The racial wealth gap: not just an American problem

April 8, 2011

-Omar Khan is director of policy research at UK race equality think tank The Runnymede Trust. The opinions expressed are his own.-

Scholars, policy experts, advocates and members of Congress will be gathering in Washington in early April to assess the racial wealth gap in the United States, where families of colour on average own 16 cents of wealth to the white family’s dollar.

But this is not only an American problem.

Ethnic minorities in the United Kingdom also lag behind white people in accumulating wealth, and this is probably true across Europe. This disparity is bad for everyone.

In the UK, the government has collected data on ethnicity since the 1991 Census, and public authorities are required to monitor ethnicity. In contrast, in most European countries collecting data on ethnicity is illegal. We cannot precisely quantify wealth holdings elsewhere in European countries, but, by extrapolating from UK data and for reasons set forth below, we know that European ethnic minorities have fewer assets than white people on the continent.

The UK’s Department of Work and Pensions has found that 60 percent of black and Asian households have no savings at all, compared to 33 percent of white households. The UK’s first Wealth and Assets Survey in 2009 reported that while the average white household had £221,000 (roughly $350,000) in assets, Black Caribbean households had £76,000, Bangladeshi households £21,000 and Black African households £15,000.

There are a few explanations for these low levels of asset-holding. First is that ethnic minorities and migrants in the UK – and indeed in Europe – are more likely to earn low incomes. As any visitor to London, Brussels, Paris or Rome will know, African, Asian and East European migrants do many of the low-paid, low-security jobs that don’t provide access to many European benefits, and that makes it difficult to save.

A second reason for lower asset-holding is that migrants are unlikely to inherit assets – a family home or savings — in the country where they now live in Europe. And a third reason will be familiar to American readers, namely lower levels of home ownership among ethnic minorities. Only 28 percent of Black Africans, 38 percent of Bangladeshis and 49 percent of Black Caribbeans own their homes, compared to 72 percent of white British households.

Because of language difficulties, foreign qualifications and lack of access to social networks, we might expect migrants to do worse than UK-born people not only in terms of wealth accumulation, but also in terms of employment. Yet migration cannot fully explain ethnic asset inequality: in the UK, British-born ethnic minority men are more likely to be unemployed than their migrant-born fathers, meaning they too cannot build assets.

There are plenty of reasons we should we care about wealth disparity.

Children of parents who don’t have assets struggle to access higher education or training, and often have to take the first job on offer. This gives them less freedom and opportunity, but is also bad for economic efficiency. In the UK and Europe we are wasting the skills of too many talented ethnic minorities and migrants, especially those with qualifications from abroad. Think of this the next time you jump into a taxi driven by a surgeon or astrophysicist: many of them didn’t have the resources or wealth to spend time cultivating the networks necessary to take advantage of their foreign qualifications.

Holding assets can also be good for social cohesion, or integration. Too much public policy and discourse on migrants in Europe asks why they don’t do more to integrate into ‘host’ societies. An equally important question is how European countries could provide migrants with better opportunities to integrate – whether through language training, employment opportunities or migration policy – and eventually build wealth.

Another piece of the puzzle is asset-building policy, such as Child Trust Fund (CTF) in the UK that was cut as part of the government’s austerity budget. This fund, provided to every UK-born child, gave many of the most excluded parents, especially migrant mothers, their first experience of a formal savings product. At age 18, each child would get access to their CTF, an asset that might give them a better start in employment, training or education. Asset-building policies like this not only enhance economic efficiency and equal opportunity, but also give migrants a stake in our societies and encourage greater public participation. That’s good for Europe’s minorities — and for Europe.

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