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Can ‘baby bonds’ help the U.S. close its staggering racial wealth gap?

Whites in the U.S. have much greater household and individual wealth than blacks and other minorities. In fact, the typical black household has about 10 cents for every dollar of wealth in a typical white household. Some economists and politicians believe this racial wealth disparity will continue to widen unless it's addressed. As Paul Solman reports, one idea for closing it begins at birth.

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  • Judy Woodruff:

    The problem of inequality has gotten much attention since the economy began recovering from the financial crisis. Wages have grown slowly, and it took years for some to recover losses from the housing crash.

    But many have not. And, increasingly, there's concern about a racial wealth gap.

    That is the focus of our Making Sense report tonight from economics correspondent Paul Solman.

  • Paul Solman:

    Thirty-two-year-old Katrina Beasley works for the federal government in Washington, good job, bright future. So she's taking the next step in growing up, trying to buy a few rooms of her own.

    But, in D.C., she says:

  • Katrina Beasley:

    Even for something on average 600 to 700 square feet, will run you about 400 grand.

  • Paul Solman:

    Some sum for the grandchild of Mississippi sharecroppers.

  • Katrina Beasley:

    They didn't move into a house with a bathroom until about late the '70s, early '80s.

  • Paul Solman:

    Her parents weren't that poor, but:

  • Katrina Beasley:

    We didn't go on vacations, really. We didn't go out to eat.

  • Paul Solman:

    Not even a fast food place?

  • Katrina Beasley:

    We may have gotten a treat with certain things, junk food, but it would be the dollar store brand. So, it wasn't quite Oreos.

    (LAUGHTER)

    It was like O's.

    (LAUGHTER)

  • Paul Solman:

    The family frugality rubbed off. Beasley graduated from the University of Texas debt-free, but it took her seven years, because she was also working full-time at a spa.

  • Katrina Beasley:

    I would wrap people up like mummies.

  • Paul Solman:

    Wrap them in what?

  • Katrina Beasley:

    In Ace bandages soaked in a mineral solution. Reduce cellulite. Lose instant inches.

    (LAUGHTER)

    I'm going to sell you, so you can get a body wrap, too.

    (LAUGHTER)

  • Paul Solman:

    But Beasley's economic lot is hardly atypical, says economist Darrick Hamilton. Just look at the black-white asset abyss.

  • Darrick Hamilton:

    The racial wealth gap is tremendous. The typical black household has about 10 cents for every dollar of a typical White household. The typical black household where the head graduated from college has less wealth than a white household where the head dropped out of high school.

  • Paul Solman:

    Really?

  • Darrick Hamilton:

    Really. Income, education, occupation, none of it explains the racial wealth gap.

  • Paul Solman:

    And, sure enough, according to the Federal Reserve, the typical white family's net worth is $171,000, the typical black family's, $17,600. And that 10-1 disparity pales next to what Hamilton found in a study for the Boston Fed.

  • Darrick Hamilton:

    We had the shocking result that the typical African-American household had $8 in net wealth in Boston.

  • Paul Solman:

    Eight dollars. You mean that's the net worth, if you take all the assets and match them against all the debts?

  • Darrick Hamilton:

    That's right, and that's inclusive of homeownership. So if there's ever a shock or any emergency or shortfall in your income, you virtually have no resources to deal with your emergency situation.

  • Regine Jackson:

    Many of the people I interviewed were highly educated.

  • Paul Solman:

    Sociologist Regine Jackson worked with Hamilton in Boston.

  • Regine Jackson:

    They were in professional occupations. Many were homeowners.

  • Paul Solman:

    But they had to borrow to learn, borrow to buy, use what they saved to service the loans.

  • Darrick Hamilton:

    Basically, when it comes to economic security, wealth is both the beginning and the end.

  • Paul Solman:

    Now, it so happens Darrick Hamilton has a policy proposal for building called baby bonds — details in a bit — that would provide a grubstake at birth for all Americans, yet help close the wealth gap.

  • Reese Everson:

    Life comes at everyone and in every type of way.

  • Paul Solman:

    And many of us face financial setbacks, says Reese Everson, but:

  • Reese Everson:

    The experiences that have systematically built up in the lives of African-Americans make these situations that much more insurmountable.

  • Paul Solman:

    Everson, an author with a law degree, would seem to have the human capital it takes to build wealth. And she came from a family that saved and invested in real estate.

  • Reese Everson:

    My grandfather worked at Chrysler for 40 years. He was one of the first people in his community to have a home built in the '70s from the ground up, paid it off before it was even done being built.

  • Paul Solman:

    She inherited that house. So, she's set, right?

