If you're a person of color in the United States you're directly impacted by the racial wealth gap. For starters, you're likely to get paid less and intentionally targeted with high-interest loans and other unsavory high-cost financial products. Plus the odds are stacked against you when it comes to achieving homeownership.
You are also more likely to carry higher debt than your white counterparts, have little to no savings, and little to no investments.
When financial challenges arise, the lack of savings combined with the financial literacy gap reality can be devastating to a minority family.
For instance, what starts off as one missed payment could end up resulting in a string of late fees, penalties, and collection notices because you could not keep up with your payment due dates. And the repeated inability to keep up with your bills could have more severe consequences.
Your utilities could get cut off, your credit could get impacted and you could face the inability to qualify for a mortgage; all of which in turn can put your overall financial well-being at stake.
Why is this?
It would take more than a single history lesson to walk through the root causes, but one undeniable factor that all of this ties into is the racial wealth gap.
What is the racial wealth gap?
The racial wealth gap is the difference in median wealth between races in the United States. In particular, it is noticeably larger between white and minority households. In general, white households are in a much better position financially than black, Latino, and Native American households.
Sounds unreal right? Let's look at some of the stats.
For decades, black wealth has consistently lagged behind other races. Data from the Census Bureau shows that the poverty rate was at 20.8% for blacks and 17.6 % for people of Hispanic origin in 2018, while for non-Hispanic whites, it was at 8.1%.
During the same period, the real median income was $41,361 for blacks and $51,450 for people of Hispanic origin, while that of white, non-Hispanics was $70,642.
Meanwhile according to the U.S. Federal Reserve and as illustrated by the Visual Capitalist, the median net worth was $17,600 for black households and $20,700 for people of Hispanic origin, while for non-Hispanic whites, it was $171,000. That's almost 10 times more than black households.
Why it's more important than ever that we act to close the gap
You might be thinking that this is just the way things are and that there isn't much that can be done about it. However, nothing could be further from the truth.
In light of the historical and continuous present turmoil caused by racial injustice, this topic has never been more important. Fighting for equality and justice do not start and end with policing on the streets. It seeps into every area of our lives.
Preserving life through a just system is of utmost importance, and once that life has been preserved, giving that person equal opportunity to flourish is key.
The racial wealth gap has robbed so many of the opportunities to flourish financially while allowing others to achieve unlimited levels of wealth. This has real implications.
For starters, children coming from more privileged homes are more likely to have better outcomes in life. They are exposed to better opportunities, stronger economic networks, and access to better schools.
Differences in wealth flow into the type of healthcare communities can access, the incidence of chronic disease, and impact life expectancy. This was made even more clear by the devastating impact of COVID-19 in black and brown communities.
We need to close the gap. There has never been a time to start doing so than now.
Looking at the racial wealth gap: How you can make individual change
While closing the racial wealth gap also needs to be supported by government policies to help disadvantaged demographics build wealth, there are things we can do on an individual basis as well.
Empower yourself and your community with financial education to close the financial literacy gap
When it comes to the world of personal finance, you might feel like your efforts are a drop in the ocean but want to know the real truth? No one is born financially savvy.
It takes a dedicated amount of effort to learn, plan, do, and repeat. But once you get to the doing, you'll find that it's where all the magic happens. And once you know, you can share your experience and wealth of knowledge with your children, family, and your broader community.
Becoming empowered with financial education is one of the first steps you can take to closing the racial wealth gap.
At Clever Girl Finance, our commitment is empowering you to succeed financially with financial education andwe have a ton of resources to support you.
We've walked up the learning curve too and are more committed than ever to make it as easy as possible for you to learn. Wondering where to start?
Plus, as part of our commitment to your learning and education, we've made all our online personal finance courses and completely and permanently free.
Take strategic action: Pay down debt, save and invest
Educating yourself is one thing but you'll truly start to see results once you begin to take action.
Wherever you are in your financial journey today, know that with repeated action, you'll be in a totally different place five years from now. The key is to give yourself time.
Are you in debt? Create a debt repayment plan and start actively working on that plan to get out of debt.
You'll also want to create a plan to save and invest. Prioritize setting up an emergency fund to help with any near term needs. Learn how investing works and start investing to achieve your long-term goals.
Homeownership is also worth pursuing as a way to transition generational wealth.
Share your knowledge with your children and community
If there's one tool that has long been underestimated, it's knowledge transfer. Financial education is something many parents leave for schools to teach their children. Schools, on the other hand, teach it minimally, leaving financial education to parents.
As a result, little or no valuable financial education is taking place.
Kids graduate from high school and college and land their first big paychecks. And from there, they roll down a financial hill. Falling prey to seductive marketing tactics from credit card companies, pressured into buying the latest trends on social media, and ending up with zero savings to show for their hard work.
The simple remedy? Educate your children. Have conversations in your communities. Parents and communities have so much to share with the next generation. It's not just the Warren Buffet's who are qualified to give financial advice.
Arguably, your life experience will teach volumes more because completely relatable.
Support minority-owned businesses
Looking for a tangible way to be part of the solution? Starting today, support black-owned businesses and other minority-owned businesses.
The potential to narrow the wealth gap through this point alone is huge. There are countless numbers of big brands that for years have profited off minority communities.
Many black and brown women have created products that serve their community and beyond. As you support their businesses, you not only help them but the generations after them. It ensures that minority communities have a say in the quality of goods they consume.
The growth of minority-owned businesses gives consumers choice - instead of walking down the makeup aisle and seeing 2 shades of foundation that claim they work for non-white skin, now, minorities can see all shades.
Minority ownership creates a domino effect where minority women see other minority women thriving financially providing a ton of inspiration and narrowing the wealth gap.
When people of color achieve financial success, they are in a much better position to help others. They can use their resources to advocate for change and create better opportunities for the community at large.
Give to causes to fight racial injustices
If you're in a position to do so, giving to causes that fight racial injustices can make a world of difference. There are many aspects to supporting the movement. You can do so financially, physically in person during events and emotionally by lending a hand or an ear.
Politically, you can (and should) go and vote.
Whatever route you decide to take, one of the best ways to beat social inequality and injustice is to do so one person at a time. It's something we can all do every single day by stepping out of our comfort zones and into our neighbors' worlds.
It takes forming friendships across cultural divides, learning of other people's backgrounds, and walking with them through struggles and triumphs. As we each do this, we will break barriers that have long plagued our communities.
When all is said and done - the cameras have stopped rolling and the headlines have died down, how will you and I engage with our neighbors? How will you and I continue to fight injustice? What kind of example will we set for our children and our children's children to see?
If you are looking to support financially, below are five amazing ways you can play a part in bridging the wealth gap:
- Black and Brown Founders: Provides community and education to black and LatinX founders with modest resources.
- BOOM Concepts: Helps artists and creative entrepreneurs from marginalized communities to amplify their voices.
- Black Girls Code: Empowers pre-teen girls of color to develop in-demand coding and tech skills.
- Refugee Dream Center - Helps minority refugees with social/economic integration so they can access good opportunities.
- Prison Book Program: Helps the incarcerated to boost their education and knowledge.