The Racial Wealth Gap – Turning Shortage into Abundance

History tells us that differences in wealth exist between varying ethnic or racial groups and the racial wealth gap has been looming over us for centuries.  The term “racial wealth gap“ refers to the difference in assets owned by various racial or ethnic groups, which results from a range of factors that affect the overall economic well-being of these different groups.

The Federal Reserve noted disparities in wealth by race and ethnicity in its 2019 Survey of Consumer Finances, stating the typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.  There are many factors to consider when identifying what contributes to the continuance of the racial wealth gap.

Lack of Education and a Complacent Mindset

Many people in African-American communities will attest to the fact that their ancestors maintained a survival mentality.  Even after slavery was abolished, the lack of trust in other humans was a burden they would bear for many years to come.  The enslaved and impoverished mentality has become a learned behavior and is a hard cycle to break, especially considering the lack of access to information in certain communities.

Just like many slaves did not realize they were free, many Americans do not realize they are preparing their offspring and future generations to live a complacent lifestyle, which often stems from a lack of access to sufficient education and information.  School systems and resources are not created equal when it comes to location. Since most schools are driven by tax dollars, the wealthier communities have the funds to provide better education and resources for their students. This ultimately results in populations that are not afforded the skills or opportunities they need to establish or improve their long-term financial health.  Frequently, communities in this situation face unintentional complacency.  Considering their past, someone may consider their present circumstances satisfactory, maybe even impressive.  However, often they have failed to consider the exceptional life they could possess if they strived for further progression.

What can we do to shift from a complacency to a growth mindset? Sometimes it takes surrounding yourself with positive, forward-thinking individuals who have done what you wish to accomplish in order to persuade your mindset to shift.  Once the mindset shifts, it increases the chances of turning survival tactics into succession planning for the future generation. Another action we can take is to obtain whatever education and counseling we can to improve our lifestyle.  At CCCSMD, free, financial education and counseling is available to help you learn the fundamentals of budgeting, housing and credit which highlights the possibilities of your financial future and moves you out of complacency.

High Levels of Debt

One of the major sources of wealth inequity among races begins with the use of credit cards to support an unsustainable lifestyle and leads to excessive debt.  Credit card companies thrive on individuals who do not have liquid assets or available cash to afford what they need to purchase or to cover emergencies.  Using a credit card without proper education on how to manage personal finances, leads to a slippery slope.  While making minimum monthly payments on a maxed-out credit card may feel responsible, it tells lenders that you are actually the opposite. Having a high credit card balance may indicate you are living above your financial means or paycheck-to-paycheck.  This situation can hinder your ability to develop a financial plan for the next generation.  This does not have to be the end of the story, but merely a lesson in the middle of the book.  However, if the lesson is not received, the cycle of debt will continue.  Take the time to consider debt solutions before becoming overwhelmed with debt.

Another humongous factor – student loans – are now considered one of the most crippling sources of financial debt. Many educational institutions – including for-profit colleges – require a significant amount of money for tuition, not to mention room and board and books.  In grade school, students are taught to make good grades to get into a good college, and then obtain a great career.  By the time they start their first job, many recent graduates begin to regret either their major or the school they chose because of the massive amount of student loan debt they will have to repay.

Dr. Tisa Silver Canaday, a financial wellness advocate specializing in student loan debt and CCCSMD Board Member, explores the disproportionate amount of student loan debt between Black and White graduates in her book, Borrowing While Black. “Black graduates with bachelor’s degrees owe $7,400 more student debt on average upon graduation than White graduates” (page 13). Upon graduation, Black and Hispanic students walk off campus with larger amounts of student debt than White students.  This sets the stage for a racial disparity in debt-to-income ratios. The debt-to-equity ratio is a major factor for granting approval for credit or mortgage loans, and simply providing the ability to have excess cash to save or invest. This can all sound very overwhelming, especially if you have recently graduated with a large amount of student loan debt. Don’t fret! There are different payment options that can alleviate some of the stress.

Lack of Equity

The U.S. Census Bureau reports that homeownership rates vary tremendously among different races.  In 2020, the average homeowner percentage for White Americans was 75%, while roughly 46% for Blacks, and 58% for all other races.  Reports for the first and second quarters of 2021 show consistent trends with these percentages.  While a home is the most common asset a person can obtain, qualifying for the mortgage loan to purchase the home may not be accessible for everyone.  Low credit scores, as well as low income, discourages many potential buyers from attempting to purchase a home.  These factors also make the potential borrower less attractive to the lenders.  Once someone becomes complacent with renting, homeownership is no longer a priority.  With home prices on the rise, many more Americans will fall into this category.  But the road doesn’t end here, there are mortgage solutions and resources available to make first time home buyer dreams come true!

When it comes to savings, investment, and retirement accounts, White Americans outperform amongst other races.  If an individual does not have enough money to cover a $400 emergency, they most likely do not have sufficient savings and probably do not believe they can afford to contribute to a retirement account.  Additionally, many companies do not consider skilled trade workers eligible for retirement benefits. As a result, these individuals miss the opportunity to build this equity despite all their hard work.

Many Hispanic and other Non-White migrant families work extremely hard, often working numerous jobs, to provide not only for their immediate family members, but also those family members left behind in their native countries.  Due to the nature of this tradition, these families feel they are faced with only two options – save or provide.  This has become a challenging, repetitive cycle that will take the effort of more than the sole provider of the family to resolve.

Other important assets that keep the wealth gap alive include insurance policies, inheritances, and other family support.  Many Black and Non-White Americans find themselves in significant amounts of debt when having to unexpectedly bury a deceased loved one, who left nothing of financial value behind.  This is due to the absence of the basic concept to budget and save for this type of expense, or the “you can’t take it with you” mentality that encourages one to spend it all while they are here.  This is unfair to those who are left to pay remaining debts and those who could have benefitted from the head-start a life insurance policy may have provided to them.

Lack of Courage

Remember the little engine that could?  It kept trying until it finally got over that mountain.  This wealth gap is a mountain, and to make it over, we have to keep moving.  Sometimes it is not that certain circumstances can’t turn around, it’s simply that we stop putting in the work to make it happen.

Wayne Gretzky once said, “You miss every shot you don’t take.”

The truth of the matter is, the racial wealth gap continues to exist, but society has begun to address it more often.  The rest of the success story is left to the work of the individuals who wish to close the gap. What role will you play?

Let’s Plan Forward

With effects of the pandemic still looming, the gap is sure to widen due to economic conditions. While many families are concerned about being able to afford enough food for the month, the thought of closing the wealth gap is most likely pushed to the back burner.  The problem, however, will continue to exist.  So where do we go from here?

Don’t give up.  Get a head start. You remember when your elders told you to listen and receive their wisdom?  Well, it’s not too late.  As mistakes are made, lessons are learned.  As lessons are learned, new habits are formed.  As habits are formed, gaps are closed.   Let CCCSMD help you and your loved ones on the journey to make better decisions to prepare you for creating generational wealth.  Lead by example; it’s never too late to turn a shortage into an abundance!