There are many well-known historical racial based disparities in the American financial system that have contributed to the current wealth gap between Black Americans and their White peers.
Wealth (defined as the difference between a household’s assets and debt) provides a critical safety net to households during economic downturns. According to The Brookings Institute, wealth holds several significant advantages over wages as an economic resource: In particular, income from wealth is taxed at much lower rates than income from work, and wealth can serve as a source of savings to absorb temporary setbacks such as a loss of employment income.
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. In 2019 the median white household held $188,200 in wealth—7.8 times that of the typical Black household wealth of $24,100.
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 steps to building and creating wealth such as stock ownership.
Stock ownership
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.