Tackling Disparities in Finance for Black and African Americans
Empower yourself with understanding, tools and expert advice to combat the racial wealth gap and build for your future.
Kalinda Ukanwa, MBA, Ph.D.
David Crockett, MBA, Ph.D.
Dr. Lori Latrice Martin
Dr. Ijeoma Opara
Nadia C. Vanderhall
A closer look at the distribution of wealth in America reveals staggering racial disparities. According to the Federal Reserve, the average white family’s wealth is seven times higher than that of the average Black family. In 2021, the national poverty rate for Black Americans (22%) was more than double that of white Americans (10%), as reported by the Kaiser Family Foundation (KFF).
Black and African Americans have had limited access to building wealth for generations. Systemic inequality, housing and employment discrimination, lack of financial literacy, high default rates on student loans and other factors have significantly contributed to the racial wealth gap. Given these financial challenges, there are actions you can take to combat the racial wealth gap and continue to build a secure future for yourself and your family.
How Profound Is Systemic Inequality in Personal Finance?
The struggle for Black Americans to build, secure and maintain wealth has been ongoing for centuries. Many financial barriers instituted during slavery did not immediately end after emancipation — they continue to impact Black and African Americans’ opportunities for creating wealth today, and these barriers only began to be confronted a few decades ago.
History of Race, Income and the Wealth Gap
Until its abolishment in 1865, slavery legally prohibited Black people from earning wages. Following emancipation, laws continued to financially and socially marginalize Black Americans by curtailing their freedoms and denying them opportunities in implicit and explicit ways. For example, when it was first initiated in 1935, Social Security excluded farmers and domestic workers, of which roughly 65% were Black Americans. Prior to the Civil Rights Act of 1964, the Black Codes and Jim Crow laws — which legalized racial segregation in the South — detailed what work Black people could do, what they could earn and whether they could leave after being hired. Some states even restricted what property Black people could own.
Why Does the Racial Wealth Gap Persist?
Discriminatory policies were originally set out to ensure that white Americans could build more wealth than Black Americans. Despite the official end of these discriminatory policies and laws nearly 60 years ago, the systemic inequalities they sustained have been difficult to eliminate. These inequities pervade America’s labor, housing, education, health care and justice systems, and offer to explain why, on average, Black Americans have considerably less wealth than white Americans.
Financial Trend by Race Over the Years
The chart below shows data from 1989 to 2019 on average household net worth by race and ethnicity, based from the most recent Survey of Consumer Finances. The chart underscores a trend of widening financial disparity between Black and White families over the years. While both groups have seen an increase in average net worth, the rate of growth for White families is noticeably steeper, standing at $952,910 per household in 2019. Meanwhile, the net worth for Black families in 2019 was $140,520. Despite economic growth benefiting both groups, the benefits are disproportionately skewed.
Six Financial Obstacles and Solutions to Close the Wealth Gap
Several obstacles impact Black families trying to secure wealth and build financial wellness. Systemic inequalities that lead to lack of financial literacy, lower income and limited homeownership all interfere with this community reaching financial freedom and independence. But prepared with the right knowledge, you can build savings, survive income disruptions and create generational wealth.
1. Access to Mortgages and Homeownership
Redlining was one of the earliest forms of institutionalized racism. It allowed lenders to offer increased rates to customers in certain neighborhoods based on their race. Although this was outlawed in 1968 by the Fair Housing Act, it can still occur today. A 2018 study by the National Community Reinvestment Coalition found three out of four neighborhoods that were redlined 80 years ago are still struggling economically. For example, some public policies claiming to support economic improvement, create new public spaces and fix urban blight actually sought to deprive Black communities of property ownership and affordable rental housing.
Between 2019 and the present, Black homeownership had a record low of 45.7% in the second quarter of 2023, according to the Census Bureau. By contrast, white homeownership was over 30% higher — and consistently remained 30% higher for every quarter between 2019 and 2023.
What You Can Do
Watch for Discrimination
Red flags that indicate discrimination include an agent directing you to neighborhoods with specific demographics or telling you a property is not available when you know it is, and being denied a property because of your source of income or because you receive public assistance.
Report Unfair Treatment
If prospective homebuyers believe they are being discriminated against, they should contact the Fair Housing Justice Center or local human rights commissions. Applicants facing mortgage issues or scams, like inflated rates or denied applications, can view and dispute negative credit information. Report any mortgage discrimination to the Consumer Financial Protection Bureau (CFPB) for Equal Credit Opportunity Act concerns and to the U.S. Department of Housing and Urban Development (HUD) for Fair Housing Act violations.
