Racial Wealth Gap vs. Racial Income Gap: Why the Difference Matters

Adam Tolliver, CFP®, ChFC®
4 min readApr 13, 2021


Understanding the differences between the two helps to highlight why both must be addressed, simultaneously.

The racial wealth gap and the racial income gap are two distinct, yet deeply related issues. When discussing economic disparity, it can be easy to lump them together or discuss them as if they’re interchangeable, so this is an attempt at explaining from a financial advisor’s perspective, why the distinction between these macro issues matters so much on a family and individual level. Namely, because it impacts how we should approach resolving these issues and the importance of fighting the battle on both fronts. As we discuss the two, it may help to contextualize why even high-income-earning Black Families tend to experience less success in sustaining and building on their wealth from one generation to the next. We can start by defining each one individually, then we’ll touch on similarities, differences, and how they impact one another.

The racial wealth gap measures the difference in accumulated or held wealth between races, as measured by household or family. It is usually discussed by comparing the average or median net worth per household or family. In financial planning, the racial wealth gap speaks to a family’s balance sheet, which keeps track of assets (what you own) and liabilities (what you owe). The racial income gap measures the difference in earned income between races and is often communicated by individual annual income, hourly wage, or tiers of income from highest to lowest earned across races.

I will discuss these macro issues in the context of personal financial planning because this is the lens through which I am able to observe their impact on decision-making for individuals and families the most. As financial planners, we typically measure an individual’s income on their cash flow statement and/or a budget spreadsheet. Financial goals can be funded through either cash flow (income), existing assets (wealth), or a combination of the two. In any scenario where either of those sources is limited, so are the options and opportunities for planning. When comparing the two, there’s a sort of chicken and egg conundrum because both are leading and lagging indicators. Pre-existing wealth tends to make it easier to secure opportunities that generate higher income. Higher levels of income enhance the ability to generate wealth, even in cases where it did not exist before. So why is it important to make the distinction between the two?

Cash flow, typically from income, is the engine that runs a financial plan, and much of the attention in the early going of establishing a plan is focused on identifying, projecting, and protecting that cash flow while you coordinate the most effective places to direct your dollars as they come in. In situations where wealth already exists, it can be leveraged to protect and accelerate the usefulness of cash flow. It protects cash flow from unnecessary or expensive debt and unexpected emergencies and provides an increased basis for investment returns. Wealth provides insulation to income and cash flow, allowing more dollars to be directed towards progressive financial goals. When both a high income and existing wealth are combined, the difference in wealth accumulation often becomes exponential. This is why eliminating the racial income gap, even hypothetically, would fail to close the racial wealth gap. We’ve discussed the critical role intergenerational planning plays in the wealth gap, and while personal planning and financial literacy alone are not enough to tackle these sprawling and enduring issues, intentional preparation and decisions at the individual and family level where resources allow can make a huge difference in experienced outcomes.

Assumptions derived from: White Homeownership rate is 71.9% while Black Homeownership rate is 41.8% (https://www.urban.org/urban-wire/breaking-down-black-white-homeownership-gap) and White Americans are 3x as likely to receive an inheritance as Black Americans (https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm#:~:text=New%20data%20from%20the%202019,family%20and%20five%20times%20the)
A hypothetical example of the potential cumulative opportunity costs in monthly cash flow

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Adam Tolliver, CFP®, ChFC®

Passionate Financial Advisor focusing on the Racial Wealth Gap, Small Business and Non-profit Advocate, Community Volunteer, and Die Hard FSU Seminole.