Education Fails to Solve Income and Wealth Gap

Growing up, my mom instilled strong values around education in my life. She saw education as a tool for economic mobility, particularly as she raised three black girls in Little Rock, Arkansas during the 1980s & 1990s, when the city was considered the murder capital of America. She drilled into our heads that we would be self-sufficient, educated, professional black women. There was no question about college: we didn’t have a choice, we were going to college.

Observing the world around me, I have taken note of a significant discrepancy: Black and Hispanic individuals with a 4-year degree are not protected by their higher education.  The Federal Reserve Bank of St. Louis’s Center for Household Financial Stability recently published a report on “Why Didn’t Higher Education Protect Hispanic and Black Wealth.”

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Table 1 – Median Family Income in 2013. Source: Federal Reserve Bank of St. Louis

Median Family Income in 2013 Points.

  • Four-year Asian college graduates ($92,931) make $51,457 more than White non-college graduates ($41,474).
  • Four-year Black college graduates ($52,147) make $10,673 more than White non-college graduates ($41,474).
  • Four-year Hispanic college graduates ($68,379) make $26,905 more than than White non-college graduates ($41,474).
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Table 2 – Median Family Net Worth in 2013. Source: Federal Reserve Bank of St. Louis

Median Family Net Worth in 2013 Points.

  • Four-year Asian college graduates ($250,637) have $169,945 more in net worth than White non-college graduates ($80,692).
  • Four-year Black college graduates ($32,780) have $47,912 less in net worth than White non-college graduates ($80,692).
  • Four-year Hispanic college graduates ($49,606) have $31,356 less in net worth than White non-college graduates ($80,692).

Asian American incomes and net worths mirror that of White Americans, making education an economic mobility tool. However, for Blacks and Hispanics, education does not have a significant impact on economic empowerment. Increasing the college rates of Blacks and Hispanics, currently at 20% and 13% respectively for four-year college degrees, will help only slightly. Discriminatory hiring practices, higher risk of career termination, predatory mortgage lending and redlining, 4-year college selection, and lower net worths are potential reasons for the discrepancies.

I wouldn’t trade my Bowdoin education for anything, as my experience was a transformational one that played a part in the person that I am today. The solution is not that all Blacks and Hispanics stop attending 4-year college. In order to address the income and net worth gaps that minimize Black and Hispanic economic mobility, these groups should:

  • Understand the basics of personal finance. My “1.0 series” on personal finance started last week with this post on budgeting. Get a financial advisor to provide guidance on the how to build out your plan.
  • Know your rights. Between issues at work and applying for a mortgage, there are a number of opportunities for Blacks and Latinos to be victims of discriminatory practices. When in doubt, seek an attorney for advice.
  • Invest in you and your family for the long-term. Home ownership, retirement, and small business ownership are the primary ways to build wealth. Saving for your children’s college will ensure optimal school options, which also plays a part in the post-college career opportunities, networks, and salaries.

 

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4 thoughts on “Education Fails to Solve Income and Wealth Gap

  1. My hypothesis is that part of it may be due to the type of degrees. I’d say take a closer look at the percentage of students pursuing STEM and finance focused programs in each group. I think it will expose deeper issues. Not all degrees are created equal. The lack of diversity in the lucrative tech sector is one example of where this divide plays out.

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    • School choice plays a part too. Unfortunately, not all schools are created alike. Schools have statistics on their success rates (graduation rates, amount of time post graduation to workforce, what types of industries are best represented, etc) based on a number of factors.

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  2. I agree, We need to look at degrees and what school do they went too. This article is incomplete. You can’t make any conclusion based on those stats. Art, history degree should be throw out of window.
    Asians normally go STEM degrees and famous universities.

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    • Fair points. I think that you can still draw conclusions because they used median (not mean) numbers. The argument is that race overrules everything else. Your example about being Asian is because of race: the basis of my argument. Growing up, teachers would try to discourage me from math, amongst other things, and this was solely because I was a black girl; this sentiment has been consistent, although less extreme, in my undergraduate and graduate studies and I have degrees that companies value highly from top institutions. Degree is less relevant to me; I know art history majors that are bankers and former colleagues.

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