Better Financial Literacy May Help The Racial Wealth Gap

Financial education can make a dent in the gaps in wealth between White and Black Americans. It cannot do so entirely without widespread intervention from the government and private sectors to lessen and erase policies that perpetuate these gaps.

Different Realities of White and Black households

1. Black Households Earn Less Income White households earned a median income of $61,200 compared to $35,500 for black peers. Their homes may earn less income than white families because more of their jobs pay wages closer to the minimum wage level. Earning less income means reduced abilities to expand wealth through more significant savings, debt repayment, and money investment.

2. Lower Net Worth For Black Households

Typically, the higher the income a family makes, the higher the wealth accumulated. Net wealth or net worth’s calculation is assets minus liabilities.

3. Different Composition of Net Worth

The composition of assets and liabilities of black and white families are very different and tend to favor white families. White households tend to have more assets in investment and retirement accounts.

4. Access to Credit May Be Tougher Causing Higher Debt Liabilities can depress wealth. White families have a higher proportion of their primary resident’s debt at 46% versus 32% for their black peers. This mortgage debt is “good debt” because it is associated with a potentially appreciable asset.

10 Recommendations For Improved Financial Well-Being of African Americans

1. Go To A Financial Advisor When developing your short-term and long-term financial goals, it is a good idea to visit a financial advisor who is a Certified Financial Planner (CFP), which you can read here. Some advisors may be more interested in selling you financial products.

2. Emergency Funds Establishing an emergency fund is a great place to start. Where possible, use automatic savings features available at work or through digital banking. Set aside separate savings account for this purpose.

3. Plan Early For Your Children’s College Education Automate these savings if possible. Find an appropriate fund to invest your money in or go with target-date funds that automatically adjust with your child’s age. See our post on Saving For College Early.

4. Save For Retirement Funds Putting aside money for your retirement accounts is essential. It is less painful when done early and automatically through your workplace, your own 401K accounts, or create your own IRA/Roth IRA. Like 529 savings accounts, there are tax advantages to gain from establishing these accounts.

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