Maximize Your Buying Power
Review your credit report for accuracy and correct any errors that might impact your loan qualification or interest rate. A strong credit record not only aids in securing a mortgage but also reduces home insurance costs. To lower your costs even more, consider buying your home and auto policies from the same company for a multi-policy discount, seek out other discounts for professional associations or employers and shop around for the best rates. The National Association of Insurance Commissioners has information to help you choose an insurer in your state.
2. Securing Employment and Higher Income
Employment discrimination and a lack of hiring opportunities make it difficult for Black families to overcome poverty or build wealth if they’re unemployed or stuck in low-wage jobs. A National Bureau of Economic Research study discovered that racial discrimination begins early in the job application process. Applicants with names often associated with the Black community are 9% less likely to hear back from employers, regardless of their qualifications. People of color who ask for a raise are less likely to receive one than white men who ask, reports PayScale. According to its “Raise Anatomy” study, women of color were 19% less likely to have received a raise than white men, and men of color were 25% less likely.
The U.S. Bureau of Labor Statistics started collecting data on unemployment rates in 1972. Since then, the Black unemployment rate has generally been twice as high as the white unemployment rate, as reported by the Center for American Progress. In the second quarter of 2023, the rate of unemployment for Black individuals was 5.4% versus 3% for white individuals. During the pandemic, however, the unemployment rate for Black Americans surged to 13.2%, compared with 7.9% for white Americans.
What You Can Do
You can implement some savvy strategies to make living on a small salary manageable, such as finding assistance programs, asking friends and family for help or making small changes to your lifestyle to help save. Apply these tips when asking for a raise:
You have the right to ask for a fair increase in compensation if your work justifies it. Confidence in your abilities and contributions can make your request more compelling.
Investigate the salary benchmarks or current market values for your position within your company and industry. Use this information to support your request for a raise, showing that you understand your worth in the market.
Document Your Achievements
Keep track of your successes and accomplishments at work, and use them to strengthen your case when asking for a raise. Your documented wins can be tangible evidence of your value to the company.
Request a Follow-up if Denied
If your manager declines your request for a raise, ask for a timeline to revisit the conversation. This shows persistence and a willingness to work towards the goal.
3. Cost of Using a Financial Expert
A financial advisor can help you navigate taxes, pay down debt and plan for savings. Advisors can provide advice and resources on how to best manage your money and make sure you align with your financial goals. According to the P-Fin Index, Black Americans lack financial knowledge in risk and investments, as well as in credit.
But many people don’t use a financial advisor. For many, the cost may be the factor, especially if they live on a low income.
What You Can Do
Look for Black Financial Advisors
If you are looking for a Black financial advisor, explore the Association of African American Financial Advisors. There’s also plenty of free advice online through your 401(k) provider, bank or credit unions.
4. Not Building a Savings or Emergency Fund
Most financial experts would tell you emergency savings is a priority, and you’ll want to save at least three to six months of living expenses. But because African Americans have historically had less access to stable jobs, higher wages and retirement benefits at work, they have been less likely to accumulate savings and invest. The current tax code also provides increased tax incentives to families with higher incomes, which has been associated with both housing and retirement savings, according to the Center of American Progress.
What You Can Do
Assess Your Finances
Begin by examining your income and monthly living costs. Understand where your money is coming from and where it's going.
Set a Savings Goal
Aim to save between 10% to 20% of your income each month. This consistent saving habit can help you achieve various financial objectives, such as reducing and managing debt.
Opt for Automated Savings
To ensure consistency and eliminate the possibility of forgetting, set up automated savings. This way, a designated amount is automatically transferred to your savings account each month.
5. Paying for Education and Using Student Loans
Lack of wealth could translate into fewer opportunities for upward mobility, like pursuing an education and the ability to pay for it. Black families often rely heavily on student loans and risker student debt options to finance higher education.
Black students are likely to take on the most student loan debt, with an average student loan balance of $44,000. An analysis from the Center for American Progress in 2017 revealed that 12 years after enrolling in college, a typical African American student who attended college in the 2003 school year owed more than their original borrowed amount, and a staggering 49% defaulted on their loans. Borrowing money is not bad. It can be a good way to establish credit, and it’s a reasonable option when done responsibly. But it can become a challenge when borrowers cannot pay back their loans on time.
