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Wealth Inequality in Black and
White: Cultural and Structural
Sources of the Racial Wealth Gap

Cedric Herring

Wealth Inequality in Black and White: Cultural and Structural Sources of the Racial Wealth Gap

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1 23

Race and Social Problems

ISSN 1867-1748
Volume 8
Number 1

Race Soc Probl (2016) 8:4-17
DOI 10.1007/s12552-016-9159-8

Wealth Inequality in Black and White:
Cultural and Structural Sources of the
Racial Wealth Gap

Cedric Herring & Loren Henderson

Wealth Inequality in Black and White: Cultural and Structural

Sources of the Racial Wealth Gap

Cedric Herring
1

• Loren Henderson
1

Published online: 10 February 2016
� Springer Science+Business Media New York 2016

Abstract Using data from the 2013 Survey of Consumer

Finances, this research examines competing and comple-

mentary cultural and structural explanations of the sources

of racial differences in wealth. We use OLS regression and

quantile regression to identify the major individual-level

sources of wealth differences between African Americans

and whites. Whites have more favorable wealth charac-

teristics than do African Americans on all of the variables

in the analysis: gender of household head, bankruptcies,

spending patterns, stock ownership, business ownership,

home ownership, inheritance, educational attainment,

income, occupation, age, and number of children. Cultural

factors, having a female-headed family, spending patterns,

and inheritance account for little of the racial wealth gap.

Racial differences in income, stock ownership, and busi-

ness ownership account for much of the explained racial

wealth gap. Moreover, compared with whites, African

Americans receive significantly lower wealth returns to

education, age, income, stock ownership, and business

ownership. We discuss the implications of our findings.

Keywords Racial inequality � Wealth inequality � Racial

wealth gap � Net worth and race

Several studies have documented racial and ethnic differ-

ences in wealth ownership (Parcel 1982; Horton 1992;

Oliver and Shapiro 2006; Lewin-Epstein et al. 1997;

Conley 1999; Keister 2000a, b; Avery and Rendall 2002;

Shapiro 2004; Semyonov and Lewin-Epstein 2011, 2013).

Although researchers agree that there are extreme and

persistent racial differences in wealth, the reality of the

ever-increasing wealth gap in the USA has spawned

scholarly debates about the root causes of this phenomenon

(e.g., Massey and Denton 1993; Oliver and Shapiro 1995;

Conley 1999; Keister and Moller 2000; Shapiro et al. 2013;

Sullivan et al. 2015). Indeed, there are now competing

explanations in the ‘‘race-class’’ debate concerning wealth

accumulation and inequality. Some scholars have taken the

view that racial differences in wealth are primarily the

result of differences in cultural and behavioral factors such

as familial patterns, amounts of self-control, willingness to

delay gratification, and investment and consumption pat-

terns (e.g., Lewis 1963; Wilson 1987; Brimmer 1988;

Keister and Moller 2000; Lawrence 1991; Altonji and

Doraszelski 2005; Charles et al. 2009). Others focus on

historical and contemporary structural factors and unequal

ownership opportunities as the primary determinants of

black–white wealth inequality (e.g., Oliver and Shapiro

1995; Conley 1999, 2001; Neckerman and Torche 2007;

Sullivan et al. 2015).

Competing and complementary theories identify several

factors that may help account for racial differences in

wealth in the USA. This paper provides an examination of

several social science theories that seek to explain racial

disparities in wealth. Using data from the 2013 Survey of

Consumer Finances, it looks at the relative contribution of

contemporary cultural factors (e.g., family structure and

spending patterns), structural factors (e.g., housing own-

ership and business ownership), human capital (e.g., edu-

cational attainment), and investment decisions (e.g.,

ownership of stocks). Guided by these social science

explanations of racial wealth inequality, we use nationally

& Cedric Herring
cherring@umbc.edu

Loren Henderson
loren@umbc.edu

1
University of Maryland, Baltimore County, Baltimore, MD,
USA

123

Race Soc Probl (2016) 8:4–17

DOI 10.1007/s12552-016-9159-8

Author’s personal copy

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representative data from the 2013 Survey of Consumer

Finances to carry out regression analysis to identify the

major individual-level sources of wealth differences

between African Americans and whites. We attempt to

show which factors identified by the cultural and behav-

ioral literature, the literature that focuses on structural and

unequal ownership opportunities, as well as those that

identify other sociodemographic and human capital vari-

ables operate differently for African Americans and whites.

Below, we provide a brief overview of those literatures.

