(MONEY Magazine) – Clear your mind for a moment of all the notions you've ever held about blacks, whites and racial discrimination. Now take a look at these stark statistics: -- A black household with an annual income of $24,000 to $48,000 has a net worth that is only one-third that of a white household with the same earnings -- $17,627 compared with $54,644. Indeed, at virtually every age, income and education level, blacks trail whites in net worth (the total value of what they own minus what they owe).

-- Blacks earn 10% to 26% less than whites with similar educational backgrounds. The median income for black male college graduates in 1987 (the latest figures available) lagged that of college-educated white men by 26% -- $26,550 vs. $35,701. Graduate school raises a black man's median earnings to $35,815, but that's still 15% less than the $42,063 of a white who attended grad school.

-- Black professionals and managers are twice as likely to be jobless as whites, with unemployment rates of 3.9% vs. 1.8% as of March 1989. That means two-income black families are far more likely to lose one income and drop from | the middle class. How is it possible that, 25 years after the signing of the historic Civil Rights Act of 1964, such blatant inequalities continue to exist? A four-month investigation by MONEY shows, in dollars and cents, that racial discrimination still prevents middle-class black families from earning as much as whites; lowers their access to mortgages, business loans and other financial services; retards their homes' rate of appreciation; prevents them from increasing their wealth effectively; and deprives them of the economic well-being enjoyed by their white middle-class counterparts. Such inequities are partly the result of prejudice that is still prevalent now -- for example, the segregation that lowers the appreciation of black homes. But today's economic inequalities are also the legacy of past discrimination that has limited educational and job opportunities, preventing blacks from competing on an equal footing with whites. Much has been reported about the 31% of the black population that lives in poverty. This singular focus has led to the popular but erroneous assumption that if America solves the problem of black poverty, economic parity between the races will be achieved. But our research shows wide differences that extend beyond the underclass. Even families who have supposedly made it and earn solid middle-class incomes of $25,000 to $50,000 a year suffer gross inequalities compared with similar white families. ''There is still a price to being black today,'' says Bart Landry, a sociologist at the University of Maryland and author of The New Black Middle Class. Though Bush Administration officials, such as Housing and Urban Development Secretary Jack Kemp and Vice President Dan Quayle, describe the black middle class as robust and burgeoning, MONEY's analysis shows that the opposite is true: the black middle class is fragile and shrinking. (Wealth figures in this article come from unpublished data in a 1984 U.S. Census study of 2,000 black and 16,000 white households, updated to 1988 dollars by MONEY. Income statistics are from 1987 and 1988.) The percentage of all black families earning $25,000 to $50,000 a year, adjusted for inflation, climbed as high as 30.5% in 1976. Then in the back-to-back recessions in the early '80s and the federal government's hostility to affirmative action programs, the percentage slipped to 26.7% in 1988, lower than in the '70s. At the same time, the impressive growth of upper-income blacks (earning $50,000 or more) from 7.7% of all black families in 1976 to 12.6% in 1988 has been offset by the proliferation of blacks earning less than $5,000 -- 11.9% of all black families today vs. 6.7% in 1976. Observes Landry: ''We've got growth at the top but increasing misery at the bottom.'' While blacks bear the brunt of racism, the resulting inequalities cost all Americans enormously. Based on differences in earnings between blacks and whites, Billy J. Tidwell, director of research for the National Urban League, estimates that discrimination lowers our gross national product by almost 2% a year -- or roughly $104 billion this year alone. And since the black work force is growing twice as fast as the white, the cost will become more burdensome in future years just as the nation is forced to compete more fiercely with the more efficient and highly trained labor forces of Germany, Japan, Korea and other emerging economic powers. ''We can no longer afford the luxury of discrimination,'' says Gerald Jaynes, a Yale economist who served as study director for A Common Destiny: Blacks and American Society, the July 1989 report from the National Research Council, a private nonprofit organization that advises the federal government.

