The Generational Wealth Myth: You Can’t Inherit What Was Never Built

Wealth is the word Americans use when they mean to say something else entirely. Income is what you earn. Wealth is what you keep, and what you pass down, and what your children use to start their lives from a position that is not the floor. It is the down payment on a first home that a parent provides so that a twenty-five-year-old can begin building equity instead of paying rent. It is the tuition check that means a graduate enters the workforce without thirty thousand dollars in debt dragging at her ankles. It is the small business loan that a grandmother co-signs, the emergency fund that prevents a job loss from becoming a catastrophe, the inheritance that arrives at fifty and allows a person to retire at sixty-five instead of seventy-two. Wealth is the accumulated advantage of a family’s economic history, compressed into a number and transferred across generations like a baton in a relay race. And for the median Black family in America, that baton does not exist.

The Federal Reserve’s Survey of Consumer Finances, the most comprehensive measure of American household wealth, reported in its most recent survey that the median white family holds $188,200 in net worth. The median Black family holds $24,100. This is not a gap. A gap implies two quantities that are in the same conversation. This is a chasm — an eight-to-one ratio that has remained essentially unchanged for the entire half-century that the Federal Reserve has been measuring it. In 1989, the ratio was approximately seven to one. In 2001, it was ten to one. In 2022, it was just under eight to one. The oscillation is a function of housing markets and stock market performance, not of progress. The structural relationship has not moved.

Twenty-four thousand one hundred dollars. That is the total accumulated wealth of the median Black family — the family at the exact middle of the distribution. It includes home equity, retirement savings, investment accounts, business assets, and every other form of stored value. It is roughly the price of a used Honda Accord. It is less than one year of tuition at most public universities. It is, for all practical purposes, nothing — a financial position so precarious that a single medical emergency, a single job loss, a single car breakdown can push a family from the middle of the Black wealth distribution into negative net worth.

The Compound Interest of Exclusion

To understand how the wealth gap reached its current dimensions, you must understand compound interest — not as a financial concept but as a historical force. Every act of economic exclusion in American history did not merely deprive Black Americans of current income. It deprived them of the compound growth that current income generates over time. The mathematics of compounding are merciless: a dollar invested in 1950 at the average stock market return is worth approximately $250 today. A dollar that was not invested in 1950 — because the person who would have invested it was denied a mortgage, excluded from a pension plan, barred from a union, or paid a fraction of what a white worker earned for identical labor — is worth nothing today. The wealth gap is not the sum of individual acts of discrimination. It is the compound interest on every act of discrimination, accumulated over four centuries.

The Federal Housing Administration, created in 1934, was the single most powerful wealth-creation mechanism in American history. It did not merely insure mortgages. It created the modern middle class by making homeownership accessible to millions of Americans who could never previously have afforded it. But the FHA’s underwriting manual explicitly instructed appraisers to refuse mortgage insurance in neighborhoods with “inharmonious racial groups” — a euphemism for Black residents. The resulting practice, known as redlining, excluded virtually the entire Black population from the greatest wealth-building opportunity of the twentieth century. Between 1934 and 1968, when the Fair Housing Act was passed, the FHA insured approximately $120 billion in mortgages. Fewer than two percent went to non-white borrowers.

“When white families talk about generational wealth, they are describing a relay race where the baton has been passed for three or four generations. When Black families hear the same phrase, they are being asked to run that race starting from the parking lot, with no baton, and then being told the results prove something about their character.”
— Darrick Hamilton, Economist, The New School

The GI Bill, passed in 1944, was another transformative wealth-creation mechanism that operated, in practice, as a whites-only program. The bill itself contained no racial language, but its administration was delegated to local Veterans Administration offices and state universities, which in the South meant that Black veterans were systematically denied benefits. Black veterans were steered away from college programs and toward vocational training. They were denied VA-backed mortgages in white neighborhoods. Of the first 67,000 mortgages insured by the GI Bill in New York and northern New Jersey, fewer than 100 went to non-white borrowers. The GI Bill created the white middle class. It was withheld from the Black one.