Review of the Literature

Cultural and Behavioral Explanations of the Racial

Wealth Gap

Cultural and behavioral explanations of the racial wealth

gap often argue that wealth differentials result from one or

more cultural traits of African Americans. The emphasis is

on family arrangements, attitudes, and values rather than

social structure, although the two types of factors are often

linked together in these models. Scholars in this tradition

argue that racial wealth inequality is the result of differ-

ences in cultural factors such as lack of self-control, the

unwillingness to delay gratification, and problematic con-

sumption patterns (e.g., Lewis 1963; Galenson 1972;

Wilson 1987; Brimmer 1988; Lawrence 1991; Szydlik

2004). The ‘‘culture of poverty thesis,’’ for example, argues

that the lack of wealth (i.e., poverty) is caused by cultural

and behavioral practices that are antithetical to wealth

accumulation (Frazier 1957; Lewis 1963; Banfield 1974;

Brimmer 1988; Charles et al. 2009). Cultural explanations

of economic inequality also often view the lack of wealth

as a result of cultural pathology. Frazier (1957), for

example, attempted to explain why seemingly affluent

African Americans continued to lag behind whites. He

argued that affluent African Americans—who he dubbed

the black bourgeoisie—developed a serious inferiority

complex due to their continued exposure to white racism

and ideology. He contended that the black bourgeoisie

lived in a world of make believe that insulated them from

their internalized realization that they were inferior to

whites in the market place and in society overall. This

world of make believe included extreme partying, gam-

bling, sex, and lavish spending on such things as houses,

cars, and clothes. These behaviors masked the reality that

they had less wealth and access to the polity than they

deserved. These behavioral patterns supposedly also stun-

ted the economic prosperity of African Americans in the

middle class. Frazier (1957) further characterized African

Americans as conspicuous consumers who engaged in

excessive spending on frivolous items. Frazier (1957)

ultimately argued that economic and other types of

inequality were a result of middle-class African Ameri-

cans’ pathological behavior and self-hating desire to be

white.

There are more recent explanations of the racial wealth

gap that also focus on problematic conspicuous consump-

tion and lavish spending by African Americans (Charles

et al. 2009). Under the conspicuous consumption thesis,

individuals will purchase goods and services that are not

needed. This will result in a lack of financial assets. This

argument is used to help explain the wealth gap between

African Americans and whites by asserting that African

Americans spend their money frivolously and fail to invest

in income-generating assets (Brimmer 1988). While con-

sumption patterns are not enough to account for the wealth

gap between blacks and whites (Hamilton and Darity

2010), it is still important to examine such factors as

contributors to the racial wealth gap.

Another kind of cultural theory of racial wealth dis-

parities focuses on racial differences in family structure

and family background (Wilson 1987; Keister 2004).

Keister (2004) suggests that racial differences in family

structure are important to explaining the black–white

wealth gap. One of her central claims is that family

structure and family background are important determi-

nants of wealth. Moreover, because family structures differ

by race in the USA, racial disparities in adult wealth

accumulation are a function of dissimilarities in family

type and resources. Moreover, Keister (2004) argues that

female-headed households are disadvantaged compared to

two-parent (i.e., husband wife coupled) households

because women continue to work in segregated labor

markets, earn less than men, and have more difficulty

securing resources that translate into income-generating

assets. She shows that married couples have more wealth

than do other households. Similarly, Wilson (1987) argues

that the female-headed household is one factor related to

poverty. Other scholars also support the claim that married

couples are more likely to own homes, have higher housing

values, and have greater wealth compared with other

family types. Married couples have distinct advantages in

wealth accumulation over other family types because they

have the potential for dual earners. However, there is also a

distinct gender dynamic that occurs. African American

women, in particular, have especially low amounts of

wealth (Brown 2012). Even when there is only one earner

in the married family, these households earn more than

female-headed households. Yet, when married couples

send the wife into the workforce, their wealth lags behind

those families that send only the husband into the work-

force. This is directly related to gender inequality in the

labor market.

Race Soc Probl (2016) 8:4–17 5

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In short, cultural and behavioral explanations of racial

differences in wealth have in common the idea that African

Americans do worse than white Americans because of

some cultural deficiency or shortcoming among African

Americans. These explanations place far less emphasis on

structural and opportunity-related factors that might

account for racial differences in wealth.

Structural and Unequal Ownership Opportunity

Explanations of the Racial Wealth Gap

In contrast to the view that African Americans’ patholog-

ical behaviors as the major contributing factors to eco-

nomic inequality, proponents of structural and unequal

ownership opportunity explanations point to discriminatory

practices and racialized policies in labor markets, housing

markets, and credit markets as key sources of racial wealth

disparities. Such discriminatory practices and policies have

created generational consequences that continue to impact

African Americans today (e.g., inherited poverty). Histor-

ically, whites have been more able than African Americans

to secure wealth in the form of businesses, homes, and

stocks because of governmental policies that favored

whites. African Americans were, by and large, denied the

opportunity to acquire and pass down accumulated wealth

until the 1960s.

