Between 1992 and 2022, both white and Black families in the United States doubled their median household wealth—a clear sign of national economic growth. However, in those same 30 years, the wealth gap between Black and white families also doubled.

This imbalance in wealth building reflects a crucial fact about the country’s state of financial inequality: Wealth begets wealth.

When passed down from generation to generation, wealth can unlock countless opportunities from an early age—the ability to start a business, attend school without debt, and buy a home. Wealth can also insulate a person against acute financial shocks and long-term financial instability. Historically, the benefits of wealth have disproportionately helped white families, as Black families continue to contend with the lasting effects of structural racism, which has limited wealth accumulation and contributed to wealth extraction.

The relative lack of wealth can make it difficult for Black Americans to move into and stay in the middle class. Leaders, primarily at the state and local levels, have a significant role in improving the economic mobility of future generations. A policy agenda that prioritizes inclusive economic growth and supports effective intergenerational wealth-building for Black families can lead to greater shared prosperity.

How do early conditions shape long-term wealth?

From birth, how much access a person has to quality resources can shape the direction of their life. Families with greater financial resources—including earnings and assets like a home or retirement accounts—are usually better able to provide a solid foundation for their children.

These differences are not a matter of personal desire but the direct result of access to opportunity. Urban research finds that Black families intend to leave their children a sizeable inheritance at the same rate as white families. However, Black children have a lower likelihood of actually receiving an inheritance, as Black households face greater challenges to sustaining wealth through their lifetime and often lack a will or estate plan that can efficiently direct wealth toward family members.

Ensuring that Black families can help their children build wealth throughout their lifetime necessitates interventions to increase access to opportunity, especially in the following domains:

• Early-life wealth-building accounts. Also called baby bonds, early-life wealth-building accounts were originally conceptualized to help close racial wealth gaps by providing all children with financial resources at birth. When designed intentionally, these accounts can help Black children immediately build wealth (PDF), translating to greater opportunity later in life.
• Homeownership. Homeownership is the most effective and widespread way for families to build wealth in the US, yet Black families own homes at rates far lower than white families. Greater rates of homeownership require intentional efforts to expand access, sustainability, and preservation. These efforts can look like helping Black families secure sustainable loans, preventing foreclosures among homeowners, and promoting estate planning to protect against heirs’ property risks.
• Small business. Homeownership isn’t a silver bullet, however, and for some, business equity makes up a significant portion of household wealth. Currently, Black households hold less business equity than white households, and Black-owned businesses have fewer employees and less revenue. Although business ownership can be risky, Urban research shows that supporting small businesses at the city level can drive community-level economic growth and hiring.
• Retirement. Despite holding lower retirement balances than white families, Black families are more dependent on retirement accounts, as they make up a greater share of their financial assets. As a result, market volatility can have outsized effects on Black families’ end-of-life planning and circumstances. State and local policymakers can partner with employers to design savings programs that expand access to secure retirement accounts, including for middle-class workers like teachers and firefighters.
• Life insurance. Black families are more likely to have cash-value life insurance than other racial groups for several reasons, including a fear of not providing generational wealth to their children. However, the life insurance policies Black families hold have the lowest median value, with the amounts unlikely to cover an emergency. Policymakers can create group insurance plans or encourage employer-sponsored plans that expand access to other types of life insurance policies.

How community leaders can narrow the racial wealth gap

Centuries of compounding wealth have created and continue to widen the wealth gap between Black and white families in the US. Amid the current moment of rising prices and spreading financial precarity, this gap could worsen as the median Black American family is not as well-positioned to weather a financial crisis.

Although investments across these domains will help Black Americans establish and preserve wealth, most of these assets are illiquid, meaning accessing necessary funds in a crisis may take time. In addition to growing Black wealth, a diversified portfolio can better protect against short-term shocks that can amplify long-term wealth differences, with recessions, climate disasters, and new technologies already affecting Black families’ financial opportunities more acutely than white families.

As such, it’s crucial for state and local leaders to pursue economic growth policies that support the wealth-building potential of all residents and address inequities where they exist. In the short term, more data and tools that can translate research into action can help policymakers identify the places most in need and the policy levers available to them.

Long-term, states and localities must continue to support the Black financial institutions that serve Black families. Black-led financial institutions (such as banks and credit unions), for example, provide a critical supply of capital to Black communities and help Black families overcome long-held distrust of financial institutions. These institutions have shown an ability to boost Black families’ wealth-building amid financial crises, but they need additional support to maintain their effectiveness.

Some of these strategies would benefit all households, while others could be targeted to specific populations. Although many of the most effective solutions to narrow the racial wealth gap are targeted, it’s important that state and local leaders consider any potential risks those policies could involve, given the evolving political landscape.

Ultimately, partnership across research, policy, and community organizations through technical assistance and advising can create more effective opportunities for households to build wealth. This way, state and local leaders can ensure that Black families, and all Americans, have the opportunity to build wealth and set the foundation for the next generation.