People of color has been historically disadvantaged from acquiring this knowledge and the tools necessary to build the desired wealth.
Wealth is the sum of families’ assets, including savings, stocks and home ownership. It is different from income, which refers to the stream of money a family makes.
Racial wealth gaps are extreme, but now also show that there is a large racial gap in the transmission of wealth across generations. “Today’s racial wealth gaps reflect two processes:
One historical—this country’s long legacy of actively excluding African-Americans from asset ownership beginning with slavery, and
The second contemporary—there are still processes that continue to hinder asset accumulation among nonwhite families, even those that come from wealthier families.”
This racial inequality in wealth transmission also plays out in the rates of home ownership.
Here are a few key reasons:
- Families do not have the optimal strategy for allocating their capital for growing the overall family wealth, including an objective plan for the core business based on industrial life cycle and competitive landscape;
- Families lose their ability to make sound business decisions to grow their wealth in later generations. Part of this may be the result of owners becoming more distant from the management of their wealth;
- Lifestyle expectations of family members increase. This results in increase of consumption, which decrease the level of capital that can be used to generate more wealth over time;
- Family members grow exponentially, faster than the growth of wealth over generations. Therefore, the per capita wealth tends to decline. (Note: this may not be as big an issue in certain countries such as China where government restrictions on child births limit the rate of family growth from generation to generation)