THE INCOME GAP IS WIDER THAN YOU THINK Family income figures actually overstate the financial health of the black middle class. Unlike whites, blacks typically need both a husband and a wife working to break into middle-income status. Even then, the two-earner family has a median income of $36,709, a mere $8,751 more than a white family with a working husband and a nonworking wife. Since as much as half of the second salary in a double-income household can be eaten away by additional costs such as an extra car, child care and other work-related expenses, two-earner black families don't necessarily keep more of their incomes than single-earner white families do. Consequently, if a black husband gets laid off or his wife stops working, say, to have a baby, the family can quickly drop from the middle class. ''If one spouse loses a job in a white family, it makes things difficult,'' says Landry, ''but for a black middle-class family, it's a disaster.'' The likelihood of such a shock looms far greater for blacks than whites. Says William Gibson, chairman of the board of the National Association for the Advancement of Colored People: ''A lot of the black middle class is fewer than two paychecks away from being in the underclass.'' Much attention has been paid to the tragic 33.4% unemployment rate among black teenagers. Yet blacks of all ages and education levels tend to stay unemployed longer than whites. A Census survey showed that in July it took unemployed black men 4 1/2 months, on average, to find jobs, or about a month longer than white men. In deep recessions, economists say, that time gap widens. (For a look at one black professional's difficult job search, see page 155.) The earning power of blacks is also seriously impaired because fast-growing and well-paying jobs often elude them. Despite widely held claims that affirmative action and equal employment opportunity initiatives have allowed underqualified black applicants to squeeze out better-qualified whites, the truth is that such programs have not loosened whites' hold on most upper-level job categories. In fact, blacks' representation in most white-collar jobs comes nowhere close to parity with whites'. Blacks make up 10.1% of all employed workers, yet they hold only 6.1% of the nation's managerial and professional jobs. Some of the most lucrative and influential fields remain largely closed to blacks. A 1987 National Law Journal survey of the nation's 250 largest law firms found that fewer than 2% of the lawyers, and fewer than 1% of the partners, were black -- a mere 157 out of 19,610 partners. Accounting is even worse. A 1988 survey by Public Advocates Inc., a San Francisco-based public- interest law firm, showed that fewer than one-quarter of 1% of the partners in the nation's major C.P.A. firms were black: 37 persons out of 20,000. And none of the 37 were policy or decision makers. Magazine and newspaper journalism is nearly all white too. Blacks hold only 4% of the 260,000 jobs as of January. Of course, blacks' underrepresentation in white-collar jobs cannot be blamed solely on racial prejudice in current hiring practices. The lack of blacks in managerial and professional jobs also reflects the relatively shallow pool of qualified blacks. For example, the fact that only 11% of blacks have college degrees vs. 21% of whites reflects a history of discrimination that has denied blacks the means to get a higher education. The difficulties that blacks encounter within corporations lead many of them to conclude that white managements frequently do not seriously consider blacks for top spots. Curtis Moret, 34, now a self-employed tax accountant in New Orleans, left the accounting firm KPMG Peat Marwick in December 1988 after ! being passed over for a partner's slot. Moret, an M.B.A. who had worked at the firm since 1979, eventually came to believe that he was merely a token minority. ''My bosses always told me I was the best black accountant they ever had,'' says Moret. ''I grew to resent that tag. I would much rather have been told I was the best tax accountant they ever had.'' A spokesman says the firm actively recruits minority accountants and stresses that race plays no role in the selection of partners. Nine of its 1,900 partners are black.

