Debt‐based welfare: Debt‐to‐asset relationships across Black and White households in the United States

Abstract

AbstractUnder neoliberal social provision, debt has become a primary tool for US households to pursue economic mobility and manage risk. Borrowing supports financial and non‐financial investments that, in theory, should lead to lifetime income and asset gains from which debt can be repaid. Many scholars argue, however, that reliance on credit as a welfare tool significantly increases inequality, particularly along racial lines. In this paper, I examine this process of debt‐financed asset accumulation by analyzing racial disparities in the relationship between household debt and assets. Using Survey of Consumer Finances data, I examine disparities in assets held at given debt levels across Black and White households. Results indicate that at equal debt levels, Black households' assets are between 30% and 80% lower than those of comparable White households. This suggests that White households benefit considerably more from social policies that center borrowing as a mechanism of social provision. This likely contributes to the persistence of the racial wealth gap. Racial disparities in access to credit, to homeownership, and to non‐market financial transfers like inheritances partly explain White households' higher returns, but racial gaps remain even when accounting for these factors.