[Closing The Gap, Part 4] Regenerative assets: Why you need money to make money

This is the fourth post in a running series based on our recent report, Closing the Opportunity Gap: Building Equity in Oklahoma, which assesses the racial wealth gap and proposes solutions for closing that gap through asset-building.  Previous posts explored historical roots of the gap and detailed disparities in foundational assets (health, education, transportation) and generative assets (employment and income).  This post assesses disparities in regenerative assets, a critical component of building economic security over a lifetime, because they provide Oklahoma families with a wealth base that generates income independent of their labor and savings to fall back on in emergencies.

Regenerative assets have appreciative value and/or produce income or interest, e.g. simple savings, homeownership.  The income and equity earned with regenerative assets also enables households to make other key investments (in property, education and training, and businesses) that grow wealth and move them up the economic ladder.  They also produce a powerful effect on personal habits and expectations, instilling in savers the value of long-term goals and interests rather than immediate wants and needs.

For a great many working families, earnings unfortunately fall short of meeting basic household needs, leaving no money left over to save or invest.  Low-income households and people of color are especially likely to lack the equity in regenerative assets that boost net worth.  Households of color in Oklahoma have one-thirds the net worth of  White households. 

Savings:  Often the only regenerative assets that households possess are simple savings accounts.  Checking and savings accounts create a relationship with a traditional financial institution that provides security against theft or loss and helps consumers avoid high-cost predatory lenders when they need access to affordable credit.  A larger share of White households (62 percent) in Oklahoma have a savings account, compared to African-American (52.3 percent) and Hispanic households (40.5 percent), as shown below from the FDIC’s EconomicInclusion.gov:

Homeownership:  Gaps in homeownership by race and ethnicity in Oklahoma are wide and long- standing. As of 2010, just under half of Hispanic and African American Oklahomans owned their own home, compared to almost three quarters of the state’s White residents. Native Americans in Oklahoma fall somewhere in between, with 63.6 percent of residents owning a home.  Beyond the raw wealth represented by the equity in one’s home, homeownership has been a key component of socioeconomic mobility in Oklahoma and was instrumental in growing the American middle class during the 20th century.

Now that the ‘gap’ in each of the three main types of assets (foundational, generative, regenerative) has been outlined and measured, the next post in this series will spotlight the interrelationships between them.  The degree success in building one area of assets depends on the degree of actualization in the preceding type. Foundational asset poverty, e.g. poor health or low educational attainment, increases the odds of low earnings and debt in your prime working years. Low earnings in turn translate quite literally into asset poverty, with scant extra household income left over each month to invest in property or save for the future.