Lower wages and incomes are also related to the wealth

gap between whites and African Americans (Conley 1999).

These lower wages and incomes are, in part, products of

labor market discrimination and unequal returns to human

capital characteristics such as education. Moreover, such

discrimination in labor markets accumulates over the life

course (Thomas et al. 1994). ‘‘Blacks have had much less

opportunity than whites to earn, save, or to inherit wealth.

Because of this historical legacy, black families have had

few opportunities to accumulate wealth and to pass it on to

their descendants’’ (Brimmer 1988:153).

One important way that wealth is acquired and trans-

ferred from generation to generation is through home

ownership (Conley 1999; Keister 2000a, b; Avery and

Rendall 2002; Campbell and Kaufman 2006). Home

ownership continues to be a significant source of wealth for

most people in the USA (Wolff 1995; Ratcliff and Maurer

1995; Keister 2000a, b; Shapiro et al. 2013; Sullivan et al.

2015). Unfortunately, however, discrimination in housing

markets and home financing are also major factors con-

tributing to racial wealth inequality (Massey and Denton

1993). African Americans are often denied housing loans

in locations that would allow them to acquire housing that

appreciates at the same rate as for whites. Thus, housing in

racially segregated housing markets is a leading cause of

racial inequality in the USA. because equity in housing

represents a substantial portion of most people’s wealth.

This results in gaps in wealth holdings between African

Americans and whites (Rugh and Massey 2010).

‘‘Redlining’’ is another important reason for the racial

wealth gap. ‘‘Redlining is a process by which goods or

services are made unavailable, or are available only on less

than favorable terms, to people because of where they live

regardless of their relevant objective characteristic’’

(Squires 1992:2). Prior to the Civil Rights Act of 1964,

‘‘fewer than 1 % of all mortgages in the nation were issued

to African Americans’’ (Kirp et al. 1995:7). This was a

consequence of redlining practices supported by the US

government. This injurious practice restricted African

Americans’ full participation in the housing market (Mas-

sey and Denton 1993). In a similar vein, restrictive cove-

nants—‘‘contractual agreements among property owners

stating that they would not permit a black to own, occupy,

or lease their property … signing the covenant bound

themselves and their heirs to exclude blacks from the

covered area for a specific period of time’’ (Massey and

Denton 1993:36)—made it nearly impossible for blacks to

acquire home financing through the Federal Housing

Administration (FHA) (Massey and Denton 1993; Conley

1999; Lipsitz 2006).

Despite current federal laws prohibiting discrimination

in housing, disparities remain (Lipsitz 2006). These dis-

criminatory practices continue to restrict the ability of

blacks at all income levels to leverage their resources in

order to dramatically reduce the disparity in wealth (Oliver

and Shapiro 1995). Once the housing bubble burst in the

mid-2000s, it had a greater impact on African American

households (Taylor et al. 2011). Black households lost

53 % of their wealth compared with whites who lost 16 %

because blacks were ‘‘more dependent on home equity as a

source of wealth’’ (Taylor et al. 2011:7). Relatedly, Shapiro

(2006) suggests that subprime lending became the new

redlining. He argues that banks systematically targeted

African Americans through ‘‘objective’’ criteria such as

credit scores to offer them subprime loans. These loans

often had higher fees, interest, penalties, and were, there-

fore, more difficult to fulfill (Shapiro 2006; Henderson

et al. 2015). Many African Americans were able to pur-

chase their first home with such contracts; unfortunately,

many of these loans resulted in African Americans falling

further into debt, foreclosure, and wealth depletion.

Another, often overlooked structural source of racial

differences in wealth is business ownership. In a survey of

affluent Americans (i.e., with incomes over $100,000),

70 % of those with at least $3 million in assets had

acquired the bulk of their wealth through business owner-

ship (US Trust 2013). In addition, net worth is greater for

white business owners than for other demographic groups

(Butler and Herring 1991; Cavalluzzo and Wolken 2002).

For example, in 1998 the mean (median) value of net worth

6 Race Soc Probl (2016) 8:4–17

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was $687,719 ($150,000) for white business owners com-

pared to $159,962 ($80,000) for African American busi-

ness owners (Cavalluzzo and Wolken 2002). Moreover,

whites are significantly more likely to be business owners

than are African Americans (Butler and Herring 1991;

Bates 2006). Combined, these factors suggest that racial

differences in business ownership may also provide a

potential explanation of the racial wealth gap.