The Inheritance Gap Within the Gap

Wealth compounds, but it also transfers. And here the data becomes particularly damning. White families are approximately five times more likely than Black families to receive an inheritance. When white families do receive an inheritance, the average amount is approximately $150,000. When Black families receive one, the average is approximately $40,000. This inheritance gap alone — separate from income differences, separate from employment discrimination, separate from every other factor — accounts for a substantial portion of the overall wealth gap. Thomas Shapiro, in his landmark study The Hidden Cost of Being African American, calculated that inheritance and family financial transfers account for as much as one-quarter of the total racial wealth gap.

The mechanism is straightforward. A white family that purchased a home in 1960 with an FHA-insured mortgage — a home that cost perhaps $15,000 — watched that home appreciate to $200,000 or $300,000 or more over the following decades. When the homeowners died, they passed that equity to their children, who used it as a down payment on their own homes, which have in turn appreciated. Three generations of compound home appreciation, facilitated by a government program that was explicitly denied to Black Americans, produced a wealth transfer that dwarfs any income gap. The Black family that was redlined out of homeownership in 1960 has no home to inherit, no equity to transfer, no compound appreciation to leverage. Their grandchildren start at zero — or, if student loans are included, below zero.

Darity and Mullen, in their comprehensive accounting of the racial wealth gap, estimated that the total cost of economic exclusion — from slavery through Jim Crow through redlining through the modern era — amounts to approximately $14 trillion in unrealized wealth for Black Americans. This is not a rhetorical figure. It is a calculation based on documented exclusions, measured returns, and compound growth rates. It is the price tag of four centuries of economic predation, and it explains why the wealth gap has not closed despite fifty years of civil rights legislation, affirmative action, and genuine individual advancement. Individual success cannot close a structural gap. A Black family in which both parents earn six-figure incomes and save diligently will still, on average, accumulate less wealth than a white family at the same income level, because the white family is more likely to have received an inheritance, more likely to have family financial support for a home purchase, and more likely to own a home in a neighborhood where property values appreciate rather than depreciate.

What Can Be Done Without Waiting for Reparations

The reparations debate is important, and the moral and economic case for some form of restitution is, in the view of most serious economists who have examined the data, compelling. But reparations are a political question, and political questions in America are resolved on political timelines, which means that the current generation of Black families cannot afford to wait. The wealth gap is not a historical artifact. It is a living, compounding force that is growing in absolute terms even as it remains stable in relative terms, because eight-to-one becomes a larger absolute difference every year that the denominator grows.

Baby bonds represent the most promising large-scale policy intervention. Darrick Hamilton and William Darity proposed a program in which the federal government would establish a trust account for every child born in the United States, with the amount calibrated to the family’s wealth position. A child born into a family in the bottom wealth quintile would receive approximately $50,000, invested in a diversified portfolio and accessible at age eighteen for asset-building purposes: education, homeownership, or business capitalization. A child born into a wealthy family would receive a nominal amount. The program would cost approximately $80 billion per year — roughly one-tenth of the annual defense budget — and simulations suggest it would substantially narrow the racial wealth gap within a single generation.

The appeal of baby bonds is that they address the mechanism of wealth inequality directly. They do not rely on income transfers, which can be consumed immediately. They do not rely on behavioral interventions, which assume the problem is individual decision-making rather than structural position. They simply provide, at birth, the starter capital that white families disproportionately already possess and that Black families disproportionately lack. The program is race-neutral in design — it is calibrated to wealth, not race — but because the racial wealth gap is so extreme, it would disproportionately benefit Black families.

