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The corrosive impact of America's growing wealth gap

The idea that everyone has a chance to get ahead in life is a defining belief of American life. But the more complicated reality is that a family's wealth has a huge impact on how far people get.

Unfortunately for many Americans, the wealth gap -- or the difference between the assets of the poor and the rich -- has been growing over the past several decades, making it harder than ever for certain groups to climb the economic ladder. Families near the bottom of the wealth distribution actually ended up in debt in 2013, a backward step from having no wealth in 1963, according to a new analysis from the Urban Institute. Blacks and Hispanics are also falling behind, the think tank said in a report on Wednesday.

While income inequality has become a buzzword among economists and policy makers, tracking the divide in wealth -- what people own or that generates income -- may be more important. A family's assets, after all, are what enable social mobility, ranging from paying for a college degree to buying a house.

America faces some troubling trends with the widening wealth gap, especially given that families of color will soon make up a majority of the population yet are falling behind white families in creating those wealth cushions.

"Wealth inequality is high in the U.S., and higher than in many other developed countries," Signe-Mary McKernan, a senior fellow and economist at the Urban Institute, told CBS MoneyWatch. "Wealth is where economic opportunity lies. It can be a college education, or a downpayment on a house or business."

By that measure, many Americans are falling short. Families at the bottom ended up $2,000 in debt over the course of the past 40 years, while the wealthiest households saw their wealth grow sixfold over the same period, the Urban Institute noted.

The findings come at a time when researchers and economists are increasingly considering the impact of the widening wealth gap. The richest 1 percent will control more than half of the world's wealth by 2016, the charity Oxfam said earlier this year. It warned that growing inequality threatens to undermine global economic growth.

In the U.S., black and Hispanic families have been particularly hard hit by wealth inequality. By 2013, white families had an average of $500,000 more in wealth than nonwhite households, compared with a difference of $117,000 in 1963, adjusted for 2013 dollars, according to the analysis.

Lower incomes for blacks and Hispanics are part of what's causing the wealth gap, given that the typical white person earns $2 million over a lifetime, while blacks earn just $1.5 million and Hispanics earn $1 million. That gives minorities less leeway to sock money away or pay their kids' college tuition.

That impact shows up in the higher average level of student debt carried by minorities, as well as lower homeownership rates. Black families on average have carried more student loan debt than white families, the study found. While the amount of student debt carried by white and black families wasn't too different in 1989, the gap widened considerably during the next 24 years. By 2013, black families held an average of about $10,300 in student debt, compared with $8,000 for white families.

Because black students have a lower graduation rate than whites, that means some black families are carrying student debt for a degree that was never earned.

"That's especially burdensome if you have debt but not the degree," McKernan said. "College is still a good investment, and it's important for moving up the economic ladder."

Federal policies could be tweaked to help poor and minority families gain access to the basic building-blocks of wealth: homeownership, retirement savings and college, the Urban Institute notes. For instance, federal programs often have "asset tests," or asset or savings thresholds that need to be low enough to in order to access welfare or other programs. But many states have an asset limit of $2,000 to $3,000, which means that families can't have savings or other assets that exceed that level in order to receive the benefit.

Those caps end up being a disincentive to save, McKernan noted. Maintaining less than $2,000 in savings isn't enough to tide families over in tough times, and potentially makes families more likely to end up in the government safety net, she said.

Other policy changes could also help reduce the wealth gap, such as establishing automatic savings in retirement plans, and promoting emergency savings by establishing incentives linked to savings at tax times. A credit for first-time homebuyers could also encourage more poor and minority families to buy a home.

"Wealth inequality matters for everyone," McKernan said. "Inequality can weaken the economy, increase crime, and can lead to more people needing help from the safety net."

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