The Racial Wealth Gap and the Borrower’s Dilemma

Abstract

This article examines the relationship between the Black-White wealth gap and household borrowing. Financial markets have been applauded for making credit available to all U.S. households since the 1990s—for democratizing credit. This study finds that the rates charged to borrowers can differ substantially by race, however. Because a household’s wealth status is affected by both the value of its assets and its outstanding debt, the author argues that the natural operation of credit markets inevitably depresses African Americans’ ability to accumulate wealth. The implications for the position of African Americans within U.S. society are also discussed.