WHY THE WEALTH GAP IS SO SIZABLE To really grasp how far blacks trail whites, you must compare household wealth or net worth -- which is a more comprehensive measure of financial achievement. As the chart on page 154 illustrates, the differences are huge. Not only have whites accumulated three times the wealth of blacks in the middle class, whites also own twice the wealth of blacks in households earning more than $48,000 a year. What accounts for this massive wealth gap? Many researchers point to America's longstanding pattern of discrimination. ''Talented blacks of previous generations were discriminated against and didn't have the opportunity to generate income,'' says Jaynes, ''so they couldn't pass on much wealth to the next generation.'' As a result, most middle-class whites get a head start on blacks through this intergenerational transfer of wealth. In down-to-earth terms, this means that white parents and grandparents are far more capable of helping their children afford a college education or buy a house in a solid area. The low level of inherited wealth also helps explain why blacks trail whites in the rate of business ownership -- which, in turn, is an excellent way of increasing net worth. Middle-class blacks are one-third as likely as whites to have equity in a business. And black entrepreneurs generally have much smaller stakes -- a median business value of $6,578 for blacks vs. $15,936 for whites. Discrimination by commercial lenders is another factor. In a 1988 study of 10,139 small businesses in 28 U.S. cities, University of Vermont economist Timothy Bates concluded that discrimination by banks restricted blacks' access to commercial loans. And the loans for those blacks who managed to get financing were almost 40% smaller per dollar of business equity than those given to the white borrowers. (For a look at one black entrepreneur's struggle to get bankrolled, see the profile on page 160.) + Racial bias by some mortgage lenders and real estate agents also keeps blacks from increasing their wealth through housing, says Charles Finn, project director at the Hubert Humphrey Institute of Public Affairs at the University of Minnesota in Minneapolis. Notes Finn: ''My research is finding that the pattern of discriminatory lending nationwide is getting worse.'' The U.S. Department of Housing and Urban Development has estimated that there are more than 2 million instances annually of housing discrimination against blacks and other minorities. As for lending, the federal Office of Thrift Supervision recently reported to Congress that savings and loans reject blacks for mortgages twice as often as whites. The most damning evidence of mortgage discrimination was exposed in August in a survey by the Federal Reserve Bank of Boston. After examining all the mortgages made by lenders for properties sold in Boston from 1982 to 1988, the Fed found that, even after accounting for differences in income and wealth, white neighborhoods received 24% more loans than black ones. The net effect of such unfairness: only 59% of the nation's middle-class blacks own homes, compared with 74% of whites. And what housing blacks do get tends to be segregated from whites. Despite the passage of fair-housing laws more than 20 years ago, an October Washington Post/ABC News poll showed that a third of the 1,249 whites surveyed said they believed homeowners should have the right to refuse to sell to blacks. (Such a refusal is a federal crime.) Little wonder, then, that Census data show that, regardless of income, blacks are more segregated than any other racial or ethnic group. ''A black person who makes more than $50,000 a year will be virtually as segregated as a black person who makes only $2,500 a year,'' says Douglas Massey, director of the Population Research Center at the University of Chicago, who specializes in measuring residential segregation. More startling: ''A black person who makes more than $50,000 will be more segregated than a Hispanic person who makes $2,500, someone dirt poor.'' Massey doubts that the 1990 Census will show any appreciable progress. The National Research Council estimates that it will take about 60 years for blacks to achieve the minimal levels of integration with whites that Asians and Hispanics have now. Because of all the laws opposing it, discrimination against black home buyers usually occurs subtly these days. For example, in a process called steering, some real estate agents show blacks houses only in predominantly minority areas. Others prefer the ''revolving door'' technique -- welcoming a black prospect into the office, assuring him that his business is welcome, then lamenting that what he wants is not available and politely ushering him back out the door. Blatant incidents occur too. While looking for a vacation home two years ago, James W. Laws, 48, a $35,000-a-year research chemist for North Carolina State University in Raleigh, visited the Carolina Lakes resort development in Harnett County, N.C. Laws recalls that he was separated from the white buyers, hurriedly shown only one site and never even quoted the price of the lots. ''I definitely had the feeling they were trying to get rid of me,'' Laws says. What he didn't know was that the Carolina Lakes management had developed a meticulous coding process for excluding hundreds of prospects they deemed undesirable. The label ''NQr'' was used for blacks; it meant not qualified because of race. ''Salt & Pepper'' referred to interracial couples, and the tag ''Red Dot'' was reserved for natives of India. The