What You Can Do
Seek Scholarships and Grants
Several organizations, colleges, associations and nonprofits offer scholarships and grants for Black students to help with affordability and understanding the application process. Relying on grants and scholarships to fund college can help African American students be more financially stable in adulthood.
Plan for Post-Graduation Finances
Upon graduating, be proactive about managing any student loan debts. Seek out tools and resources designed to help graduates navigate and reduce their student loan debts.
Budget and Strategize
Create a comprehensive budget that accounts for your monthly expenses and income. Incorporate a strategy to consistently pay down your student loans, aiming to reduce the principal amount as quickly as feasible.
6. Saving for Retirement
Saving for retirement is essential for financial security in one's later years. But for the average Black American, factors such as lower income levels, job instability and wage disparities often lead to irregular contributions and less available income for retirement savings. In fact, the majority of Black and Hispanic families have no savings in retirement accounts.
What You Can Do
Start Saving Early
Starting early is the key to a secure financial future. Compound interest allows even modest contributions to your retirement fund to grow exponentially over time. The earlier you begin, the more time your money has to multiply.
Utilize Employer-Sponsored Plans
If your employer offers a 401(k) or a similar retirement plan, aim to contribute as much as you can. This is especially advantageous if your employer matches your contributions because it's essentially free money that can boost your retirement savings.
Explore Individual Retirement Accounts (IRA)
In the absence of an employer-sponsored plan, consider investing in an IRA. There are multiple IRA types, each with its own tax benefits. Research thoroughly and choose the IRA that best fits your financial situation.
Financial Literacy for Black and African Americans
The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), a survey that measures financial literacy, revealed African Americans demonstrated a low level of financial literacy. The P-Fin Index showed that Black Americans only answered 38% of personal finance questions correctly compared with white Americans who answered 55% correctly. Black respondents scored highest in knowledge on borrowing and managing debt but scored lowest in comprehending risk and uncertainty, insuring, investing and go-to information sources.
The wealth gap between Black and white Americans may be partially due to educational opportunities in financial literacy. On average, college-educated African Americans answered 53% of the P-Fin Index questions correctly, compared with 24% among those with a high school degree or lower education level.
Although financial literacy alone cannot eradicate the wealth gap, it’s a crucial part of the solution. Here are some strategies and resources to facilitate your learning journey:
Local organizations like the Urban League host workshops specifically tailored to the Black community. Covering topics from budgeting to homeownership, these workshops are available through community centers, churches and financial institutions. They provide hands-on learning experiences, fostering financial literacy and strengthening community bonds.
The internet offers a wealth of financial education, with platforms like Robinhood for investing and websites like the National Endowment for Financial Education (NEFE), for free educational materials. These online resources allow individuals to learn at their own pace, providing valuable tools for those looking to enhance their financial literacy.
Financial Books and Podcasts
Books and podcasts make complex financial concepts accessible and engaging. Listen to money podcasts such as Brown Ambition or His and Her Money for insights from Black financial experts and entrepreneurs. Recommendations from BookAuthority and The Investor's Podcast Network also provide a wide range of insights from renowned financial experts, catering to various interests and learning styles.
Personalized mentorship from organizations like Big Brothers Big Sisters of America and Operation HOPE includes financial literacy guidance. These mentors help individuals navigate the complexities of the financial world, with additional resources like SCORE offering free mentoring for entrepreneurs.
Parents and Families
Parents and families play a crucial role in financial education. Resources like the "Money as You Grow" program enable parents to teach children about money, laying a strong foundation for financial literacy from a young age. You can also teach your kids about compound interest using MoneyGeek’s printable games.
Financial Education in Schools
Schools have the opportunity to integrate financial literacy into their curriculums, equipping students with essential skills like budgeting, saving and investing. This education is particularly vital for Black Americans, fostering financial empowerment and independence and promoting a culture of financial awareness.
Expert Panel on Black Finances and Addressing Financial Challenges
- What are some of the financial barriers that you’ve observed the Black community face?
- What are some tips to help Black Americans build wealth?
- What are some ways Black Americans can improve their financial literacy? Are there any specific resources that you recommend?
- Stats show that Black Americans suffer from high delinquency of student loans. Can you offer any advice on how to manage student loans?
