There are many well-known historical disparities in the American financial system that have contributed to the current wealth gap between Black Americans and their White peers. The denial of access to wealth-building homeownership and education benefits in the GI Bill, redlining and loan rejections for businesses are several critical components of today’s widely discussed racial wealth gap. Throw in historically lower wages and education gaps and you find there is a staggering difference in wealth by race. White families have roughly eight times the wealth of Black families, according to The Brookings Institution.
This historical context is critical in understanding that individual achievement must be matched with policies that address the framework that has yielded this result.
While there is much to do to address the broader systemic issues, every day that goes by is an opportunity to shore up individual situations. There are many steps to building and creating a bright financial future, and time is of the essence. Time and money go hand in hand in the accumulation of savings, assets and wealth. So, while we work on the broader issues, let us look at what Black Americans are saying are their biggest concerns and identify strategies to work on them now.
Where we are right now
At the end of 2020, a full quarter of Black Americans said they were unemployed, compared with 19% of White Americans, and more than half of Black Americans had an annual household income of less than $30,000, according to the Prudential Financial Wellness Census, compared with 36% of the overall population.
Given such challenges, it’s no wonder that Black Americans are 10 percentage points more likely than White families to cite financial issues as the biggest concern facing them and their families right now, according to a report from the Kaiser Family Foundation.
Here’s a look at some of the biggest financial challenges facing Black Americans and strategies to address them:
1. Black households make less money than their White peers.
After controlling for education, years of experience and occupation, there was a median annual pay disparity of $2,000 for Black women and $1,100 for Black men in 2021, according to PayScale. Over a lifetime of earnings, those differences can add up to hundreds of thousands of dollars.
Take action: In today’s tight labor market, employees have more leverage to negotiate for a higher salary — or to move to an employer that offers better pay. In addition to your salary, you’ll also want to look at other components of the overall compensation, such as health insurance, retirement savings or paid leave programs.
If you feel like you are stuck in your current situation with few local options, remote work is more plentiful today than ever. Finally, if you plan on speaking to your current employer about a raise, put together a list of your accomplishments and skills to prepare for your conversation. It never hurts to reflect on and communicate the value you bring.
2. Black Americans have higher debt levels and often pay more interest on those debts.
The median debt-to-asset ratio for Black households is 46.8%, compared with just 29.5% for White households, according to the Employee Benefit Resource Institute. Black Americans were also more likely to have to pay more than 40% of their income toward debt.
Take action: Make a plan to pay down your debt. Our debt repayment calculator can help you decide which debt to pay down first — and where to go from there. If you have student loans, investigate whether you would qualify for federal student loan repayment programs or have access to a workplace student loan assistance plan. Your debt repayment outcomes will improve with shopping for the best possible terms. After that step, refer to strategy No. 1. More income will of course help you reach your goals faster.
Finally, when it comes to repaying debt, be aggressive but wise. Put a plan together that allows for creating an emergency fund if you do not have one. Many repayment plans can get derailed by an unexpected large expense that leads to more borrowing.
3. Black families are less likely to own homes — a significant source of wealth generation.
At the end of 2020, 44% of Black households owned a home, compared with the three-quarters of White Americans who own property, according to McKinsey. Consider the reference to the GI Bill, which created homeownership wealth for White Americans, including the ability to pass on property wealth to the next generation. The disproportionate number of Black mortgage holders with distressed loans during the 2008-2010 financial crisis also impacted overall homeownership levels. Difficulty getting a mortgage remains an ongoing factor as well. Black mortgage applicants are turned down at a rate that’s 80% higher than that of White applicants, according to an analysis of data from the Home Mortgage Disclosure Act.
Take action: Homeownership is widely viewed as a cornerstone for financial stability and opportunity to create wealth. For many families, a home is their most valuable asset. Along with the opportunity for your home to grow in value, tax benefits can also help with the overall cost. Consider your opportunities for homeownership and plan. If you already own a home, ensure that you have the lowest financing rates available, as mortgage rates are still near all-time lows.
If you need to work on your credit score to qualify, start by understanding what is holding your score down so that you can act as soon as you hit the right level. If you are seeking your first home, talk to someone you know who owns a home. Budgeting and preparing for homeownership will add many additional expense items you will need to include in your overall budget. Taxes, utilities, maintenance, and other costs vary depending on the size of the home and your geographic location.