North Carolina Real Estate Commission has permanently revoked the company's brokerage license. Segregation deters even middle-class blacks from building wealth in an elemental way: it stifles the appreciation of their homes. To see just how segregation affects appreciation rates, MONEY commissioned Dataman Information Services Inc., an Atlanta firm that tracks housing prices, to provide sales data by zip code in three cities. MONEY then matched predominantly black and white areas with comparable income levels. As the chart on page 159 illustrates, we found a consistent pattern of significantly lower appreciation in black neighborhoods. For example, single-family houses in Washington, D.C.'s 90%-black Brookland/Catholic University section rose in value, on average, a mere 8% between June 1984 and June 1989 while homes in 83%-white Dupont Circle, 2 1/2 miles away, appreciated by 99%. Why the differences? Most whites are reluctant to live near blacks, even a few blacks, no matter what their income is. This prejudice ultimately translates into less demand for houses in minority neighborhoods than in white areas. The less demand there is, the less house prices appreciate. Reynolds Farley, a demographer at the University of Michigan, estimates that once the black presence in a neighborhood reaches a mere 20%, whites become less apt to $ buy there and more likely to move out. ''Blacks who move to areas considered middle class,'' says Tidwell, ''are often disillusioned to see that their property doesn't appreciate at the rate they expected. One reason is that whites move out.'' Segregated housing comes with other punishing costs as well. The price of nearly all financial services is higher in black inner-city neighborhoods, for example, leaving the middle-class residents less money to save or invest. Take automobile insurance. A one-car couple in a predominantly black neighborhood in or around Detroit will pay about $2,000 a year for auto insurance -- 50% to 70% more than a couple in most of Detroit's white suburbs. Insurers defend their pricing by saying that the premiums simply reflect the higher claim rates in black areas. That may be true, but racial prejudice sometimes also colors insurers' perceptions of risk. Witness the admonition a sales manager for the American Family Insurance Group in Milwaukee issued to an agent writing policies for black clients in 1986: ''I think you write too many blacks. You gotta sell good, solid premium-paying white people.'' An attorney for the insurance company insisted to MONEY that ''American Family does not conduct its insurance business on the basis of race.'' Financial services are also harder to find in black neighborhoods. For example, a study by Gregory Squires and William Velez, sociology professors at the University of Wisconsin-Milwaukee, shows that since 1960 the number of property/casualty insurance offices relative to housing units has declined in Milwaukee's inner city, where blacks are highly concentrated, while the number has more than doubled in white suburbs. Their conclusion: ''Insurance companies choose predominantly white communities as locations for their agencies.'' The Boston Federal Reserve study has also discovered that the blacker the neighborhood, the fewer the bank branches. Boston neighborhoods that were less than 5% black had four times as many bank offices per resident as ones that were more than 80% black.

BLACK FINANCIAL SECURITY IS TENUOUS AT BEST Beyond all the effects of racial discrimination, many analysts trace the financial insecurity of blacks in part to their basic investing and spending habits. Census figures show sharp differences between the investment choices of blacks and whites and a lack of diversification in blacks' holdings. Middle-income blacks invest 80% of their assets in their houses and investment real estate, far more than the 65% level of whites. Blacks are also 2 1/2 times less likely to invest in financial assets such as stocks, mutual funds and Individual Retirement Accounts. Unlike whites, when blacks seek interest income, they stick almost exclusively to bank accounts and forgo the higher returns paid by money-market funds and bonds. Says William Bradford, a finance professor at the University of Maryland who has analyzed black wealth for the National Research Council: ''Blacks are definitely not reaching their potential in terms of desirable investments.'' Financial advisers say blacks' inexperience with financial assets contributes to those poor choices. Many of today's middle-class blacks are the first generation to have enough money to even consider investing. ''They've never had their parents or relatives buy these investments so they're not as familiar with them,'' says Ric Cobb, a salesman of insurance and investments for the Equitable Financial Cos. in Milwaukee who has a large black clientele. Nor have stockbrokers and other investment salesmen done much to reach out to them. ''A lot of agents have problems with going into a black community to visit a middle-class family,'' contends Cobb. Others add that blacks consciously avoid chancy investments because they don't want to risk the little they have. Andrew Brimmer, a former Federal Reserve Board member and now head of his own Washington, D.C. economic consulting firm, says: ''If you have a modest amount of wealth, you want to protect it -- that makes for conservatism.'' Whatever the reasons, blacks' lack of investment diversification stifles wealth building. Over time, a diversified portfolio of assets generally yields