Derrick Soo’s great-grandfather, Lew Hing, became one of the wealthiest early Chinese immigrants in the U.S. — a founding father of the Chinatowns in both San Francisco and Oakland. But in a series of Depression-era shakedowns of Asian-Americans, the federal government forced him to liquidate his 17 businesses and Soo saw none of that intergenerational wealth. He now lives on the streets in Oakland.

Brenda Nails-Alford wonders what financial position her family would be in today had the Tulsa Race Massacre of 1921 not stolen hard-won wealth from her grandfather and his brother when a white mob torched their shoe store. “If they had been allowed to carry on that legacy,” she told The New York Times, “there’s no telling where we could be now.”

Soo and Nails-Alford are just two human faces of the racial wealth gap in the United States. And by “gap,” we really mean a yawning chasm to the tune of over $8 trillion — which is what it would take to bring wealth parity between the median white household and the median household of color. White households at the median hold six times the wealth of Black households, five times the wealth of Latino households and more than 10 times the wealth of Native-American households. 

There’s little mystery how we got here. Centuries of policies that privileged white economic mobility while excluding or actively exploiting communities of color brought the nation to this point. The result: a persistent divide compounded over time that locks generations of people of color into a permanent underclass. The gap is holding back the nation’s potential: by one estimate published by researchers at McKinsey & Co. in 2019, the Black-white wealth gap alone reduces the size of the U.S. economy by 4-6 percent. That leaves trillions in economic output on the table each year. 

To be crystal clear, we do not advocate closing the racial wealth gap with an $8 trillion airdrop. Rather, we see opportunity for a set of more modest investments, both targeted and interwoven, that would catalyze wealth accumulation and transform our economy to ensure access to wealth-generating assets for families at the base of the economic pyramid. And we need not rely on the grinding pace of federal appropriations to get there: philanthropic and impact investment capital can pave the way toward unlocking shared prosperity. 

In our own research, we identified five critical drivers of the racial wealth gap and offered strategies to help close it, focusing on how philanthropic and private investors can lead the way by testing, validating and scaling up interventions. We then highlighted one solution within each driver — recognizing of course that there are many others.

Family Inheritance: Strengthen the Movement for Baby Bonds  

While many social policies acknowledge the difficulty of being born into poverty, our society treats young adults as if they are on an equal playing field once they reach adulthood. Yet research by economists Darrick Hamilton (the New School) and William A. Darity Jr. (Duke) highlights the reality that differences in inheritance, bequests and family support account for more of the Black-white racial wealth gap than any other behavioral, demographic or socioeconomic indicator. Their solution: a universal public program that could offer young adults enough resources to make a down payment on a home, pay for college, start a business or start saving for retirement.

Providing access to inheritance denied may seem like a radical idea, but it’s not new. Consider the Homestead Act of 1862. From its passage until its repeal in 1976, the federal government granted 1.6 million land titles. That’s 270 million acres land seized from the indigenous people who lived on it and gifted to westward white settlers. That’s roughly the size of California and Texas combined, but cut up into 160-acre allotments (“homesteads”). By some estimates, 45 million white Americans living today benefit from that legacy. Contrast homesteads with the “40 acres and a mule” promised — and then withdrawn — from the enslaved ancestors of 42 million living Black Americans.

“Baby bonds” as public policy – granting babies endowments at birth — are starting to gain traction, with a new initiative in Washington, DC, and at least six states (California, Massachusetts, Nevada, New Mexico, Rhode Island and Vermont) exploring the idea. Philanthropy can fuel advocacy efforts, support impact research, convene policymakers and community leaders and establish state-level proof points to bring baby bonds into the mainstream.

Income and Benefits Sufficiency: Scale Employee Ownership Models

Black, Latino and Native American workers face significant wage gaps, earning on average just 75 cents per dollar earned by white workers. Beyond differences in income, less than half of all workers of color have access to employer-sponsored health insurance and even fewer can benefit from employee-sponsored retirement plans. Lacking access to employer benefits — whose collective value often represents a third of a person’s compensation — significantly constrains the wealth-generating opportunities for many workers of color.

