COVID-19 pushed Black households deeper into debt than their white peers, new analysis finds

With less savings to fall back on during the COVID-19 pandemic, Black households went deeper into debt and were more likely to fall behind on their mortgages than their white peers, according to a new analysis given exclusively to USA TODAY.

The report by the Center For American Progress (CAP) offered a grim snapshot of the disproportionate financial toll the global health crisis took on Black Americans, who also died from the virus at a higher rate than white Americans and were more likely than their white peers to become unemployed or to work front-line jobs that put their health at risk.

A lack of savings sparked a domino effect that jeopardized the financial stability and economic mobility of some Black households, according to the analysis of data from the U.S. Census Bureau's Household Pulse Survey. Among white households that experienced a drop in earnings, 45.9% used their savings to cover day-to-day expenses, while 30.6% of Black households did the same.

And 28.5% of white households relied on savings when they couldn't work because of health reasons, compared with 18.8% of their Black counterparts.

A larger number of Black households had to borrow money to get through the economic downturn brought by COVID-19, with roughly 46% of those who tapped their savings also taking out loans, while 28.5% borrowed from relatives and friends.

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That was compared with 44.5% of white households, which in addition to using savings turned to credit cards to pay expenses, and 16.1% who got loans from relatives and friends.

“We’re not saying white households didn’t suffer in the pandemic,'' says Christian Weller, senior fellow at CAP, who co-wrote the analysis and is a professor of public policy at the University of Massachusetts, Boston, McCormack Graduate School.

But their health and jobs were less severely hurt than that of Black Americans and other people of color, he says, and when white households did have emergencies, they had more resources to help them barrel through.

Black Americans save but face hurdles building nest egg

African Americans put money aside as much and perhaps more than white Americans, Weller says. But systemic barriers that result in Black workers having higher unemployment than white workers, and tending to earn less than their white peers even when they have a college degree, make it harder to save a significant amount. Those challenges may also fuel the need to tap emergency funds more often.

"African Americans are as likely as white households, or more likely, to save money,'' Weller says. But shallower savings stem from "systemic bias that comes in many, many different forms. One is African Americans have higher unemployment rates. ...(And) when they have a job, African Americans tend to earn less than whites."

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Black workers also disproportionately have jobs that do not provide 401(k) or other employer-supported retirement plans, creating another hole in their financial safety nets. And they are more likely to live in communities that lack a supermarket and other amenities, which raises the day-to-day cost of living.

“ Higher costs (mean) the less money you have to save," Weller says.

College on hold during the pandemic

With the typical white family having eight times the wealth of the typical Black family, African Americans are also more likely to have to borrow to pay for a higher education. Many put those aspirations on hold during the pandemic, according to the CAP study.

Among Black households that borrowed from relatives or friends, 43.9% canceled their college plans, while 12.9% took fewer courses. Among those white households that did not have as great a need to borrow, 29.1% canceled their college plans and 10.1% pared their course load.

The homeownership gap between Black and white Americans also widened during the pandemic. The Black homeownership rate was 44.1% at the end of last year, barely budging from the 44% who owned homes during the same period in 2019. Meanwhile, the homeownership rate among white Americans increased from 73.7% to 74.5% in those 12 months.

Holding on to a home also became more difficult. Between last August and March of this year, 17.6% of Black homeowners fell behind in their mortgage payments compared with 6.9% of white homeowners.

Borrowing from family, friends is 'last resort'

Across racial lines, once you turn to relatives and friends for help, circumstances are often dire, Weller says.

"It’s clear in the data this is truly a last resort for everybody,'' he says. "Once you do that, you're facing so much trouble. You can’t pay your bills. You're facing eviction. You're already going hungry and then you're turning to people In your community to help you out a little bit. … It’s clear that the chance of repaying that debt is extremely low, and that’s true for white households as well as African Americans.''

'A generational challenge'

There are ways to bridge the financial gulf illuminated by the pandemic, Weller says, but those solutions will not be simple or quick.

“There is no single silver bullet,'' he says. "It’s going to take decades to shrink and eliminate the racial wealth gap.''

Raising the minimum wage and giving people more opportunities to join a union are a start. "Those tend to be good pathways toward building wealth, especially for African Americans and other communities of color,'' he says.

Laws prohibiting housing and mortgage market discrimination can be better enforced as well, Weller says. Reining in college tuition would also diminish the need for students to take out loans that erode income and can take years to repay.

And expanding retirement saving options can help people build up their emergency funds. California and Illinois offer state-run savings vehicles for workers who don't have access to a retirement plan through their employer, Weller says.

But CAP estimates that even if major initiatives are enacted, such as making college debt-free and creating a national retirement savings plan, "you're still leaving about 50% of the Black-white wealth gap intact,'' Weller says. "That's about $150,000 to $200,000 ... roughly the amount of money the average white household gets in inheritances and gifts from their parents and grandparents.''

To rectify that disparity, "we should have a conversation about reparations,'' he says. "If what people aren’t getting in inheritances ... is a reflection of historical biases dating back to days of slavery, then I think reparations is logically the right way to eliminate the Black-white wealth gap.’’

This article originally appeared on USA TODAY: COVID-19 widened Black and white wealth gap, study shows