higher returns with lower risk. So whites, who start out with more hand-me- down wealth, pull ever further ahead as their assets earn higher returns. Poor diversification also can devastate a black family that needs cash for an emergency -- say, to meet unexpected medical expenses or carry it through a job layoff. With much of its wealth in assets such as real estate and cars that are hard to sell quickly at full value, black families have less to convert to ready cash. The result, says Tidwell, is that ''a black family is much more likely than a white one to find itself having to make a radical adjustment, such as selling its house or car, to contend with an emergency.'' A number of black economists, researchers and financial advisers strongly believe that a minority of blacks also hurt themselves by splurging on expensive cars, clothes and other consumer goods while neglecting savings. ''Some blacks feel they have to live at a higher standard of living for a given income,'' says Karl Gregory, a management and economics professor at the Oakland University School of Business Administration in Rochester, Mich. ''They want outward signs that show they've made it, that they've succeeded, that they are the same as a white middle-class family.'' Cecil Bailey, who spent three frustrating years selling financial services to blacks in Kansas City, says many of his clients put far too much emphasis on immediate material gratification and not enough on their future. Bailey remembers one black couple -- a C.P.A. and a lawyer -- whose combined annual income was $85,000 after taxes. They had a BMW with a car phone but no health insurance for themselves or their two children. Joshua Smith, chairman of Maxima Corp., a computer software company that is the ninth largest black- owned firm in the U.S., often counsels blacks to save and invest more. One of his favorite quips: ''If it's on your back, it's not in the bank. And if it's on your ass, it's not called an asset.''

WHY THE OUTLOOK APPEARS GRIM Many researchers specializing in the economics of race believe that unless things change, the wealth gap will widen in the '90s. ''At best,'' predicts sociologist Landry, ''the black middle class will hold on to the gains it has already made.'' Should the U.S. economy slide into a recession, says Landry, prospects for the black middle class would decline drastically. Two far- reaching trends account for much of this pessimism: -- The nation's steady shift from a manufacturing- to a service-based economy. Overall, black families are far more dependent than whites on income from high-paying blue-collar jobs that require modest education. In 1988, for example, manufacturing occupations such as machine operators and laborers were the largest single job group for black men, accommodating fully a third of the black male labor force, compared with 20% of white men. But these jobs are disappearing fast. The automobile industry alone has lost 140,000 of its 990,000 jobs since 1979, and manufacturing overall employs 1.6 million fewer people today than it did only 10 years ago. Since an estimated 50% of the new jobs created between now and the year 2000 will require at least some college education, blue-collar black employees with limited education will have an increasingly difficult time replacing their earnings if they are laid off. ''A black steel or auto worker earning $30,000 a year who loses his job isn't going to become a stockbroker,'' says economist Jaynes. ''He's going to get a lower-paying service job.'' Result: black households headed by workers forced out of manufacturing jobs stand a good chance of falling out of the middle class. -- A decline in college attendance among blacks. In 1976, when more than twice as much grant money flowed from the federal government, the percentage of black high school graduates enrolled in college exceeded that of whites -- 33.5% vs. 33%. But federal education cutbacks have helped reverse that. In 1985, only 26.1% of black high school grads went on to college. Although this percentage has climbed to 30% lately, it still seriously lags the 36.6% rate for whites. Beyond that, as many as 70% of black undergrads drop out before receiving a degree, compared with 50% for whites. There's little surprise, therefore, that the total number of black graduate students in 1986, some 72,000, was no higher than in 1976. These declining enrollment figures sound an economic alarm as well. For blacks, more than whites, education is linked to raising income and net worth. A college-educated black is likely to have $15,562 more in net worth than one with only a high school education. Similarly, a black man who receives a college degree earns, on average, $7,630 more a year than a black high school graduate. Black men who attend graduate school earn $9,265 more than college grads. While the earnings figures are lower than those of whites with similar schooling, additional education can boost the rate of increase in a black's income twice as much as a white person's. The prospects for black education seem doomed by the breakdown of black families. In 1988, 42% of black families were headed by single women, compared with 29% in 1968. During the same period, the percentage of all black children raised in matriarchal households jumped from 29% to 51%. Since those families have a far lower median income than black married-couple families -- $10,657 vs. $30,385 in 1988 -- they are less likely to have the means to get their children into college. Thus, the black-white wealth gap is apt to widen.