  • Reese Everson:

    One would think so. But if my grandparents were white and they had gone out to West Bloomfield, Michigan, instead of in Detroit, Michigan, the value of their property would have probably been three or four times higher. My grandfather simply wasn't able to buy in those areas.

  • Paul Solman:

    Literally, no, you cannot buy here?

  • Reese Everson:

    Absolutely.

  • Paul Solman:

    Meanwhile, white flight hammered the value of Everson's legacy real estate.

  • Reese Everson:

    When white people moved from the city into the suburbs, the property values dropped.

  • Paul Solman:

    And, if that weren't enough, after her grandfather died:

  • Reese Everson:

    My grandmother took out a reverse mortgage in 2005.

    Where did she learn about the reverse mortgage? At her church.

  • Paul Solman:

    Where Wells Fargo, as employees later confirmed, was pushing the loans to parishioners.

  • Reese Everson:

    These 60-year-old women didn't realize that, you know, if you do borrow $60,000, in just 10 short years, the interest and the fees are going to be $140,000. And when you pass away, and the bank does come to collect, they're going to take all of the generational wealth that you wanted to pass down to your children.

    And that's what happened to me personally.

  • Paul Solman:

    In Detroit, and, sociologists Regine Jackson and Adria Welcher found, in Boston and Atlanta, too.

  • Regine Jackson:

    Both our research took place after the housing crisis in 2008. Black communities and homeowners really felt and experienced that economic crisis. The stakes were much higher and the effects were much longer-lasting.

  • Paul Solman:

    Housing values plummeted, meaning less wealth, less investment, less opportunity.

  • Adria Welcher:

    Many of the suburbs that are now predominantly black, the values of the homes, and just the community resources, the green spaces, the libraries, they are — they're awful, in comparison to white neighborhoods.

  • Paul Solman:

    Small wonder Katrina Beasley is an anomaly in the D.C. condo market, even though she will only be able to buy if help from a nonprofit comes through.

    The condo's sales agent, Kevin Ward.

  • Kevin Ward:

    Oftentimes, a white person will have a lot more money to put down as a down payment.

  • Paul Solman:

    Where's their money coming from?

  • Kevin Ward:

    Quite often, it's coming from their parents. And to be perfectly honest, it's the same way I bought my first house. My father helped me with the down payment.

  • Hector Sepulveda:

    And the down payment help that the white people receive…

  • Paul Solman:

    Realtor Hector Sepulveda.

  • Hector Sepulveda:

    Sometimes, maybe $100,000, vs. the African-American, a few thousand here and there, but mostly — mostly none.

  • Darrick Hamilton:

    So I'm going to make the case that the United States government should create a trust account for every newborn.

  • Paul Solman:

    OK, it's time to explain baby bonds, an idea pushed early by economist Hamilton that's now part of Democrat Cory Booker's presidential platform.

  • Sen. Cory Booker, D-N.J.:

    Everybody should have a fair shot at the American dream, and this is one piece of legislation that would virtually eliminate the wealth gap.

  • Paul Solman:

    And how would it work?

  • Darrick Hamilton:

    The federal government would seed the accounts at birth. Those born into the least affluent families would be seeded with an account upwards to $50,000 to $60,000. Those born into the more affluent families, they would get a nominal account of somewhere to about $500.

  • Paul Solman:

    Which then is invested how?

  • Darrick Hamilton:

    Well, they would be held in federal trusts. So, basically, baby bonds is trust accounts for everyone.

  • Paul Solman:

    Race-neutral accounts, but race-conscious, in that poorer babies, being disproportionately black, would benefit most. The cost, enormous, $100 billion a year, Hamilton estimates.

    In this political environment, isn't an idea like this somewhere between pie in the sky and preposterous?

  • Darrick Hamilton:

    I would say no. What we're talking about is providing Social Security over the life course.

  • Paul Solman:

    But Social Security, we, recipients of Social Security, paid for, at least in part, in large part, ourselves.

  • Darrick Hamilton:

    This is not a handout. You have to use it as something that is asset-enhancing, a business, a home, or debt-free college education.

  • Paul Solman:

    Home down payment? Debt-free college? Sign me up, said Katrina Beasley.

  • Katrina Beasley:

    It would have been helpful for me and everybody that I know.

  • Paul Solman:

    To economist Hamilton, the racial wealth gap will only widen if it isn't addressed.

  • Darrick Hamilton:

    The source of inequality is, some young adults have access to some capital that allows them to purchase an asset that will appreciate over their life.

  • Paul Solman:

    While so many others, like Katrina Beasley and Reese Everson, don't, through no fault of their own.

    For the "PBS NewsHour," business and economics correspondent Paul Solman, reporting from Washington, D.C.

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