Four Steps to Build Financial Wellness for Black Americans

1. Move Forward With Empathy (for Yourself).

Building financial stability and wealth can be challenging — especially for many Black Americans, who also face the aftereffects of decades of inequality. Some sobering numbers:

• Research from the Minneapolis Fed suggests that while today’s racial wealth gap links all the way back to unequal levels of wealth in 1870, the gap actually grew roughly 0.1% per year between 1980 and 2020.
• Today, white Americans (60% of the U.S. population) hold 84% of the country's total wealth, while Black Americans (13% of the U.S. population) hold just 4%.
• White workers are paid more than Black and Hispanic workers at nearly every educational level, with white college graduates earning $35.90 an hour and Black college graduates $27.81 an hour in 2019.2
• When data are not controlled for equal education or experience levels, Payscale found that Black women earn just 79 cents for every $1 for white men.

It’s important to acknowledge and even grieve these realities. Make sure to give yourself empathy when it comes to your personal finances: There are some macro forces outside of your control.

This doesn’t at all mean we should accept the status quo or stop fighting for social and economic justice. Rather, remembering this wider perspective when it comes to your own wallet can help you identify what is in your control, identify your personal priorities and start making more intentional choices with your money wherever you are today.

2. Enlist Allies and Community.

An important first step in achieving greater financial health is building a financial support system. Your first and best ally is always yourself, so invest in your financial skill set. This could mean anything from auditing a business course at a local college, to doing your own research on financial topics like retirement and investments, to joining educational webinars through your workplace benefits.

As well as building your own financial knowledge bank, reach out for support from others. Access to workplace benefits like financial wellness programs, financial advice or even equity awards can provide opportunities to accumulate greater financial security.

If your employer offers a retirement plan, enroll and maximize any company match. If they offer you a financial wellness program, tap into any features you can use in your day-to-day life, like budgeting tools, savings support and access to professional financial advice.

Also, consider finding a financial mentor whom you can talk to about your financial goals and ideas and actions you can take to turn those dreams into reality. This could look like working with an experienced financial coach or adviser who can offer you personalized guidance, or forging new relationships in your community. Many workplace 401(k) plans are managed by an adviser, and you may be able to connect with them for free guidance as well.

3. Build Your Credit.

Black consumers are more likely to be turned down for credit compared to white consumers, so building a stronger credit score can be an important step in opening the door to new wealth-building opportunities, like purchasing a home.

How do you improve your credit score? It may sound simple, but the first step is to not borrow more money than you can afford to pay back. Build up credit by using any credit cards you have to make small purchases — even a pack of gum — and then immediately pay off the balance. Over time, these small on-time payments can help raise your score.

Second, look for opportunities to borrow at lower rates—for example, some credit cards allow borrowers to post collateral like cash or securities in exchange for lower rates. This may not be the best move for everyone, but it may be a way to get your foot in the door.

Lastly, make sure you know how the rates on your credit cards or any other forms of debt work. Do rates increase if you miss a payment? Which of your debt charges the highest rate, and what is your minimum payment due? Prioritize paying down your most expensive debts first.

4. Build Your Savings and Investments.

Savings and investments are just as essential as credit. If it feels like a challenge to find funds to invest or save, consider using the 50-30-20 rule to help you budget: Put about 50% of your money toward necessities like food and housing, 30% toward wants, and then you have 20% left to invest and save.

Make it a priority to build up an emergency savings fund if you don’t already have one. Start small if you must, even saving $5 at a time until you have $1,000. Then, set your sights on having enough set aside to cover three to six months’ worth of living expenses.

Just as important, invest for retirement. If you have a 401(k) through your job, great. If not, consider opening an IRA. From there, you can look into other opportunities to invest and grow your money for the future. Figure out what works for your lifestyle, and whatever you do, give your money a chance to grow.

Building a Better Future

Some Black Americans may have to cover extra ground in order to generate and preserve personal wealth. Just know that no matter what the big picture is, you do have the power to make a difference in your own financial life.

What’s more, raising up your own personal net worth as a person of color can help start a ripple effect that can have a positive impact on others. Remember to show yourself empathy, and know that whatever small steps you take today can add up to help you create a better financial future for tomorrow.

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