There is no “chicken or egg” conundrum when considering the starting point of economic activity for households in a so-called capitalist US economy. One must begin with money income to acquire life’s essentials: Food, clothing, and shelter.
It is common knowledge that Black Americans experience an income gap with the remainder of the nation. Mean Black household income was 67.8 percent of that of the nation in 2019.(1) Given an income gap, all else being equal, one should expect a wealth gap—unless there is an inverse consumption gap.
But before exploring a potential consumption gap, for completeness we consider the Black-to-nation wealth gap. Black American households reflected 19.03 percent of the mean wealth (net worth) held by the nation’s households in 2019.(2) We recognize that the gap results not only from the income gap and differences in consumption between Black American and non-Black American households in the nation, but also from a variety of factors—including inheritances and other socioeconomically-linked factors.
On the consumption front, one method for Black Americans to offset the wealth gap—at least partially—would be to save and invest more of existing income. BlackEconomics.org has discussed this issue before. Therefore, we go back to a key source for assessing Black American consumption versus that of the rest of the nation. Specifically, we use Consumer Expenditure Survey statistics.(3)
Table 1 (next page) presents a statistical analysis of mean Black American versus non-Black American consumption for 2019. Selected expenditure categories are reflected in the table, and expenditure percentages are computed as follows:
Where “i” is for the ith expenditure category, B is for Black, and NB is for Non-Black.
Table 1 confirms the about 33 percent Black American household income gap already mentioned and indicated by Census Bureau data (on an income before tax basis). Also, the table shows that expenditure wise, Black Americans expend a 2.23 larger percentage of household income than do non-Black Americans. This higher level of spending relative to available income is mainly accounted for by: (1) “Housing,” specifically “Rented dwellings;” (2) “Utilities, fuels, and public services;” (3) “Apparel;” and (4) “Transportation.”
Two of the aforementioned expenditure categories are most concerning and warrant further analysis: “Rented dwellings” and “Apparel.” For these two categories, Black Americans outspent Non-Black Americans percentage-wise and level-wise; i.e., in dollar terms.
For “Apparel,” the major culprit is “Footwear;” Black Americans expended $625 compared with $388 for non-Black Americans. Clearly, we should reconsider our expenditures on shoes and decide to spend less if we desire to increase our saving and reduce the wealth gap.
“Rental dwellings” is of interest because Black Americans expended a mean of $5,889 compared with $4,207 for non-Blacks for rental housing. Anecdotally, at least four possible reasons for this outcome come to mind: (1) Black Americans, who are unable to own their housing (for whatever reasons) but who have relatively high levels of income, occupy highly priced rental units; (2) Non-Black American renters generally have low income levels and rent relatively low-priced housing; (3) Related to item “1,” Black Americans reside disproportionately in urban areas where rental housing prices are higher than in suburban or rural areas where more non-Blacks reside and rent; and (4) owners of rental units price discriminate against Black American versus non-Black American tenants. It is somewhat surprising that Black renters, on a mean basis, expend almost $1,700 more per year on rental housing than do non-Blacks. Rental housing appears to be one category ripe for identifying saving that might be used to help close the wealth gap.
Research for this analysis helped clarify that, although we are concerned here with statistics for 2019, statistics on US racial/ethnic differences go back to 1967 for household income, to 1983 for net worth or wealth, and to 1973 for consumer expenditures. To our knowledge these differences have not improved substantially (have even expanded in certain cases) over the past 40 years. Consequently, Black American should ask ourselves the following questions: (1) Should we expect these differences to reduce? (2) If not, then why not? and (3) Should not Black Americans take different (than what we have been doing) and dramatic, even radical, action to transform these outcomes in our favor as opposed to awaiting others’ action?
1 US Department of Commerce, Bureau of the Census. “Table H-5. Race and Hispanic Origin of Householder—Households by Median and Mean Income.” Historical Income Tables: Households. https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-households.html (Ret. 033023). We adopt a “mean” not “median” measure and the year 2019 for consistency of analysis.
2 Neil Bhutta et al (2020). “Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances.” Federal Reserve Bulletin: Vol. 106, No. 5. https://www.federalreserve.gov/publications/files/scf20.pdf (Ret. 033023).
3 US Department of Labor, Bureau of Labor Statistics (2019). “Table 2100. Race of reference person: Annual expenditure means, shares, standard errors, and coefficients of variation.” Consumer Expenditure Survey. https://www.bls.gov/cex/tables/calendar-year/mean-item-share-average-standard-error.htm (Ret. 032823).