When you are ready to buy, ask your lender whether they have any special programs to assist first-time buyers. An FHA (Federal Housing Administration) loan, for example, can allow you to purchase a home with as little as 3.5% down, while a Community Seconds loan could provide secondary financing to cover a down payment and closing costs.
4. Black Americans are less likely to participate in the stock market.
While more than half of White Americans own some equities, that number falls to about a third for Black families, according to data from the Federal Reserve. Investing in stocks is an important means of building wealth over time and generating the returns necessary for retirement.
Take action: For many people, the easiest way to start investing in the stock market is through their workplace retirement plan. If your employer offers a retirement savings plan, make sure you contribute enough to earn any matching contribution your employer offers. Also be sure to evaluate the investment options and get the assistance and information you need from your employer to select an investment approach that is right for you.
If you start with a low percentage contribution, you can typically increase the amount you save over time (some companies even let you do this automatically), with the goal of saving at least 10% to 15% of your income for retirement. The compounding effect of investing money over time can often help you accumulate more than you think.
If you don’t have access to a 401(k), consider contributing to an IRA for retirement savings. You can open an IRA with a brokerage and follow similar principles as you would with a 401(k) account.
5. Black students have lower levels of access to financial education.
In states that do not require personal finance education in high school, only one in nine students has access to a stand-alone personal finance course in high school. That number falls even further — to one in 14 students — in schools with primarily Black and other students of color, according to Next Gen Personal Finance.
Take action: If you are a parent or have children in your life, talk about the basics of personal finance. Setting a budget, managing what you have, and setting aside whatever you can as often as you can are easy concepts to discuss. These simple conversations start a habit of talking about financial matters and getting conversations going. There are plenty of resources to help with this, including books, podcasts, and newsletters.
If you need some finance 101 guidance, consider tapping into content available through your workplace benefits (we have a quick guide), or seek out news outlets, blogs and other online portals for more information. Talking to our younger generation about money is a key first step to making finance a focal point of learning.
Salene Hitchcock-Gear is president of Prudential Individual Life Insurance, a business unit of Prudential that offers competitive solutions to meet the needs of consumers through the manufacturing and distribution of a diverse portfolio of life insurance products. An insurance industry veteran with more than 30 years of experience, Hitchcock-Gear joined Prudential in 2017 as chief operating officer of Prudential Advisors, the Company’s national sales organization with more than 3,000 financial professionals, advisors and fee-based financial planners who offer clients a broad range of financial solutions. She became president of the Individual Life Insurance business in 2018.
Six Steps to Take if You've Recently Inherited Money From a Loved One
It’s important to deal with the emotional aspect first before tackling the financial one.
By Kiplinger Advisor Collective Published
Alaska Airlines to Buy Hawaiian: Get Bonus Miles Now
How to use the Alaska Airlines credit card and frequent flyer program to save on trips to Hawaii, Alaska and beyond.
By Ellen Kennedy Published
11 Reasons to Consider a 1031 Exchange
Deferring capital gains taxes might be at the top of the list, but growing your portfolio and your wealth and helping with estate planning are also compelling reasons.
By Daniel Goodwin Published
Why It’s Time to Give Bonds Another Look
Yields are much more attractive now, but you should use discretion to find the bond allocation that’s best for you.
By Bill Aldrich, CLU® Published
Estate Planning and the Legal Quirks of Retiree Cohabitation
Creating an estate plan for an unmarried couple is already challenging, but when the cohabitating couple are in their golden years, it’s especially tricky.
By David Handler, J.D. Published
Seven Financial Planning Stops to Put on Your Map to Financial Security
Creating a comprehensive plan is just the start, though. Checking in regularly to make sure you’re still on track is imperative.
By Michael E. Lewis II, CFP®, CLU®, ChFC® Published
How to Measure the Health of Your Retirement Plan
These five key indicators can help you make decisions based on the overall performance of your retirement plan rather than individual variables.
By Brian Skrobonja, Chartered Financial Consultant (ChFC®) Published
Four Easy Ways to Get Yourself Fired
Being a standout on the job can sometimes be as simple as showing up to meetings on time, responding promptly to requests, doing your homework and not being a jerk.
By H. Dennis Beaver, Esq. Published
How Might the Great Wealth Transfer Change Society?
As $84 trillion in assets move from Baby Boomers to younger generations, we could see a greater emphasis on financial technology and investing based on values.
By Jennifer Wines, JD, CPWA® Published
Why More Retirees Might Come Out of Retirement
It’s often not solely because of financial reasons, but because of a lack of purpose in retirement. This financial expert can relate.
By Chris Blunt Published