College isn’t a cure for the racial wealth gap

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Education is not a panacea for the racial wealth gap, according to new research.

On average, black families in the US have just five to 10 percent as much wealth as white families do. One 2015 study showed that black households headed by a college graduate have roughly one-third less wealth than white households headed by a high school dropout. Yet for decades, many people have staunchly argued for the power of education to lift people out of poverty, raise incomes, build wealth, and close the racial wealth gap.

Getting a college degree is seen as a fundamental building block of the American Dream, in which hard work and merit generate broad economic mobility that will eventually correct these disparities. But is it true that the effects of education are powerful enough to close the country’s yawning racial wealth gap?

The costs of getting ahead

In a 2017 study, published in the Federal Reserve Bank of St. Louis Review, researchers decided to dig deeper into this question and determined that over time, college degrees contribute to wealth accumulation for white graduates—but not black graduates.

“White families are less likely to have people in their family networks who need financial help—and they’re also less likely to be the only person in that network who can provide that help.”

“The public understanding, or even the academic understanding, has been that if you get an education, you have a better chance of narrowing this wide racial wealth gap. That was our hypothesis. And of course we found the opposite,” says study author Tatjana Meschede, associate director of the Institute on Assets and Social Policy (IASP) at Brandeis University’s Heller School.

“While it is true that getting an education will improve your chances of attaining greater wealth, it is not true that education equalizes across race,” adds coauthor Joanna Taylor, a PhD candidate and research associate.

The researchers examined survey data of college-educated households in which either the head of household, their spouse, or both had a college degree. They looked at wealth outcomes for black and white families nationally, using a survey that tracked the same people from 1989 to 2013. In 1989, the college-educated white households had roughly five times more wealth than the college-educated black households. By 2013, that wealth gap ratio had tripled.

“What we’re seeing is that for African-American families, there are some costs to getting a college education that don’t exist for white families,” says Taylor. “Black students are more likely to take student loans and more likely to take larger student loans than white students.”

In part, this has to do with family wealth—white parents are more likely to have enough to pay for part or all of their child’s college tuition, sparing them the burden of student loan debt.

Feeling the pinch

Meschede and Taylor also observed that other intergenerational financial transfers play an important role in building and maintaining wealth in adulthood. They found that white college-educated households are more likely to give money to their children (to pay for college, for example, or to put a down payment on a home)—and more able to give larger amounts.

Black college-educated heads of household, on the other hand, are more likely to financially support their parents, in addition to their children. “For black heads of household, because of the legacy of discrimination in this country, their parents may not have access to social security, for example,” says Meschede.

“White families are less likely to have people in their family networks who need financial help—and they’re also less likely to be the only person in that network who can provide that help,” says Taylor. “Which is not to say that white families are super well-off right now. The middle class is pinched at all sides, and that’s true for white families as well as black families.”

But what that pinch means in dollar terms is different—and when you aggregate that all up, it drives an enormous wedge in the racial wealth gap.

From generation to generation

In the new, updated study, the researchers focused on the impact of family inheritance on these same college-educated white and black families.

The forthcoming 2018 update to the original 2017 study will appear in the American Journal of Economics and Sociology.

When they incorporated the new findings about inheritance into their picture, it was even easier to see the pattern they noticed in their first study: wealth gets passed down through white families, and it diffuses across black families.

“Among college-educated black families, about 13 percent get an inheritance of more than $10,000, as opposed to about 41 percent of white, college-educated families. And about 16 percent of those white families receive more than one such inheritance, versus two percent of black families,” says Taylor.

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The average amount is also drastically different: over $150,000 for white family inheritances, versus under $40,000 for black family inheritances.

What this means, she explains, is that “Black families, even college-educated black families, rarely get a ‘transformative asset,’ a chunk of money that enables you to pay off student loans, purchase a house, or move to a better neighborhood to send your kids to a better school. For white families that’s much more common.”

“Reducing the racial wealth gap likely requires actual, radical solutions for wealth redistribution.”

That trickle-down across generations of white families has a real building effect.

“The thing about wealth is that it’s sticky,” says Meschede. “Once you have it, it really sticks with the family. It puts people onto a much better trajectory going forward. And the way wealth is distributed in this country, it replicates with each generation. When we think about wealth, often we think about our individual standing, but it’s so strongly linked to what’s happening in your family and in your networks.”

“We think about education as the great equalizer, when clearly it’s not,” Meschede continues. “It’s much more complex than that. There’s so much more needed in order to support the black community toward closing the racial wealth gap.”

So, how to solve the racial wealth gap, if not through education? The study authors admit that there is no simple answer.

Some scholars are proposing starter assets like baby bonds, which would be scaled in proportion to family wealth, while others suggest changes to the tax code or creating need-based early adulthood living stipends, similar to Pell Grants. The question of wealth redistribution is tricky.

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“Reducing the racial wealth gap likely requires actual, radical solutions for wealth redistribution,” says Taylor. “Wealth has momentum, and if you have it, even a little bit, you’re more likely to be able to make some important steps forward.”

Source: Brandeis University