- The racial wealth gap in America is very real. As a Black woman, my parents have been preparing me to confront it all my life.
- Growing up, they taught me that education was a critical stepping stone to building wealth, as was home ownership.
- I've also learned that being properly banked — i.e. not spending a fortune on fees or using payday loans — and asking for more money at work are ways I can cement a financial future for my son.
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When it comes to personal finance, race impacts the ability to build wealth — whether we like it or not.
According to the Pew Research Center, the median net worth of white households in the US in 2016 was $171,000, while the median net worth of Black households was $17,000. When I initially heard this figure years ago, I wondered why white households were typically 10 times wealthier than Black households.
Then, I realized the important lessons I learned from my parents and society over the years about Black wealth in America.
Black Americans are always playing catch-up
As a Black woman in America, I sometimes feel like I'm playing catch-up when it comes to improving my finances and building wealth. Growing up, my parents often told me that I'd have to work extremely hard to become successful in any area of my life.
While this is true for all of us regardless of race or gender, my parents were trying to tell me that the playing field was not level and the racial wealth gap is present. Some of us were born with advantages and others were born with disadvantages. To achieve the same results, a disadvantaged or less privileged person would understandably have to work harder to catch up.
A quick look at history and data underscores why many Blacks may feel behind when it comes to building wealth.
- Blacks in America were not able to legally build wealth until 1865 because, until that point, they were slaves and treated as property
- The New York Stock Exchange started in 1792, and life insurance became normalized in the 1760s — Blacks did not have access to either to start building generational wealth
- In 1921, the Greenwood District of Tulsa, Oklahoma, that contained many Black-owned banks, hotels, cafes, movies theaters, and more — known as Black Wall Street — was burned down and 9,000 people lost their homes to racist violence
- Up to the 1950s and 1960s, schools were segregated and Blacks were subjected to a lower quality education overall. Today, many majority-Black school districts remain under resourced
- To this day, Black women earn just 61 cents for every dollar a white man earns, and the labor market continues to be segregated by gender and race
- A Harvard study indicated that minorities who did not reveal their race on their resumes were more likely to get hired for a job
- Black-owned businesses are twice as likely to be denied loans, according to data shared by the Federal Reserve
Knowing the numbers and facts was important to me because it helped me understand what I had to do to build wealth over time and leave an inheritance for my son.
Education is a critical stepping stone to success
Growing up, my parents always taught my siblings and me the importance of education. My mom worked hard to put us in good schools and even made my sisters and me do educational workbooks during our free time over summer break.
I wasn't too happy about doing summer work, but I ended up developing a love for learning and a desire to read more and strive for academic excellence. I don't find it surprising that 85% of self-made millionaires read two or more books per month.
Neither of my parents attended college, and I saw how it affected their income and work opportunities. While attending college was a must for me, I also knew it would be expensive and wanted to keep my costs low.
Long story short, I attended community college and a state university, utilized grants and scholarships, then graduated with $20,000 of student loan debt that I paid off in three years.
Debt is another financial burden that weighs on many of us regardless of race, though Black students are more likely to take on student debt than their peers and graduate with more debt. Without a cosigner, an adequate income, or access to enough savings, many people get into debt, which can make it more difficult to build wealth.
Ask for more money
The gender and racial wage gaps are undeniable in our society today. While the systems that perpetuate this reality have been in place for many years, it was important for me to see people who looked like me earning more and hear others encourage me to increase my income.
I remember working the same job for three years and never asking for a raise because I was too afraid. A Black woman can miss out on nearly $1 million in income over a 40-year career if she continues to earn 61 cents per $1 that white males earn. I didn't want that to be my reality, so I started advocating for myself by asking for raises and having open compensation conversations at my first 9-5 job. I earned a 20% raise in two years while working at a small startup.
When I started freelancing and became self-employed, I continued to advocate for myself and join diverse communities where I could network with other freelancers, openly discuss compensation, and learn how to negotiate.
It also required a mindset shift for me to realize that I deserved to be paid more and there was nothing wrong with wanting equal compensation.
Become properly banked
I opened my first bank account when I was 17 and did not know anything about banking. While I focused on excelling academically growing up, I still had a lot to learn about personal finance and which banking products to choose.
After my account went negative and was reported to collections, I could only qualify for a second-chance checking account with high fees. In general, according to a nationwide survey conducted by Bankrate, Blacks and Latinos pay higher bank fees compared to white banking customers.
A study from McKinsey & Co indicates that many African Americans have difficulty accumulating savings because they lack access to mainstream financial banking services. From personal experience, I've always noticed that many minority-dominated areas have more expensive financial services, like check-cashing or payday loan stores. These are costly to use and contribute to getting stuck in a cycle of making payments on loans.
When I heard about high-interest banks online, I opened an account right away. I didn't realize that you could open a high-yield checking or savings account (sometimes with no opening deposit) and pay no fees. Instead of paying interest on my money with debt, banks started paying me interest on my savings.
Property is a way to build wealth
My parents never owned a home when I was growing up. We always rented and my mom told me not to spend my whole life "throwing away money on rent." I agree partially with her perspective — I know that owning a home comes with a lot of financial responsibilities and it's not the best option for all of us.
Still, I can't deny my desire to own property and invest in real estate. In 2018, it was reported that the homeownership rate for Blacks was 30% lower than whites, and the average age of a Black home buyer was 48.
I bought my first home when I was 26 and know that while our primary residence is not really an investment, I'm building equity in an asset for the future. While it's definitely possible to build wealth without owning property, those who wish to become homeowners shouldn't have to pay more or have fewer opportunities due to their race, which is the case for African Americans.
Understand systemic racism and work to overcome it
Systemic racism is carried out through social, political, and institutional structures. It creates disparities in wealth, income, employment, housing, healthcare, criminal justice, and more.
When it comes to closing the Black wealth gap, I still believe that it can be done — and doing so would be great for everyone. If African Americans are able to start building more wealth, this could improve our entire economy.
It starts by understanding systemic racism, acknowledging the current circumstances, then getting educated and working together to overhaul oppressive systems. This is not something that can be achieved by one group of people. Clearly, teachers had to educate me, bosses and clients had to approve my pay increase requests, and a mortgage underwriter had to agree to grant my mortgage. Systemic discrimination and the Black wealth gap would not be as common if we all worked together to improve the system.
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