Esubalew Dadi
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January 6, 2017

Policy Recommendations to Address the Racial Wealth Gap

Racial equity should be at the heart of public policy design, deliberation and decision-making in order to effectively address our nation’s pervasive wealth and opportunity gap. This gap applies above all to households of color, according to a new report from the Institute on Asset and Social Policy (IASP), and the Corporation for Enterprise Development (CFED). The report defines wealth as follows:

Wealth is not only about accumulating money; it’s also about ensuring that current and future generations have opportunities to get ahead. Those opportunities are made possible through the ownership of assets of every type — such as a home, a business, a college education and retirement savings — that provide households the means to thrive, rather than simply get by.  (p. 6)

The report asserts that past public policy decisions have inadvertently cemented and exacerbated racial wealth inequities. Undoing those policies and improving the wealth equity of households of color requires policymakers to consider the racial implication of any and all public policy decisions they make.

The report recommends:

• The creation of national, progressive Children’s Saving Accounts

These accounts serve as incentive savings for children. The federal government funds the accounts with seed money in scaled amounts dependent on family income. Families can contribute to the account throughout the beneficiary’s childhood. These accounts put the youngest generation on a more equal footing with peers from higher-income families toward long-term wealth building. The report notes that such accounts would reduce the wealth gap between black and white households in one generation by an average of 23 percent, with a corresponding average reduction between Hispanic and white households of 28 percent.

• Making higher education affordable

Of college graduates in 2014, 69 percent had incurred student debt that averaged $29,000. Among young adult households (adults aged 25-40) post college graduation, 54 percent of Black households were repaying student debt, as opposed to 39 percent of comparable White households. The report recognizes that tuition reduction for all families does not achieve racial equity. Instead, states and the federal government could advance this goal by providing increased need-based student financial aid grants or by forgiving student debt over time for working graduates who earn less than the median income. Such actions increase access to higher education by students from lower-income families without incurring decades-long debt as a result. Further, debt forgiveness enables graduates to enter and maintain professions that pay less than the median income.

• The creation of equality of opportunity in school and the workforce

First and foremost, the report calls for school resource equity. The report notes the presence of underfunded schools staffed with inexperienced teachers in low-income neighborhoods. It further notes that schools have become increasingly segregated since 2000. In the aftermath of this segregation, high schools composed primarily of minority students have experienced lower graduation rates.

Although Black children may attend high-quality schools and colleges, they are more likely to have difficulty finding high-quality employment than comparable Whites. Black adults are also more likely to be unemployed than comparably educated whites.

The report highlights uncomfortable facts about racial wealth inequality and its roots in public policy. Federal and state policymakers can address higher education and employment issues through better policy choices. District school boards must address school funding resource issues to ensure that specific schools are neither inordinately advantaged nor disadvantaged by virtue of the zip code the school serves.