STEPS THAT COULD NARROW THE GAP The National Urban League's Tidwell estimates that, barring meaningful new actions taken by the government, businesses and individuals to combat discrimination, American blacks and whites will not share the wealth equally before the century after next, at the earliest. ''We're talking about that gap closing in the 22nd century, if at all,'' he says. To avoid that possibility, we must take the following steps to begin breaking down racial barriers and put blacks on a more equal footing with whites: -- The federal government should commit more effort and money to promote equal opportunities for blacks in employment, housing and education. Despite its vision of a kinder, gentler nation, the Bush Administration has yet to push for much additional funding for education or job training. Specifically, Washington ought to encourage affirmative action programs and vigorously enforce fair-housing and employment-discrimination laws. Federal funds for college grants and work-study programs should be restored to the mid-1970s level to help black high school grads get the same educational opportunities as whites. -- Banks, thrifts, mortgage companies and insurance companies need to make greater disclosure to regulators and the public about how they serve their customers. Such disclosure would inhibit discriminatory practices. One move in the right direction was this year's S&L bailout law, which requires banks, thrifts and mortgage companies to report to regulators the race, gender and income of every mortgage applicant and borrower. Congress should ask for similar disclosure about commercial loans. The availability and cost of property insurance for blacks also could be monitored if insurance companies had to make public such data as the number of their offices in black and white neighborhoods, the number of policies written and premiums charged in those neighborhoods, and their claims experience in both types of areas. -- Blacks must begin to diversify their investments. Putting more money into stocks, bonds and mutual funds could go a long way toward increasing blacks' wealth. By lessening their emphasis on real estate and opting for a wider range of financial assets, black families would also be better prepared to cope with any short-term emergencies. -- Whites must do more to eliminate their own prejudices. In principle, most whites abhor racism. But continued housing and social segregation proves that many whites say one thing and do another. As long as the current pattern of discrimination continues, blacks will never become fully integrated into the American economic mainstream -- and both races will continue to pay the price for living in different worlds.

CHART: NOT AVAILABLE CREDIT: Source: Wealth, Assets and Income of Black Households, a 1989 update of a research study based on 1984 Census Bureau data prepared by University of Maryland finance professor William Bradford for the National Research Council's Committee on the Status of Black Americans. MONEY updated the figures to 1988 dollars. CAPTION: THE BLACK AND WHITE WEALTH GAP Black middle-class households, with annual incomes of $24,000 to $48,000, tend to own a fraction of the assets held by their white counterparts. Only 9% of those blacks own stocks and mutual funds, compared with 24% of the whites; 59% own homes, vs. 74%; and a mere 4% have equity in a business, contrasted with 11%. Overall, blacks' median net worth -- assets minus liabilities -- is $17,627, as opposed to whites' robust $54,644.

CHART: NOT AVAILABLE CREDIT: Source: Housing prices, Dataman Information Services Inc.; neighborhood racial mix, Western Economic Research Co. Data supplied by zip code. CAPTION: HOW SEGREGATION HURTS BLACKS As a rule, whites are reluctant to move into neighborhoods that are as little as 20% black. Over time, fewer buyers mean lower prices. Therefore, when residential areas with virtually the same household incomes are compared, the price appreciation in the middle-class black areas (on the left) seriously lags that of the white places. In Washington, D.C.'s predominantly black Brookland/Catholic University area (bottom left), housing prices rose only 8% over the five-year period that ended June 1989 (actually a 10% drop after adjusting for inflation), while owners in white Dupont Circle saw their prices climb by 99%.

CHART: NOT AVAILABLE CREDIT: Source: Census Bureau Education Branch; Wealth, Assets and Income of Black Households CAPTION: EDUCATION EDUCATION BOOSTS BLACKS' WEALTH . . . For blacks -- like whites -- college pays. The median net worth of blacks with degrees is four times that of blacks who drop out of college and six times that of the high school grads. . . . BUT ENROLLMENT HAS STAGNATED The percentage of black high school grads attending college peaked at 33.5% in 1976 and slid to 26.1% in 1985 before rebounding to 30% in 1987.