By Deborah Bailey
Since the death of George Floyd in May 2020, a renewed emphasis on building wealth has emerged in African-American communities across the United States. The economic “wealth gap” between African-American and White Communities is now an acknowledged fact and a renewed effort is taking place by individuals in Black communities to build wealth from the ground up.
“We have to get comfortable talking about challenging issues like the racial wealth gap,” said Erika James, the first African-American woman to be named Dean of the Wharton School of Business, University of Pennsylvania.
In a recent report issued by the US Federal Reserve, DMV economist Akila Forde Black stated the wealth gap is unfortunately increasing. “Hispanic or Latino households earn about half as much as the average White household and own only about 15 to 20 percent as much net wealth,” she and co-author Aditya Aladangady state in the report on the Racial Wealth Gap.
Seminars, social media posts and corporate and community resources across the nation are connecting with Black communities to change this picture. Most HBCUs have courses in personal finance and are connecting African Americans from all walks of life with options that weren’t available a generation ago to build wealth and strengthen our communities.
“We tend to publicize dramatic successes and dramatic failures,” said Granville Sawyer, Director of the MBA program at Bowie State University and author of “College in Four Years: Making Every Semester Count.”
“The vast majority of us are in between and need practical tools and support to move forward financially,” Sawyer said.
Sawyer and analysts from McKinsey and Company Public and Social Sector emphasize the need for African Americans to be connected to this nation’s financial wealth-building system.
Secure Financial Investments
“African Americans have to focus on investing in financial assets as well as material assets like houses and property,” Sawyer said.
“The average annual compound rate of return on the New York Stock Exchange is 9.6 percent. If you can invest $200 per month over 40 years, you will be a millionaire,” he added.
But only 33.5 percent of African Americans own stock, according to a 2019 Federal Reserve Report. Sawyer encourages African Americans to get started with a portfolio either through an employer or independently through an investment management company.
“A well-diversified portfolio of financial assets; stock, mutual funds. That’s as low of a level of risk as you can get but will help you save more than a basic savings account,” Sawyer said.
Start or Build Your Emergency Fund
More than 73 percent of African Americans reported the inability to cover expenses for three months in an emergency, according to an April 2021 Pew Research Poll. The Covid-19 Pandemic has impacted Americans overall in this category with only 4 in 10 Americans of all backgrounds reporting the ability to handle a $1000 emergency expense right now without using the charge card.
“Create an emergency fund,” Sawyer said. “If you can’t afford three months of expenses, put away $1000 because the emergencies will come,” he said. “If you keep using the credit card for unanticipated expenses, you are borrowing against your future money to pay that card back,” Sawyer added.
Getting a Bank Account, Insurance and Credit
More than 17 percent of African Americans are without traditional bank accounts compared to approximately 7 percent of Whites according to the FDIC. Some of this disparity results from segregation and Jim Crow laws barring blacks from establishing bank accounts in mainstream institutions.
Black Banks, credit unions and other financial institutions, once the safe haven for African American savings, have declined from a record 134 black-owned financial institutions in 1934 to a current 44.
According to a February 2021 report, access to financial institutions and financial products is critical to African American wealth building and social mobility. A 2020 study by Haven Life found that African Americans have 1/3 of the insurance coverage of their white counterparts. The National African American Insurance Association, with chapters in 18 cities, is working to help African Americans ensure their families understand how to build wealth through life insurance.
Financial Literacy Supports Not Limited to Students
Most HBCUs offer some form of financial literacy support to the surrounding community as well as to their students. Howard University, Bowie State University and Morgan State University all offer beginner-level courses in personal finance. Coppin State University just announced the start of a campus-community financial literacy initiative with PNC Bank.
Mindset Matters Most
Sawyer advises that the first thing needed to make personal financial changes in our lives is to focus on a mindset that’s ready to sustain a change for the better. “Make room in your life for focus, discipline and consistency,” he maintains.
Making and managing wealth means clearing the fear and hesitation from your life to ask for help.
Sawyer encourages Blacks who have not considered wealth building to get started in 2022.
“There’s going to be many times when your faith is tested on the road to building wealth,” asserts Sawyer. “But the net will not appear until you leap.”