There's a 'commonly offered' myth that financial literacy will close America's racial wealth gap. It's wrong.

• A recent CNBC article argued that improving financial literacy among Black people was key to closing the racial wealth gap.
• However, researchers say that this a common myth and that the gap exists because of continued racist practices in hiring and lending.
• For example, in 2018, the Center for Investigative Reporting found evidence of modern-day redlining, or discriminatory lending practices against Black and other nonwhite people, in 61 metro areas.

Remember this, America: Your personal finances aren't just the product of you the person, but how you fit into literal centuries of systems, structures, and laws.

This became something of a flashpoint when a CNBC article on June 26 suggested that financial literacy was the "critical link" to closing the financial wealth gap between Black and white Americans. The post, which has been updated since it was published, says that "social, historical, political and institutional forces have contributed to this gap, and closing it is a daunting task."

But while learning more about money is sure to help individual people, it doesn't explain the systemic problems facing people of color, Axios argued — and research has found that it's certainly not the leading cause of the gap.

The 'commonly offered' myth

As the economists Darrick Hamilton and William Darity Jr. have argued in papers for Duke University and the Federal Reserve Bank of St. Louis, the call for greater financial literacy as a solution for America's widening racial wealth gap is a "commonly offered" myth.

Black people "cannot close the racial wealth gap by changing their individual behavior — i.e., by assuming more 'personal responsibility' or acquiring the portfolio management insights associated with 'financial literacy' – if the structural sources of racial inequality remain unchanged," they and their coauthors argued in the Duke paper.

For example, they called out a 2015 report, also published by the St. Louis Fed, titled "The Demographics of Wealth." They said the paper characterized middle-aged and older, educated white and Asian people as "thrivers" and younger, less educated Black people and Latinos as "strugglers," using language implying that the wealth gap between them is due to agency or education.

"Meager economic circumstances — not poor decision making or deficient knowledge — constrain choices and leave asset-poor borrowers with little to no other option but to use predatory and abusive alternative financial services," they wrote.

This is history-spanning stuff. Consider a Washington Post headline from last year: "What Southern dynasties' post-Civil War resurgence tell us about how wealth is really handed down." Spoiler alert: The accumulated wealth of Southern elites who had enslaved people was passed down through generations directly or through marriage into other rich white families.

"Even after the enslaved people on whom their wealth was built were freed, Southern elites passed their advantages to their children through personal networks and social capital," the reporter, Andrew Van Dam, observed.

In addition to more modern practices like gerrymandering to deprive Black people of their political voice, disparate funding in education, and myriad other factors, two of the main ones driving this gap in prosperity are racist practices in hiring and housing.

Racist hiring practices, both subtle and overt, keep Black people from high-paying jobs

The median white family had more than 10 times the wealth of the median Black family in 2016, the Fed's 2017 "Survey of Consumer Finances" found.

A big chunk of this gap comes down to the incredible discrepancy between the wages of white people and Black people. White Americans can expect to earn a whopping $1 million more than their Black counterparts over their lifetime, a 2019 McKinsey study found.

Things have only gotten worse over time. "The difference in median household incomes between white and Black Americans has grown from about $23,800 in 1970 to roughly $33,000 in 2018 (as measured in 2018 dollars)," the Pew Research Center said.

Bias in hiring is a big part of the problem. Michelle Jackson, a personal-finance writer and coach who specializes in financial planning for Black communities, says Black people often aren't hired into well-paying jobs, affecting their ability to earn enough to purchase a home, a major factor in accumulating wealth.

The Bureau of Labor Statistics said that in 2018, 54% of employed Asians worked in management, professional, and related occupations — what it described as "the highest-paying major occupational category" — compared with 41% of employed white people, 31% of employed Black people, and 22% of employed Hispanics.

The racism Black people face in business can be outright. In a recent first-person essay for Business Insider, Lynette S. Hoag, a lawyer and writer, described the discrimination she faced in trying to launch her legal career despite having attended a top-ranked law school. She said many top-tier law firms essentially told her they didn't hire nonwhite people.

But prejudice can also be more subtle. A 2017 Harvard University study found that "whitened" résumés — for example, ones using "American"- or "white"-sounding names — resulted in more callbacks for interviews. "Twenty-five percent of black candidates received callbacks from their whitened resumes, while only 10 percent got calls when they left ethnic details intact," the study said.

In addition, many companies rely on employees' social networks for referrals, which can be problematic if your company is largely white. In a 2013 survey of about 2,300 Americans by the Public Religion Research Institute, three-quarters of white Americans reported having no nonwhite friends.

Black Americans still face the legacy of redlining

Decades of racist lending practices is another huge contributor to the wealth gap.

Though the federal Fair Housing Act banned racial discrimination in lending in 1968, African Americans and Latinos continue to be denied mortgage loans at rates far higher than white people, Reveal, a publication of the Center for Investigative Reporting, said in 2018.

In other words, redlining — the routine denial of credit to nonwhite people — is anything but a thing of the past. Reveal said it analyzed millions of Home Mortgage Disclosure Act records and found evidence of modern-day redlining practices in 61 metro areas.

In light of these systems of inequality, focusing on Black people's personal finances seems like less of a real solution and more a Band-Aid fix. Hamilton and Darity said the onus shouldn't be on Black people to fix the gap — instead, they suggested reparations for decades of racial injustice, as well as economic policies that would specifically help Black Americans.

"Addressing racial wealth inequality will require a major redistributive effort or another major public policy intervention to build black American wealth," they wrote.