As we celebrate Black History Month, it’s important to acknowledge how the financial behavior of Blacks is evolving. Despite deeply rooted conditioning and experiences that equate homeownership with wealth building, more and more Blacks are turning to stocks and self-employment.
Millennials Leading the Charge
Millennials are by far the largest generation and the largest group to enter the work force in the U.S. This generation is more educated and significantly more diverse than older generations, having come of age during a period of historic immigration (particularly Latin American and Asian countries).
Millennials are also more likely to be entrepreneurs, side hustlers, more interested in starting their own business rather than working for a salary. And Black Millennials are investing at nearly the same rate as White Millennials, 67% to 73%, a gap of just 6%. For seniors, the gap between black and White investing is 32% (56% to 88%).
“Black Millennials are investing at nearly the same rate as their White counterparts,” said John W. Rogers, Jr., Chairman and CEO of Ariel Investments. “This could signify a phasing out of the long-standing distrust of the stock market that our community has had.”
Stacey Tisdale discusses Black Wealth on The Breakfast Club
Homeownership is Not The Only Way
In 1968, The Fair Housing Act was passed to open up opportunities for Blacks to become homeowners by making it illegal to discriminate against any person from buying based on race, and other protected classes. It worked, home ownership did rise, peaking at 69% in 2004 and 2005.
This is not surprising given that in 2004 and 2005, 61% of Blacks believed real estate was the best investment they could make to increase their wealth. Fast forward to 2015, only 37% of Blacks ranked real estate the #1 investment they could make. Meanwhile, in 2004, 28% of Blacks considered the stock market as the best investment, and in 2015, that number had jumped to 41%.
The change in attitude likely encouraged by the housing bust in 2008, when 240,000 Blacks lost their homes. After that, when the stock market started to outpace home prices, more Blacks turned to investing, especially at higher incomes. For Blacks earning between 50,000 and 100,000 annually, 57% invested in the markets. For those making six-figure incomes, the number jumps to 80%.
The conversation around Blacks and money is most often focused on the community stuck at the bottom of the wealth gap. Without question, challenges remain.
In 2019, according to a report by the Federal Reserve, though median wealth did rise for African Americans, to $24,100, the median wealth for White families was $188,200. And for every $100 earned by a White family, a black family earns $61. The housing gap between Black and White has actually increased from 1900 to today, 28% compared to 30%. As of 2017, the Black and White housing gap had reached its highest level in 50 years. The rate of homeownership for Whites was 71.9% compared to 41.8% for Black homeowners.
Black Wealth And Black Dollars Matter
Despite the distressing statistics, it is important that we embrace the incredible wealth the community has created in the face of incredible odds.
From 2005 to 2013, African American income grew faster than White income at every level above $60,000/year. The greatest gains were seen in Black households earning over $200,000 annually, with an increase of 138%, compared to 74% for the White population.
As of 2019, the median net worth of African Americans was up 33% from 2016, compared to a 3% increase for White families. African American media household income grew to $46,073, up 6.3% compared with household incomes in 2007. Unfortunately, this modest bump up was cut short by massive job losses during the current pandemic and recession.
Spending by Black consumers is still on the rise. Today, though Blacks make up just 14.6% of the U.S. population, they are spending $1.3 trillion annually in purchases. There’s power in numbers and companies are listening, developing multicultural products to meet this increased market.
Systemic Racism Has Kept Black Wealth Low
This success comes about in the face of a long history of structural racism; policies, laws, events that have wreaked financial, emotional and psychological devastation on African Americans. Southern states enacted Jim Crow Laws to keep Blacks separate and poor. The federal government had policies like redlining, to keep Blacks from getting loans to buy a home by labeling neighborhoods as good (green) or bad (red).
From 1932 to 1946, the federal government backed $120 billion in home loans, and 98% went to White buyers. Even after the Civil Rights Act in 1964, continued discrimination has meant limited access to a good wage, benefits and a retirement account.
Predatory lenders have increased foreclosures in Black communities. Mass incarceration of Black men has resulted in a significant reduction in income, asset retention and opportunities for work upon release.
If nothing is done, the Institute for Policy Studies reports that it will take 228 years to close the wealth gap.
Remembering Our Power
As we celebrate Black History Month and the wealth the community has created, we must change the conversation from one of a community always at the bottom of the wealth gap and focus on the fact the we are indeed an economic force to be reckoned with.