“The financial well-being of African Americans lagged that of the U.S. population as a whole, and whites in particular. The reasons for this gap are complex, but one area of importance in addressing it is increased financial literacy.”
There are several gaps that highlight the economic and wealth inequities between America’s Black and White citizens:
- Income and wealth inequality,
- Incarceration and felony rates,
- Health care inequities,
- Life span, and
- Incidents of negative encounters with police to name just a few.
But no gap is wider than the wealth gap between the average White household and average Black household. Today, the average White family has eight times the wealth of the average Black family, according to the Federal Reserve’s 2019 Survey of Consumer Finances.
There is no single, simple explanation for the racial wealth gap, explains the Brookings Institute in a 2020 Examining the Black-white wealth gap report. It is not explained away by differences in educational attainment. It is not accounted for by indebtedness—White families actually tend to have higher levels of debt. It is not even fully accounted for by differences in income. In addition, the fact that intergenerational transfer of wealth is lightly taxed means that historical gaps persist over generations.
Effectively, gaps in wealth between Black and White households reveal the effects of accumulated inequality and discrimination, as well as differences in power and opportunity that can be traced back to this nation’s inception.
The Black-White wealth gap reflects a society that has not and does not afford equality of opportunity to all its citizens.
Wealth is the sum of resources (assets – liabilities) available to a household at a point in time; as such it is clearly influenced by the income of a household, but the two are not perfectly correlated.
Two households can have the same income, but the household with fewer expenses, or with more accumulated wealth from past income or inheritances, will have more wealth.
Closing the racial wealth gap isn’t a simple fix. But many experts say education and financial literacy can help.
What follows are excerpts from an annuity.com post entitled “Financial Literacy in the Black Community”, written by Rachel Christian and excerpts from the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index).
The TIAA Institute-Global Financial Literacy Excellence Center (GFLEC) Personal Finance Index report examined the state of financial literacy among African American adults and the relationship between financial literacy and financial wellness.
African Americans have struggled for decades to build wealth in America. Historical injustices — including slavery, systematic inequality, employment discrimination, racist housing policies and other barriers — have stymied economic well-being and harmed retirement confidence for the community.
Closing the racial wealth gap in the United States is a complex issue with no one-size-fits- solution. But expanding financial literacy, education and job training efforts can help, experts say.
Financial literacy is knowledge and understanding that enable sound financial decision making and effective management of personal finances, according to TIAA.
In 2019, white Americans had a median family wealth of $188,200, while Black Americans had a median family wealth of just $24,100. Source: U.S. Federal Reserve
In 2018, just one-third of Americans could correctly answer at least four out of five financial literacy questions on concepts such as mortgages, interest rates, inflation and risk, according to a 2018 study by the Financial Industry Regulatory Authority (FINRA).
The disparity is greatest among African Americans.
According to the 2021 TIAA Institute-GFLEC Personal Finance Index, African Americans answered an average of 38 percent of the study’s financial literacy questions correctly, whereas white Americans answered an average of 55 percent of questions correctly.
Minority financial experts agree that strengthening financial literacy — the ability to use skills to effectively manage money and resources — can be the key for African Americans to achieve a lifetime of financial well-being.
Financial literacy is made of several components. The 2021 TIAA Institute Index study assess financial knowledge in eight key areas.
8 Areas of Financial Literacy
- Earning
- Consuming, such as budgeting and managing expenses
- Saving
- Investing
- Borrowing, credit and debt management
- Insurance
- Comprehending risk and uncertainty
- Recognizing trustworthy sources of financial information and advice
Borrowing is where African American financial literacy is highest, according to the study, while knowledge about insurance is the lowest.
While not a cure-all, increased financial literacy can lead to improved financial capability and practices that can benefit those who’ve been economically disadvantaged for decades and with relatively low incomes.
References:
- https://www.annuity.org/financial-literacy/black-community/
- https://gflec.org/wp-content/uploads/2020/10/TIAA_GFLEC_Report_AAPFinIndex_Sept2020_02.pdf
- https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/