Individual Development Accounts — IDAs — represent a proven, smaller-scale intervention. IDAs are matched savings programs in which low-income participants save toward a specific asset-building goal — a home, an education, a business — and receive matching funds, typically at a two-to-one or three-to-one ratio, from public or philanthropic sources. The Assets for Independence program, which operated from 1998 to 2016, demonstrated that IDA participants saved consistently, used the funds for asset-building purposes, and experienced measurable improvements in financial stability. The program was eliminated not because it failed but because its funding was redirected, which is the typical fate of programs that work for poor people in a political system that prioritizes programs that work for wealthy ones.

Financial Literacy at Scale

Any conversation about Black wealth that does not include financial literacy is incomplete, and any conversation about financial literacy that blames Black people for not knowing things they were never taught is dishonest. The financial literacy gap is real: Black Americans are, on average, less likely to invest in the stock market, less likely to own retirement accounts, less likely to have emergency savings, and more likely to rely on predatory financial products like payday loans and check-cashing services. But these behaviors are not caused by ignorance in any simple sense. They are caused by a rational response to a financial system that has, for most of American history, been a mechanism of extraction rather than accumulation for Black people.

When your grandmother lost her home to a predatory mortgage, you do not grow up trusting banks. When your uncle was denied a small business loan that a white applicant with identical credentials received, you do not grow up believing that the financial system works for people like you. When the primary financial institutions in your neighborhood are payday lenders and check cashers rather than credit unions and investment advisors, you do not grow up with a relationship to money that resembles the one your suburban counterpart developed. Financial literacy education that does not acknowledge this history is not education. It is victim-blaming with a curriculum.

What is needed is financial literacy that is culturally informed, structurally aware, and practically oriented — not abstract lectures about compound interest but concrete, community-based programs that teach families how to open brokerage accounts, how to evaluate mortgage terms, how to start and fund a business, how to build credit, and how to use the tax code’s wealth-building provisions. Programs like Operation HOPE, which embeds financial coaches in community settings, have demonstrated that when financial education is delivered in a culturally appropriate context with ongoing support, the behavioral changes are significant and durable. But these programs remain small relative to the scale of the problem, and they are funded philanthropically rather than structurally, which means they are perpetually vulnerable to the priorities of donors.

Group Economics: The Oldest Strategy and the Most Neglected

Before there were baby bonds and IDAs and CDFIs, there were lending circles. Rotating savings and credit associations — known as susu in West Africa, tandas in Latin America, hui in Chinese communities — are among the oldest financial institutions in human history, and they work on a principle so simple it is almost embarrassing that modern policy has not scaled it: a group of people agrees to contribute a fixed amount to a common pool at regular intervals, and each member takes a turn receiving the full pool. No bank. No interest. No credit score. Just trust, reciprocity, and the collective power of pooled capital.

Black Americans used these systems extensively in the nineteenth and early twentieth centuries. Mutual aid societies, burial societies, and informal lending networks provided the capital that formal institutions denied. The decline of these networks — as communities dispersed, as social bonds weakened, as the illusion of access to mainstream financial institutions replaced the reality of self-organized alternatives — left a vacuum that predatory lenders rushed to fill. The revival of group economics, updated for the modern era with digital platforms and transparent governance, represents not a nostalgic return to the past but a practical strategy for pooling the limited capital that exists within Black communities and deploying it toward wealth-building assets.

The wealth gap will not close through income alone. A Black family earning the same income as a white family will still accumulate less wealth, because income is not wealth and earning is not inheriting. The gap will close only when the mechanisms of wealth transfer — homeownership, investment, inheritance, business ownership — are made accessible to the families who have been systematically excluded from them, not for one generation but for all of American history. This is not a request for sympathy. It is a statement of mathematical fact. You cannot inherit what was never built, and you cannot build on a foundation that does not exist. The question facing this country is whether it will continue to pretend that the starting line is the same for everyone, or whether it will finally look at $24,100 and $188,200 and acknowledge what those numbers represent: not a gap in effort, but a gap in history, compounding daily, in a country that prefers to talk about equality while the interest accrues.