According to this unequal ownership opportunity

framework, African Americans have also been dispropor-

tionately denied access to loans for business development

by banks (Conley 1999). Whites, on the other hand, were

provided low-interest loans and access to wealth-generat-

ing banking options (Conley 1999). African Americans

have historically engaged in entrepreneurial activities

(Butler and Herring 1991; Graham 2000); however, as

Butler (1991) suggests, African Americans engaged in

what he called the economic detour model of economic

development. By this, he means that they could not conduct

business in non-black communities. Not only were African

Americans forbidden from entering the traditional work-

force without being discriminated against, they were also

forced to endure discrimination in their business operations

(Butler 1991). Such practices have contributed to racial

disparities in business ownership and wealth inequality.

Is It Cultural, Structural, or a Little of Both?

Thus far, this paper has focused on cultural and structural

frameworks that seek to explain the continued racial wealth

gap. However, cultural and structural explanations of

wealth inequality are not mutually exclusive. Indeed, some

factors like inheritance and intergenerational wealth

transfers are incorporated into both types of explanations in

different fashions. This point is illustrated in qualitative

works such as Johnson’s (2014) The American Dream and

the Power of Wealth. Johnson (2014) shows how beliefs in

meritocracy and opportunity not only serve to gloss over

educational inequality, but more significantly, serve to

reproduce racial wealth inequality. She shows how meri-

tocratic ideology is passed down from one generation to the

next. In doing so, she explores the paradoxical beliefs of

sympathetic Americans who agree with the ideal of hard

work while reaping the benefits of unearned privilege. Her

interviews with affluent children reveal that they have

several similarities with their parents. They hold views of

inequality that, while proclaiming a commitment to hard

work and equal opportunity, really exhibit stereotyped and

racially tinged views of the poor and demonstrate an

unawareness of the centrality of inherited advantages. So,

while much of privilege and disadvantage of wealth is

inherited and passed along from generation to generation,

so too are cultural beliefs and values that prop us such

differences in wealth.

Explanations do not always fit neatly within cultural or

structural categories. In particular, consumption, invest-

ment, and inheritance patterns have both cultural and

structural elements. There are other sociodemographic, life

cycle, and human capital factors that may play a central

role in explaining the racial wealth gap. This section

reviews these factors and discusses other social forces that

are not typically linked to the racial wealth gap debate.

Age and the Life Cycle

Age is not usually associated with the racial wealth gap

debate. However, life cycle approaches can offer powerful

insights into racial differences in wealth. The life cycle

model can help identify critical events in people’s lives that

have consequences for their ability to accumulate wealth.

For example, racial differences in parents’ ability to pay for

college education for their children will have lifelong

effects on wealth accumulation. Those whose parents

cannot or do not pay are likely to be saddled with student

loans that exceed their ability to repay them if they are able

to go to college at all (Shapiro 2004). Similarly, whites are

more likely than are African Americans at crucial points in

their lives (e.g., when marrying or buying a home) to

receive substantial wealth transfers from family members

in the form of no interest loans or cash (Shapiro 2004).

There are also racial differences in health status, morbidity,

mortality, and life expectancy that have implications for

wealth accumulation. And once people reach retirement,

they deplete assets and lower their overall wealth (Ando

and Modigliani 1963; Rhee 2013; National Institute on

Aging and National Institutes of Health 2015). The life

course approach does not fully account for findings that

show differential patterns of accumulation and depletion of

wealth over the life cycle for different racial groups

(Keister and Moller 2000). Still, it calls attention to the

possibility that age and other life course forces can play

central roles in racial disparities in wealth.

Chiteji (2010) also provides a life cycle explanation of

racial wealth inequality. She argues that African Americans

are systematically disadvantaged in credit markets com-

pared with their white counterparts. The practice of

charging African Americans higher interest has resulted in

lower wealth transfers and decreased ability to accumulate

wealth throughout the life course.

Finally, Herring et al. (2013) put forth evidence in

support of a ‘‘cumulative effects of discrimination’’ model,

which claims that the black–white wealth gap increases

over the life course for each historical period. They pro-

pose that younger African Americans have always done

better than older African Americans when compared with

Race Soc Probl (2016) 8:4–17 7

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similar whites because the negative impact of discrimina-

tion is cumulative over the life course. In other words, the

effects of race on disparities in wealth accumulate over the

life course and lead African Americans to have a cumu-

lative disadvantage in wealth.

