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

Under 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.