Interesting article on the racial wealth gap. (lots of data inside, might offend people)

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t’s not looking good for the progressive narrative about the racial wealth gap. Still, there is a kernel of truth to it. Researchers at Brandeis followed a nationally representative set of 1,700 families from 1984 to 2009 and measured their wealth gains over that period. They concluded that inherited wealth and length of homeownership accounted for 5 percent and 27 percent, respectively, of the racial disparity in wealth gains. But even if that combined 32 percent could be automatically ascribed to historical racism (which it cannot), that would still leave 68 percent of the gap to be explained by other factors. In short, many commentators have zoomed in on the fraction of the story that can be told without discomfort but have ignored the rest.

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No element of culture harms black wealth accrual more directly than spending patterns. Nielsen, one of the world’s leading market research firms, keeps extensive data on American consumer behavior, broken down demographically. A 2017 Nielsen report found that, compared to white women, black women were 14 percent more likely to own a luxury vehicle, 16 percent more likely to purchase costume jewelry, and 9 percent more likely to purchase fine jewelry. A similar Nielsen report from 2013 found that, while only 62 percent of all Americans owned a smartphone, 71 percent of blacks owned one. Moreover, all of these spending differences were unconditional on wealth and income.

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To what extent do poor spending habits explain the persistence of the wealth gap? Economists at the University of Chicago and the University of Pennsylvania asked this question after analyzing 16 years of nationally representative data from the Consumer Expenditure Survey. Consistent with the Nielsen data, they found that blacks with comparable incomes to whites spent 17 percent less on education, and 32 percent more (an extra $2300 per year in 2005 dollars) on ‘visible goods’—defined as cars, jewelry, and clothes. What’s more, “after controlling for visible spending,” they concluded that the “wealth gap between Blacks and Whites, conditional on permanent income, declines by 50 percent.” To be clear, that 50 percent figure doesn’t pertain to the total wealth gap, but to the proportion of the gap that remains after income is taken into account—which was 40 percent. The upshot: the fact that blacks spent more on cars, jewelry, and clothes explained fully 20 percent of the total racial wealth gap.

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Researchers at the Federal Reserve Bank of St. Louis followed over 40,000 families from 1989 to 2013, tracking their wealth accumulation and financial decisions. They developed a financial health scale, ranging from 0 to 5, that measured the degree to which families made “routine financial health choices that contribute to wealth accumulation”—e.g., saving any amount of money, paying credit card bills on time, having a low debt-to-income ratio, etc. At 3.12, Asian families scored the highest, followed by whites at 3.11, Hispanics at 2.71, and blacks at 2.63.

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they asked if education accounted for the differences in financial habits by limiting the comparison to middle-aged families with advanced degrees. Surprisingly, they found that the racial gap in financial health-scores didn’t shrink; it widened. Highly-educated Asian families scored 3.49, comparable whites scored 3.38, comparable Hispanics scored 2.94, and comparable blacks remained far behind at 2.66. Thus, the study authors concluded, neither “periodic shortages of time or money” nor “lower educational attainment” were the driving forces behind the differences in financial decision-making.

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Just like no person is born knowing how to brew beer or play basketball, no person is born knowing how to build wealth. These skills must be taught. And just like some cultures teach beer-brewing or basketball-playing better than others, some cultures teach wealth-building better. Children from one culture may routinely hear phrases like “asset diversification,” “mutual fund,” and “inflation rate” on the lips of their parents, whereas children from another culture may not hear such phrases until adulthood, if they ever hear them at all. More importantly, those who believe they are helping black Americans—or any demographic group—succeed by encouraging them to blame society are mistaken. Talking honestly about harmful behavioral patterns is the only way to reliably correct them.

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