Investments

Oliver and Shapiro (1995) show that at lower income

levels, African Americans spend relatively more than

whites on housing and transportation rather than income-

producing assets. However, such spending is a conse-

quence of home mortgage discrimination and the need for

many African Americans to purchase reliable cars in order

to commute longer distances to work because of labor

market segregation that locates their jobs longer distances

from their homes. Oliver and Shapiro (1995) also show that

at higher income levels, African Americans save more

while whites invest in more wealth-generating instruments.

Brimmer (1988) argues that the investment patterns of

African Americans reflect risk aversion and lack of

familiarity with the stock market. These different behaviors

are related to differences in social networks and connec-

tions that affect amounts and types of information about the

inner workings of the stock market. He argues that the lack

of useful information about investment strategies lead to

very different asset holdings between African Americans

and whites.

Similarly, at the time of the Great Recession, African

Americans lost 71 % of their investments compared with a

9 % loss of stock investments for whites (Taylor et al.

2011). Even more, ‘‘since the official end of the recession

in mid-2009, the housing market in the USA has remained

in a slump while the stock market has recaptured much of

the value it lost from 2007 to 2009. Given that a much

higher share of whites than blacks or Hispanics own

stocks—as well as mutual funds and 401(k) or individual

retirement accounts (IRAs)—the stock market rebound

since 2009 is likely to have benefited white households

more than minority households’’ (Taylor et al. 2011:5).

Thus, it is likely that investment patterns play a role in the

racial wealth gap.

While there is little evidence of different savings rates

between African Americans and whites at similar income

levels (Gittleman and Wolff 2004), whites generally have

greater savings, and thus, they may be more likely to use

these savings to invest in the market (Brimmer 1988).

Brimmer (1988) suggests that as African Americans begin

to invest more often in the stock market and develop cul-

tural capital to share with others in their communities, their

involvement and share of the market will increase.

Although Brimmer (1988) considers some structural fac-

tors, his arguments about risk-taking and family structure

are primarily cultural inasmuch as they invoke personal

responsibility and choice as the major factors related to the

black–white wealth gap. Oliver and Shapiro (1995) suggest

that although there are differences in investment strategies

between African Americans and whites, these strategies

reflect structural barriers for some groups and privileges for

others rather than cultural patterns that demonstrate

pathology or cultural competence.

Inheritance and Intergenerational Wealth Transfers

Inheritance and intergenerational wealth transfer have also

been viewed as central sources of the racial wealth gap

(Oliver and Shapiro 1995; Conley 1999; Darity et al. 2001;

Semyonov and Lewin-Epstein 2001; Gittleman and Wolff

2004; Shapiro 2004). Inheritance creates and maintains

social inequality (Szydlik 2004); still, African Americans

have less wealth, in part, because of their lower intergen-

erational transfers of wealth (Smith 1995). Oliver and

Shapiro (1995) argue that, through inheritance, the children

of whites and blacks chart very different economic courses.

Through inheritance and wealth transfers, white families

pass on more than money. They also transfer class and

racial privileges, as well as disadvantages from one gen-

eration to another (Shapiro 2004). ‘‘Blacks received 8 cents

of inheritance for every dollar inherited by whites’’ (Sha-

piro 2004:69). Yet, it is still important to analyze wealth

transfers between living parties because as much as 43 %

of all wealth may be transferred while both parties are

living (Shapiro 2004). Shapiro also documented that

‘‘28 % of whites received bequests, compared to just 7.7 %

of black families’’ (p. 69). In part, this can be explained by

the lower asset holdings of African Americans that make

intergenerational wealth transfers less possible; however,

this does not fully account for the racial wealth gap nor

does it fully explain why African Americans provide lower

amounts of inheritance to their children (Smith 1995).

Shapiro (2004) indicated that many whites acknowledge

that they receive substantial wealth transfers from their

family members in the form of low or no interest loans,

cash, and college tuition. Yet, these beneficiaries continued

to proclaim that they had earned their wealth through their

own hard work and canny investment strategies. They were

blind to the link between their unearned wealth and the

standing of others in the social hierarchy (Shapiro 2004).

This list of factors is not exhaustive. It does not include

the impact of residential segregation, discriminatory credit

markets, nor macroeconomic factors that go beyond the

individual. It does, however, include most of the major

individual-level factors put forth by social science theories

of wealth that are available for analysis in the 2013 Survey

of Consumer Finances. Below, we provide an analysis that

includes factors consistent with the competing and

8 Race Soc Probl (2016) 8:4–17

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complementary explanations of the racial wealth gap. First,

however, we provide more details about the data and our

analysis strategy.

Data, Methods and Analysis Strategy

The Sample

The 2013 Survey of Consumer Finances (SCF) is a

nationally …