications-marketing
  firm but was laid off, now going to school
• Children 1 daughter in private school
• House Franks mom gave 10,000 for the down
  payment.
• Debt none because their parents paid for school
• Inheritance 95,000 and expect to get more
• Retirement 53,000
• Additional assets worth 125,000
• Neighborhood mostly black

Barzaks Income 84,000 Richard (41)
consultant with his own telecommunications and
real estate business Kim screen
writer Children 2 children in private
school House paid for their down payment with
Richards 401k, because they had no other assets
or ways to pay. Debt both have students loans
30,000 Neighborhood predominantly black
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Financial Help

• Assistance from family.
• Whites parents help their children financially
  more than black parents.
• Blacks financially assist their friends and
  family, all around, more than whites.
• A little over half (54) of whites paid the down
  payment from their own savings, the other 46
  received help outside themselves.
• 9 out of 10 blacks down payment was from their
  own savings.
• Black parents help their children in other ways.
• Prospects of houses are different.

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Inheritance

• Net worth is the most important factor in
  determining the prospects of the capacity of
  parents to assist their adult children.
• Transformative assets resources that have the
  potential to advance a family economically and
  socially beyond the means provided to them by
  their salaries.
• Head-start assets assets given to adult
  children to help improve their class standing.
• Inheritance wealth given between living people,
  typically from parent to adult child.
• Types of inheritances financial, cultural,
  social, and human capitol.

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The Black and White Inheritance Gap

• Median inheritance figures showed that while a
  white families inheritance amounts to
  approximately 10,000 a black families average
  inheritance is 798.
• Blacks inherit 8 cents to every white inherited
  dollar.
• Typically, whites receive inheritances that are
  at least three times larger than blacks.
• Inheritances are actually reversing gains earned
  through the decreasing income gap.

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Possessive Advantage

• Whites may see black disadvantage, but they often
  do no see their advantage.
• Stereotyping
• Seeing the poverty of African-Americans as their
  own fault.
• Choosing to see blacks status and problems as a
  value judgment on them and not a disadvantage
  placed upon them

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Homeownership

• The percentage of blacks to whites who own homes
  is 25 less.
• Racial redlining is a factor in the amount of
  blacks who own homes.
• Mortgage companies often do not go out of their
  way to get mortgages and in fact sometimes
  discourage, deny, and avoid lending altogether to
  minorities.
• Three stages in the process that work to the
  disadvantage of blacks.
• Access to credit
• Price of credit or interest rates on loans
• Inequality in the increase of housing
  values

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Homeownership Access to Credit

• Racial discrimination still persists
• Counterparts but not equal
• The Federal Reserve Board Study showed blacks
  were denied loans 80 more than whites who were
  the same in their applications.
• Banks self-conscious
• Predatory lending

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Homeownership Price of Credit or interest rates
on loans

• Middle class whites generally have good income
  and wealth in terms of assets, while most blacks
  have only income to fall back on.
• African-Americans often must pay a slightly
  higher interest rate than whites because they do
  not have as many assets.
• Among all families whose assets are not enough to
  make the down payment, whites own houses 59 more
  than minorities.

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Inequality in the increase of housing.

• The value of a house owned by an average white
  family increases 28,605 more than a house owned
  by a black family.
• homes lose at least 16 of their value when
  located in neighborhoods that are more than 10
  black.
• A 2001 Brookings study reported that home values
  for black homeowners were 18 less than values
  for white homeowners.
• Increased segregation higher discrepancy
  between white and black values of homes.
• In essence, segregation is more profitable for
  whites and less for blacks.

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White Flight

• Reasons given are not racial
• Concerns racist and unfounded even when seemingly
  legitimate the reasoning is self-centered.
• Believe and it will happen.
• Fear of declining property value

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Moving Up or Falling Behind

• Homeownership in wealthier communities also is
  the way families gain access to important civic
  services like public schools.
• Example
• Harvard, Massachusettss, public schools had the
  best test scores in the state in 2000. To go to
  Harvards public schools on must be a resident
  and a homeowner. The typical home price in 1999
  was 377,000.
• To qualify for a home loan to get one of these
  houses a family must have an annual income of at
  least 120,000.

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Tax Breaks for the More Wealthy

• Homeowners get five different tax breaks that
  renters do not.
• In the best known of these breaks, the IRS allows
  homeowners to deduct interest paid on mortgages.
• The higher the families tax bracket, the bigger
  the deduction.
• A solidly middle class family that falls into the
  28 tax bracket would be able to deduct 3,236 on
  a 161,000 home with a 30 year mortgage at 6.5.
• A upper class family that falls into the 39.6
  tax rate would be able to deduct 4,576 on a
  161,000 home with a 30 year mortgage at 6.5.

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Bias in Picking Schools

• The most important indicators in picking a school
  are according to the U.S. Department of
  Education school leadership, school goals,
  professional community, discipline, academic
  environment, class size, teacher experience, and
  technology.
• However, repeatedly when asked, parents
  identified school reputation as the most
  important factor in where they send their kids.

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Where People Choose to Live

• 984 of 1000 whites stay in predominantly white
  areas or move to them each year.
• Of the young whites that live in racially mixed
  areas in 1984, 59 remained in integrated areas
  10 years later. However the other 41 all moved
  to predominantly white areas.
• In contrast to this over ¾ of blacks living in
  racially mixed areas in 1984 remained in similar
  communities 10 years later.

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Education and Segregation

• Segregation at schools was declining in the 80s,
  but do to rising residential segregation and lack
  of judicial interest it has risen again.
• White students are by far the most segregated in
  schools dominated by their own group. Whites on
  average go to schools where 80 of the students
  are white.
• In comparison blacks and Latinos attend schools
  where a little over half of the students are
  black or Latino.

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Inequalities Between Schools

• Research has suggested that smaller class size in
  the first few years of primary education is
  critical for student achievement.
• The best class size is in the range of 13 20
  students.
• In 1997 nearly 47 of elementary classes had 25
  students or more.
• The distribution of the higher class sizes is not
  equal. It has been shown that black, Hispanic and
  Asian children are enrolled in schools with
  larger class sizes then white children.

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Overall Lessons From The Hidden Cost of Being
African American

• Racial inequalities stem from a difference in
  assets.
• Whites start out ahead due to inheritances
• Racially segregated housing boosts whites home
  equity, while depressing blacks.
• Parents are willing to pay a premium to live in a
  good school district. However, few parents can
  judge schools objectively and instead use easily
  observable markers like the racial makeup and the
  relative affluence of the area.
• Through this unconscious racism, blacks are
  forced to go to poor schools and racial
  inequalities become larger and larger.

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So what is the hidden cost of being African
American? The typical white familys net worth
is 247,730 if you swap white functions for black
ones that familys net worth decreases to
111,556. So the cost of being African American
is 136,174 overall and in net financial assets
its 94,426.