- Historically, housing discrimination has stunted Black Americans’ building of wealth. What can a prospective homebuyer or renter do to protect themselves?
Financial Specialist at Strategies for Wealth
Assistant Professor, Yale School of Public Health
Financial planner at Plancorp
Founder of The Brands + Bands Strategy Group
Financial Coach and Founder of Tailor-Made Budgets
Professor of African and African American Studies and Sociology at Louisiana State University
Co-Founder and CEO of Perch Credit, Inc.
Founder/CEO of Mavenly Consultants, LLC
Financial Journalist and Author
Financial Education Instructor and Founder of Financial Lituation and $hares
Financial Coach, Insurance Agent, & Managing Broker for Quality Professional Management, Inc
Professor of Marketing and Moore Research Fellow, University of South Carolina
Assistant Professor of Marketing, Marshall School of Business, University of Southern California
Resources for Black and African American Communities
Many resources are available to help you achieve financial wellness, like programs that improve finance education and provide scholarships and mortgage financing assistance. These organizations can help you get on the path to success.
Financial Services and Programs
- Operation Hope: This nonprofit offers free programs and services to clients to help with youth financial literacy, homeownership, credit and money management.
- Black Cooperative Investment Fund: This 501(c)(3) provides microloans to the Black community through pooled funds and raises awareness about economic empowerment, equity and wealth-building for the Black community.
- AFCPE®: This is an organization of certified financial experts. It is a great source to find a financial counselor or coach who can help you navigate your finances. It also offers free virtual financial counseling and coaching sessions to individuals and families struggling financially because of COVID-19.
- Prosperity Now: This national nonprofit helps build financial security for families and communities with low income through research, solutions and supporting policies.
- The National Council of Negro Women: This assembly of national African American women’s organizations and community-based sections provides research, advocacy, services and programs on health, education and economic empowerment in the United States and throughout Africa.
- 100 Black Men of America: Through mentoring, education, health and wellness and economic empowerment, this organization focuses on building up young African American men.
- Joint Center for Political and Economic Studies: Founded in 1970, this nonprofit public policy organization works on ideas, research and policy solutions for people and communities of color.
- National Urban League: This civil rights organization focuses on economic empowerment in underserved urban communities and offers comprehensive house counseling, educational opportunities, job and workforce development and other services.
- The National Association of Black Accountants: This nonprofit association works to support opportunities for people of color who want to work in accounting, finance consulting and other related businesses.
- National Black Chamber of Commerce (NBCC): With over 200 chapters located in 40 states and 50 nations, this is one of the largest Black associations. It’s dedicated to economically empowering and sustaining African American communities.
Community Support Groups
- Black Women’s Blueprint: Their mobile “healing” units support a variety of needs for Black women, including maternity and infant needs, as well as assisting with rent and temporary housing.
- The Empowerment Program: This organization provides support groups and resources to help individuals overcome stressful life events, such as substance use and trauma, and provide ways to cope and recover.
- 2-1-1: In a number of communities, you can dial 2-1-1 on your phone and will have access to information regarding a variety of services and programs, including housing, employment and education opportunities in your local area.
- Modest Needs: This nonprofit provides short-term financial assistance to individuals and families with low incomes and who are in temporary crises.
Housing Assistance Resources
- NCRC Housing Counseling Network: This HUD-approved network of housing counseling agencies has provided counseling to 40,000 households nationwide. Their services include pre-purchase counseling, homebuyer education, mortgage delinquency and default resolution, among many more services.
- Making Home Affordable: This government program provides access to HUD-approved housing counseling agencies, advice to avoid scams and social networks to stay connected on info and resources.
- USDA Home Loans: The U.S. Department of Agriculture provides home loans that help people who have low or medium incomes purchase houses in rural locations.
About Erin C. Perkins
- Board of Governors of the Federal Reserve System. "Distribution of Household Wealth in the U.S. since 1989." Accessed August 4, 2023.
- Board of Governors of the Federal Reserve System. "Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances." Accessed August 4, 2023.
- Board of Governors of the Federal Reserve System. "Recent Trends in Wealth-Holding by Race and Ethnicity: Evidence from the Survey of Consumer Finances." Accessed August 7, 2023.
- Board of Governors of the Federal Reserve System. "Survey of Consumer Finances, 1989 - 2019." Accessed August 4, 2023.
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