Financial Equity Terms
in Plain English

The wealth gap is the difference in total accumulated assets – savings, home equity, business equity, retirement accounts, and inherited assets – between demographic groups. It is distinct from the income gap. Income measures how much a household earns in a given period. Wealth measures how much has accumulated over time. A family with moderate income that has built home equity and business equity over decades holds significantly more wealth than a family with the same income that has not had access to those accumulation mechanisms.

Federal Reserve data from the Survey of Consumer Finances consistently documents one of the most significant and persistent features of American economic inequality: median white family wealth significantly exceeds median Black and Hispanic family wealth, with the gap driven primarily by differences in homeownership rates, business equity, and inherited assets. The gap is not primarily explained by current income differences; it reflects the compounding over generations of differential access to the wealth-building mechanisms this week's posts have covered.

Redlining was a discriminatory practice used by banks, federal housing agencies, and real estate associations primarily from the 1930s through the 1970s. In cities across the United States, neighborhood risk maps were drawn by the Home Owners' Loan Corporation (HOLC) – a federal agency – in which neighborhoods with significant Black, immigrant, and minority populations were literally outlined in red and classified as the highest-risk grade. These maps were used by lenders to deny mortgage loans, insurance, and investment to residents of red-graded neighborhoods.

The immediate effect was to deny Black families access to the federally subsidized homeownership programs that were building white middle-class wealth in the postwar period – FHA and VA loans that offered 30-year fixed mortgages at low interest rates. Redlined families were excluded from these programs and confined to rental housing or to high-cost, short-term contract purchases with no equity-building mechanism.

The long-term effect compounded across generations. Neighborhoods that were redlined in the 1940s and 1950s continued to be underinvested for decades after the Fair Housing Act of 1968 made explicit redlining illegal. Banks continued to make fewer loans in these areas. Commercial real estate values remained depressed. Schools were underfunded through property tax bases. The geographic footprint of redlining in American cities remains visible in current patterns of wealth, investment, and business activity.

A banking desert is an area where mainstream bank branches are absent or severely underrepresented relative to the population. The Federal Reserve and FDIC define banking deserts using geographic proximity standards – broadly, areas where a significant portion of the population lives more than a defined distance from any bank branch. Banking deserts are disproportionately located in rural areas and low-income urban neighborhoods, and they disproportionately affect Black, Hispanic, and Native American communities.

The financial cost of living in a banking desert is concrete and measurable. Residents without access to mainstream banking rely on alternative financial services – check-cashing services, payday lenders, money order services, and prepaid debit cards – that charge fees significantly above what a bank account would cost. A family using check-cashing services to process a $1,000 paycheck may pay $30 to $50 in fees. A family with a checking account pays nothing. Over a working lifetime, this difference compounds into a meaningful wealth gap entirely driven by access, not behavior.

The Community Reinvestment Act is a 1977 federal law enacted in direct response to documented redlining and disinvestment. It requires federally insured banks and savings institutions to demonstrate that they are meeting the credit needs of the entire communities in which they operate, including low- and moderate-income neighborhoods. Banks are evaluated on their CRA performance during regulatory examinations, and CRA ratings are public documents.

CRA performance is evaluated across three tests for most banks: a lending test (are they making loans in LMI areas proportionate to their deposit presence?), an investment test (are they investing in community development activities, including CDFIs and affordable housing?), and a service test (do they maintain accessible branches and services in underserved areas?). Banks that receive poor CRA ratings face regulatory scrutiny and may have mergers, acquisitions, and branch expansion applications denied or delayed.

The CRA has driven significant community investment. Researchers estimate that banks have committed more than $6 trillion in community development loans, investments, and services since the CRA's enactment. It is also, deliberately, the mechanism through which banks make investments in CDFIs and MDIs – those investments earn CRA credit, creating a financial incentive for conventional banks to support the community capital ecosystem even where direct lending is not profitable.

Economic self-determination is the capacity of a community to control its own economic resources – through business ownership, cooperative enterprise, community land trusts, credit unions, and local investment. It is the affirmative strategy that communities have pursued when external financial systems have excluded them, and it is both a historical tradition and a contemporary framework.

The historical tradition in Virginia is direct and documented. In the decades following emancipation, Black Virginians built mutual aid societies, fraternal organizations, insurance companies, newspapers, banks, and commercial districts. These were not supplementary institutions – they were the primary economic infrastructure of communities that could not access white-owned banks, insurance companies, or commercial real estate. The United Order of True Reformers (Richmond, 1888), Maggie Lena Walker's St. Luke Penny Savings Bank (Richmond, 1903), and the commercial ecosystem of Jackson Ward were expressions of economic self-determination as a practical response to systematic exclusion.

The contemporary framework builds on the same foundation using different tools. CDFIs are an expression of economic self-determination. MDIs are an expression of economic self-determination. Credit unions that are majority-governed by the communities they serve are an expression of economic self-determination. Community land trusts that hold land collectively to prevent displacement are an expression of economic self-determination. The forms evolve; the principle – that communities benefit from controlling their own economic resources rather than depending exclusively on external capital – is consistent across generations.

“Economic self-determination is not a separatist strategy. It is a resilience strategy – one that communities have reached for when external systems failed them, and one that continues to produce durable institutions in Virginia today.”