Employee stock ownership plans (ESOPs), long ago conceived as a retirement program for small business owners and employees, offer a viable pathway to shared prosperity. Organizations including Apis and Heritage Capital Partners use investor capital, provided to the company in the form of loans, to buy out owners and establish ESOPs that create shares allocated to employees. Future profits from the company help pay off the loan and create wealth for employees. 

When employee-owners of the ESOP subsequently leave or retire, the company buys back the employees’ stock at fair market value, which can be multiples of an annual salary. Thomas Dudley (CEO of Certified Employee-Owned) and Ethan Rouen (Harvard Business School) estimate that if 30 percent of all businesses were ESOPs, the median wealth of Black households would more than quadruple, from $24,000 to $106,000.

Homeownership: Support Community-Anchored Affordable Homeownership

Homeownership is the most broadly accessed path to wealth generation in the United States. More households own their home than hold retirement accounts — with primary residences representing 45 percent of the median homeowner’s net worth. The legacy of exclusionary federal policies is clear, though, in the homeownership rates for communities of color. While nearly 72 percent of white families own their home, the rate is 44 percent for Black families, 51 percent for Latino families and 53 percent for Native American families.

The Nehemiah Housing Plan, the brainchild of East Brooklyn Congregations (EBC) and the Industrial Areas Foundation (IAF), pooled $8 million in funding from local faith communities to build affordable homes and apartments in Brownsville, New York. The city sold EBC the land for $1 per lot, and EBC broke ground in 1983 with a house that sold for $39,000. These modest homes came with an abatement of property taxes for 20 years and below-market-rate mortgages. The plan facilitated homeownership in a community where the American Dream felt like a fantasy. For every lucky new homeowner, at least five more were on the waiting list. 

Forty years later, the children of those original homeowners have incomes 50 percent higher than their parents and own over a billion dollars in wealth. The Nehemiah Housing Plan has since spread from New York City to disinvested urban neighborhoods in New Jersey, Maryland, Illinois, Pennsylvania, Washington DC and Tennessee, moving first-time home buyers into affordable, stable housing and fueling community wealth building.

Debts, Fines and Fees: Expand Community Lending and Alternative Credit Building

Creating a pathway to a better credit score may seem a modest goal, but it’s a crucial step in addressing a long history of financial predation. As noted by the Financial Health Network, Black and Latino households pay more in interest and fees in absolute terms compared with white households — despite having lower incomes.

The “lending circle” is an informal economic practice long common throughout the world. In much of Latin America, these supporting communities are called tandas. In Nigeria, this practice is called Ajo. The logistics are simple. Each month, a new member of the lending circle receives the loan until everyone in the group, each of whom has contributed equally and punctually, gets their chance.

Mission Asset Fund takes this centuries-old practice and threads it into this country’s formal financial system. Participants allow MAF to electronically withdraw a monthly amount from their bank accounts and agree to a rotation of borrowers. The fund then reports each borrower’s payments to the credit bureaus, improving — or often building for the first time — a borrower’s credit score. By creating a path to credit, MAF helps create a pathway to traditional banking and away from predatory payday lending.

Entrepreneurship: Provide Equitable Access to Investment Capital

White Americans own nearly 84 percent of employer businesses in the United States while representing only 58 percent of the population. This gap in business ownership certainly doesn’t follow from innate business acumen. Entrepreneurs and business owners of color face historic structural barriers and patterns of bias when seeking capital to get started — from both financial institutions and investors. 

Known, a new financial platform with access and experience in impact-investing as well as Black, Native and people of color-owned investments, aims to upend this status quo. Its value proposition: generate competitive returns by opening doors to the segments of our economy to which others lack access.

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The incentives built into our economy tend to accrue wealth for those who already have it. “Capital has done a significant amount of harm to communities of color,” argues Santhosh Ramdoss, president and CEO of Gary Community Ventures. “To undo that, we need the same capital to become a restorative tool.” Shifting our systems toward shared prosperity requires scaling up interventions that enable communities of color to benefit from economic growth. 

As some of the largest and most nimble asset holders, the philanthropic community has the power and the capacity to act. The community could and should be a catalyst for a paradigm shift in how wealth gets created.