Over the last two years, many American families have experienced losing a job, draining their savings or being evicted from their home. And yet others have felt little to no disruption at all.
Wealth inequality has a lot to do with this.
“Wealth, simply put, allows you the freedom to do a variety of things,” said Bill Rodgers, director of the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. “It allows you to not have to live paycheck to paycheck. It allows you to respond to emergencies.”
To put things into perspective, half of Americans hold just 2% of all the nation’s wealth, while two-thirds of it is held by the top 10% of households.
This unequal distribution of wealth is at historic levels, and it weighs heavily on communities of color. That’s why St. Louis Public Radio is taking the next year to explore how the wealth-poverty gap impacts our region and what’s being done about it.
Consider this Wealth Inequality 101 taught by experts from across the St. Louis region.
First, we’ll start with the basics. Then we’ll dive into how the gap impacts all aspects of our daily life — including housing, education and health care.
What is wealth?
To figure out your wealth, there’s a simple equation.
First, count up any saved income, meaning cash, savings and investments, such as a 401K or a pension. Then add any other assets, such as a house or other property. Now subtract debt — for example, student, car or business loans and credit card balances. That final number equals wealth.
Selina Miller, a doctoral research assistant at Washington University’s Social Policy Institute, has been studying the difference between who has wealth and who doesn’t.
“We see at the bottom end of the spectrum people who have essentially no wealth, no assets stored up, which makes them very vulnerable to an economic downturn or something like we've seen with COVID-19,” she said. “On the other end of the spectrum, we have people with a lot of money who don't have to worry about those issues and have a disproportionate amount of power in society.”
Miller recently conducted a study looking at how having liquid assets — essentially access to cash — affected people going into the pandemic. She found that people with a financial cushion were in a much better position to fend off the sudden financial crisis.
“When there's a lot of wealth inequality, we have less stability and we have people exposed to these things like eviction and food insecurity that we don't want anybody to have to go through,” she said.
Wealth inequality gets worse over time. Miller describes it as cumulative advantage and cumulative disadvantage.
“When you have disadvantages early on, it's really hard to recover from those down the line,” she said.
Because of that, wealth inequality is particularly glaring between Black and brown communities, and white ones.
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The racial wealth gap and housing
Last year, nationwide, white families on average had $992,000 more wealth than Black families and $1,050,000 more wealth than Hispanic families, according to data from the St. Louis Fed.
Rodgers, of the Fed’s Institute for Economic Equity, said the racial wealth gap is rooted in generations of discriminatory housing policies, such as redlining.
“Neighborhoods deemed to have the highest risk were drawn in red. Consequently, borrowers in these neighborhoods were denied credit based on racial composition,” he said. “There it is right there, there's probably what you might say is the smoking gun.”
Rodgers is leading a team that will collect wealth data in the St. Louis region over the next several years. The goal is to study how low-wealth communities and people of color are systematically held back from participating in the economy and what potential solutions could help.
Keeping people of color from buying homes meant that fewer people were able to build home equity and pass that on to their children. Rodgers said you can still see the disparities today if you look at homeownership rates in the St. Louis region.
Fed data show that more than 80% of white people in St. Louis County own a home, while fewer than half of the county’s Black residents do. That disparity tracks in the city as well, where nearly 65% of white people own a house, compared to 35% of Black people.
Even among homeowners, there’s a big gap in what homes are worth. The median home value for a Black family in the county is about $150,000 lower than for a white family. In the city, it’s about $100,000 lower for a Black family than a white one.
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All of these numbers are important because buying a house is the biggest way Americans build individual wealth.
Yung Chun, a housing expert with Washington University’s Social Policy Institute, said many people have a “somewhat naive idea” of the American dream as it relates to building wealth.
“That is, in the land of opportunity, people can achieve anything that they can if they do their best,” he said.
But in reality, he said, disparities in homeownership boil down to the fact that it’s increasingly easier to build wealth and assets, such as a home, once you already have wealth.
“Because money earns money, there is only a small room for individual efforts and talents to make great fortune,” he said. “Instead, assets and wealth itself build assets and wealth.”
Education
Charli Cooksey wants people to stop thinking of education as the catch-all solution to poverty.
The CEO of local nonprofit WePower said a college degree isn’t a ticket to the middle class. For one thing, Black students have to take on way more debt.
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“It just almost feels counterproductive to pursue an education that someone should have a right to then have to pay a literal economic cost,” she said.
In fact, just a few years after college, Black graduates have nearly $25,000 more debt than white graduates, according to the Brookings Institute.
Cooksey said people often disregard the history of systemic barriers, such as those in housing, and place too much focus on people of color educating themselves out of poverty.
“The problem with that mindset is that it puts the onus on Black folks to solve a multihundred-year-old problem by them simply getting access to financial literacy, when financial illiteracy is not what created the racial wealth divide,” she said.
She wants to see more people reimagine how the economy works — and whom it works for.
Health care
Eighteen years: That’s the difference in life expectancy at birth between someone living in a predominantly Black and under-resourced ZIP code in north St. Louis and a whiter, more affluent one just 10 miles away in the suburb of Clayton.
That statistic, from Washington University’s “For the Sake of All” project published in 2016, sticks out in Alan Freeman’s head when he thinks about how health care fits into the problem of wealth inequality in St. Louis.
Freeman is the CEO of Affinia Healthcare, which serves the largest number of the area’s uninsured and low-income residents, many of whom are Black.
“Addressing the social and economic factors, this wealth gap, this inequality that exists is important in tackling the differences in health that exist,” he said. “And where you live in St. Louis is a powerful indicator.”
He said wealth equality is the major driver of health disparities in the region. It plays a big role in why Black and brown communities are more likely to suffer chronic disease, problems at birth and injury from violence. These communities have also been hit harder by COVID-19.
Wealth barometer
Rodgers has a lot of ideas about what it will take to reduce wealth inequality. But he said it’s first important to understand how it’s actually affecting people's lives on a practical level.
Economists have a go-to barometer for this. It centers around a $400 unexpected bill.
Maybe it’s for a sick pet, a kid's broken arm or an urgent car repair.
Rodgers wants people to think about what they’d do about a $400 bill at different life stages — for example, as a new parent or as a retiree living on Social Security.
Before the pandemic, he said, 37% of American households said they wouldn't be able to pay for it without borrowing money, selling something or would be unable to pay for it at all.
“Hopefully that will further open people's eyes around why having strong ability for everybody in the community to generate wealth — yes, it helps those individual families — but most importantly it helps the community become resilient,” Rodgers said.
Things always come up, whether it’s a natural disaster, economic downturn or a pandemic, and Rodgers said St. Louis will be better off if everyone is prepared to weather the storm.
Inform our future coverage:
Correction: An earlier version of this story incorrectly stated that one-third of Americans were unable to pay an unanticipated $400 bill. In fact, 37% said they wouldn't be able to pay for such a bill unless they borrowed money or sold something or would be unable to pay it at all.
Follow Corinne on Twitter: @corinnesusan
