How differences in household debt can contribute to the race wealth gap

A smaller percentage of Black and Hispanic households hold debt that builds wealth, such as a mortgage and higher percentages of unsecured debt such as credit cards, according to 2019 Census data.

In 2019, 75% percent of US households had household debt.

But not all household debts are the same. Some household debts, such as medical bills or credit card debt, do not gain value over time. It is a bill that needs to be paid, a cost, and not an asset. But a mortgage or a business loan has the potential to add generational wealth to a household.

Breaking down the data can show how differences in household debt can contribute to the wealth gap between race or ethnicity groups in the US.

Black and Hispanic households have a disproportionately lower share of home debt, such as a mortgage.

The overall share of households with home debt is 36.6%. About 39% of white households, including those of Hispanic/Latino ethnicity, owned home debt, compared with 24% of Black households. Similarly, about 29% of Hispanic/Latino households have home debt.

Home debt is known to be a driver of generational wealth.

Both groups were historically kept from taking on home debt due to now illegal practices such as redlining. The Justice Department defines redlining as an illegal practice in which lenders avoid providing services to individuals living in communities of color because of the race or national origin of the people who live in those communities.

On top of that, Black households have lower shares of secured debt in general. Secured debt, such as home, business, or vehicle debt, all require collateral in order to have it. And most secured debt provides the debtor with an asset while the debt is being paid off.

White households had the highest share of secured debt in 2019. Fifty-six percent of white households own some combination of home, business, or vehicle debt. Black households have the lowest share, with 44.6% of households owning secured debt.

These differences are part of the reason why white households own 86% of wealth in the US while being 60% of the population overall.

The 2008 housing crash cut into the percent of households with home debt, but the impact wasn’t felt equally.

From 2000 to 2010 — the period covering the 2008 housing crash — the share of Black households with home debt dropped by about three percentage points, the biggest drop of any race or ethnicity group.

The share of Black households with home debt decreased by about another five percentage points between 2010 and 2019. Across all racial and ethnic groups, the share of households owning home debt decreased by about five percentage points since 2010.

Unsecured debt, such as credit card debt, is more common in Black and Hispanic households.

At the same time, Black and Hispanic households have a higher share of credit card and medical debt compared with the country overall.

These unsecured forms of debt do not require assets to acquire, typically have higher interest rates, and do not build value over time.

Black households also had the highest share of student loans compared with the national share in 2019. About 27% of Black households had student loans, compared with about 21% of all households.

Black, non-Hispanic students also have the highest median student loan debt compared with other groups.

What stands out about household debt for other race or ethnic groups?

Asian households have the highest share of home debt compared with others but also a disproportionally higher share of business and unsecured credit card debt. They also have lower shares of medical debt, student loans, credit card debt, and vehicle debt, compared with the overall share.

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