Race has a cascading effect on how families accumulate money throughout their lifetimes, according to new research from two independent financial advisory firms. Their forecasts project that by 2064, today's typical Black family will have accumulated approximately 70% less wealth than a typical white family.

This gulf is driven by wage inequality as well as other factors, according to the research. “The biggest thing the private sector could do is to narrow the pay gap,” said Brent Kessel, CEO of the $3.7 billion financial advice firm Abacus Wealth Partners. Kessel coauthored the report with Kamila Elliott, president of financial advisory firm GRID 202 Partners, who in 2022 will become the first Black woman chair of the CFP Board, the largest certifying organization for financial advisers.

Their research presents a dire trajectory of how, despite social and economic progress in the past five decades, Black families still face extraordinary wealth disparity compared with white peers that compounds over a lifetime.

Starting behind

When it comes to wealth accumulation, Black individuals tend to start further behind than white peers—on account of income disparities, differences in home appreciation, mortgage interest rates, inheritance, and 401(k) balances.

Even if two couples—one white and one Black—earn bachelor’s degrees, invest identically in their 401(k)s and save the same percentage of their income, the Black family will end up with 51% less, the financial advisory forecast shows. The forecast uses probability-weighted financial assumptions, such as student loan balances and interest and home appreciation rates to project family net worth over time.

Many of the inequalities that lead to the disparity have been academically traced back to policies such as redlining, or historic incidents that destroyed wealth in the African American community, such as the burning of Black Wall Street. Incarceration has contributed not only to reduced income for Black families but also additional expenses for those families, such as phone calls and commissary expenses, Elliott notes.

“The inequity that we see—it stems from decades, if not hundreds of years, of the distribution of wealth,” says Elliott.

Addressing the gap

The median Black household holds just 13¢ for each dollar the median white family has, according to research.

At every education level, Black workers still make less than white counterparts, though the disparity does shrink in more educated fields, according to an Economic Policy Institute study cited in the report. For example, Black female doctors earn 73¢ for each white male dollar, the report shows.

Companies can play a role in eliminating these disparities, according to Elliott and Kessel. If Black employees earned the same wages as their white counterparts, that alone would narrow 59% of the wealth gap, said Kessel. Companies can also help by providing more support and development for Black employees.

“You tend to promote and develop people that look like you,” said Elliott, who added that it’s critical to not only hire Black employees but also guarantee there are people of color who are supporting, mentoring, and advocating for them. That can have a significant impact on performance, she said.

There are also steps financial advisers can recommend to help bridge the wealth gap, they said. Every individual’s situation is different, but potential contributors to building wealth could include graduating from a nonprofit university, which tends to be more affordable, as well as opening a checking account and avoiding payday loans or check-cashing services, according to the white paper. Because it’s important to start investing in low-cost funds early on, opening a retirement account and striving to save 10% of pretax income and avoid withdrawals or loans can have a significant impact. Taking out a fixed-interest-rate mortgage, rather than an adjustable or subprime loan, could also help.

“I hope that this paper helps businesses and practitioners or financial advisers to really assess how they can create solutions to address these issues,” said Elliott.