Home/Economy/Articles/How differences in household debt can contribute to the race wealth gap
A smaller percentage of Black and Hispanic households hold debt that builds wealth, such as a mortgage and higher percentages of unsecured debt such as credit cards, according to 2019 Census data.
In 2019, 75%percent of US households had household debt.
But not all household debts are the same. Some household debts, such as medical bills or credit card debt,do not gain value over time. It is a bill that needs to be paid, a cost, and not an asset. But a mortgage or a business loan has the potential to add generational wealth to a household.
Breaking down the data can show how differences in household debt can contribute to the wealth gap between race or ethnicity groups in the US.
Black and Hispanic households have a disproportionately lower share of home debt, such as a mortgage.
The overall share of households with home debtis 36.6%. About 39% of white households, including those of Hispanic/Latino ethnicity, owned home debt,compared with 24% of Black households. Similarly, about 29% of Hispanic/Latino households have home debt.
Home debt is known to be a driver of generational wealth.
Both groups were historically kept from taking on home debt due to now illegal practices such as redlining. The Justice Department defines redlining as an illegalpractice in which lenders avoid providing services to individuals living in communities of color because of the race or national origin of the people who live in those communities.
On top of that, Black households have lower shares of secured debt in general. Secured debt, such as home, business, or vehicle debt, all require collateral in order to have it. And most secured debt provides the debtor with an asset while the debt is being paid off.
White households had the highest share of secured debt in 2019. Fifty-six percent of white households own some combination of home, business, or vehicle debt. Black households have the lowest share, with 44.6% of households owning secured debt.
These differences arepart of the reason why white households own 86% of wealth in the US while being 60% of the population overall.
The 2008 housing crash cut into the percent of households with home debt, but the impact wasn’t felt equally.
From 2000 to 2010 — the period covering the 2008 housing crash — the share of Black households with home debt dropped by about three percentage points, the biggest drop of any race or ethnicity group.
The share of Black households with home debt decreased by about another five percentage points between 2010 and 2019. Across all racial and ethnic groups, the share of households owning home debt decreased by about five percentage points since 2010.
Unsecured debt, such as credit card debt, is more common in Black and Hispanic households.
At the same time, Black and Hispanic households have a higher share of credit cardand medical debt compared with the country overall.
These unsecured forms of debt do not require assets to acquire, typically have higher interest rates, and do not build value over time.
Black households also had the highest share of student loans compared with the national share in 2019. About 27% of Black households had student loans, compared with about 21% of all households.
Black, non-Hispanic students also have the highest median student loan debt compared with other groups.
What stands out about household debt for other race or ethnic groups?
Asian households have the highest share of home debt compared with others but also a disproportionally higher share of business and unsecured credit card debt. They also have lower shares of medical debt, student loans, credit card debt, and vehicle debt, compared with the overall share.
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Wealth and Asset Ownership Data Tables
Footnote
All race and ethnicity groups include those who are both Hispanic and non-Hispanic, except for the Hispanic group.
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FAQs
America's racial wealth gap means that the student debt burden falls disproportionately on students of color and their families, with long-term implications. The racial wealth gap describes the significant difference in the wealth held by white people and people of color in the United States.
What is the wealth gap explained? ›
The term “income gap” refers to the gap in earnings between two groups such as the 1% and the 99%, white and black Americans or, more broadly, the haves and the have-nots. The wealth gap, on the other hand, gets at assets and net worth (assets minus debts), rather than looking at just income.
What race holds the most debt? ›
White people, on average, are more likely to have mortgage debt than Black people, but Black people are more likely to have credit card debt (Dettling et al., 2017).
What is the racial disparity in student loan debt? ›
Four years after graduation, black students owe an average of 188% more than white students borrowed. Black and African American student borrowers are the most likely to struggle financially due to student loan debt making monthly payments of $250.
How does wealth gap affect the community? ›
Societies with pronounced economic inequality suffer from lower long-term GDP growth rates, higher crime rates, poorer public health, increased political inequality, and lower average education levels.
How is the wealth gap bad? ›
A large gap between rich people and poor people leads to higher mortality through the breakdown of social cohesion. The recent surge in income inequality in many countries has been accompanied by a marked increase in the residential concentration of poverty and affluence.
What is the top 1% wealth in the US? ›
You need more money than ever to enter the ranks of the top 1% of the richest Americans. To join the club of the wealthiest citizens in the U.S., you'll need at least $5.8 million, up about 15% up from $5.1 million one year ago, according to global real estate company Knight Frank's 2024 Wealth Report.
How bad is wealth inequality in the US? ›
The top 1% of American earners now control more wealth than the nation's entire middle class, federal data show. More than one-quarter of all household wealth, 26.5%, belongs to Americans who earn enough money to rank in the top percentile by income, according to Federal Reserve statistics through mid-2023.
What role does household debt play in the US economy? ›
Compared to the effect of corporate debt, household debt has a stronger negative effect on future GDP growth, and the effect lasts for much longer than corporate debt. The standard deviation for three-year change in the corporate debt to GDP ratio is 18.97 percentage points, three-times that for household debt.
What is a healthy household debt? ›
Key Takeaways
The 28/36 rule states that no more than 28% of a household's gross income should be spent on housing and no more than 36% on housing plus other debt.
Women are stereotypically seen as irresponsible spenders, but the data doesn't back this up. According to a 2019 Experian study, men carry more debt than women across nearly all categories, including credit card debt — the study found that men have $125 more in credit card debt than women on average.
Why is black student debt so high? ›
Due to racial wealth disparities, most Black and Latino college students come from low-income backgrounds and can count on only a fraction of the financial support. Over half (56 percent) of the students who attend public two- and four-year institutions in California come from families that earn under $40,000 annually.
What is a black debt? ›
is a race up an eroding hill of sand: Black debt means higher. interest with lower returns. Black debt also represents the past. and ongoing theft of Black assets. “
What is the wealth gap in the United States? ›
How much wealth inequality is there in the U.S.? The top 10% of households by wealth had $6.5 million on average. As a group, they held 66.6% of total household wealth. The bottom 50% of households by wealth had $50,000 on average.
What is the wealth distribution by race in the US? ›
In 2021, households with a White householder made up 65.3% of all U.S. households and held 80.0% of all wealth. Those with a Black householder made up 13.6% of all U.S. households but held only 4.7% of all wealth.
Which is greater in the United States today, the income gap or the wealth gap? ›
The wealth gap among upper-income families and middle- and lower-income families is sharper than the income gap and is growing more rapidly.
