Household Wealth Gap Between Whites and Blacks
After a speech at Morehouse College, Chairman of the Federal Reserve, Ben Bernanke, was asked his opinion about the household wealth gap between whites and blacks in America. His response to the students: “minorities need to strengthen their financial literacy” and financial education. The full article can be found here. After reading the article, a Fabulous Financials reader wanted to know what I thought about Mr. Bernanke’s comments so here’s MY opinion. To put this in context, here’s a stat from a related article:
The gap between the wealth of white Americans and African Americans has grown. According to the Fed, for every dollar of wealth held by the typical white family, the African American family has only one dime. In 2004, it had 12 cents.
I was going to say Bush did it. LOL! But I decided to give an honest answer. I think his response was too simplistic. He chose the easiest, least controversial, way to answer a loaded question in 10 words or less. Although I do agree, everyone – not only minorities – need to strengthen their financial literacy. However, saving money, building a credit record, and integrating into the mainstream banking system (all mentioned in the article) are not the end-all-be-all solution that will magically put blacks on a level playing field with whites.
In my opinion, the household wealth gap is due to the following:
1. Whites Had a Head Start
Slavery, segregation, racism, discrimination, etc. My ancestors were slaves, my grandparents lived during segregation, my parents experienced blatant racism, and still today, I experience covert racism and discrimination. So let’s see – if I made someone hold you back with brute force for several hours while I ran full speed ahead, it would be absurd if I expected you to catch up with me in only a few minutes. Sure, there are people with stamina and sheer determination who may give me a little competition, but they are few and far between. It is difficult to overcome DECADES of physical, mental, emotional, and institutionalized oppression.
2. Closing the Gap Assumes a Level Playing Field in Other Pertinent Areas
Covert or what I refer to as “modern day” discrimination is wide spread in the school system, housing, workplace, and the “mainstream banking system.” For example:
School System – Most schools in predominantly black neighborhoods are sub-par. I had to move to an area with a very high cost of living just to get my daughter in a public school system that met MY standards. I chose the school, then I chose where I wanted to live. Now I pay more for rent than my mortgage, but this was a decision I made without hesitation because education is the #1 priority in my household. The school is excellent, the expectations are high, 70% of the faculty are PhD level, the student/teacher ratio is small, the equipment and resources are advanced, and the academic program is robust – this is non AP track. If your child meets the standards for the AP program, they are almost guaranteed acceptance into any college of their choice. Problem is, the school has less than 5% minorities. Unless parents have the resources to live in a comparable area or pay for private school, this disparity begins early and often continues throughout life.
Housing – I love my neighborhood, really I do. It’s beautiful, well kept, in a prime location, has an excellent school system, fabulous shops, very low crime rate, and easy access to the city. But why do so few black people live here? I’ll take a guess – because it costs too damn much! When BabyGirl graduates high school next year, I’m getting the hell out of dodge too. I believe minorities are intentionally priced out of certain areas. If it were more affordable, I’m sure more minorities would move here so their children would have access to better schools. But that may result in white flight, which would in turn, affect the quality of the school system. Then eventually, redlining would occur and change the dynamics of the surrounding area(s).
Workplace – The CSS has an old boys’ club with unspoken rules. Most management and executive positions are filled by whites. Those who hold positions of power often hire, groom, and recommend promotions for their own. This isn’t unusual. We’re attracted to people who look or act like us. Some blacks know how to play the game and some don’t – or refuse. Aside from the politics, our salaries and raises are smaller, promotions are less frequent, and we rarely hold top positions. We’re primarily found in blue collar or low/mid-level white collar positions. Getting to the top is recognized and celebrated as if it were a rare occasion…and it is.
Banking System – The “mainstream banking system” is a tool to build wealth, and by this, I mean savings accounts, credit accounts, business accounts, investment accounts, etc. However, minorities are more likely to be denied business loans, credit applications, mortgage loans, and more – unless it is a poorly structured loan package with a ridiculous interest rate. Other ways the mainstream system alienates black people are higher insurance rates based on zip code or credit score, fewer banks in close proximity, racial profiling based on appearance or name, etc. These are also referred to as the black tax, which we’ve discussed before.
Other stats from the related article linked above:
White families are five times as likely as families of color to have a bank account and access to responsible loan terms. Because of the lack of federally insured and regulated financial institutions on reservations and in inner cities, rural areas, barrios and Chinatowns, payday lenders and other shady financial dealers operating without government oversight have preyed on people of color, fueling the economic and foreclosure crises. African Americans and other people of color were more than three times as likely as white borrowers to be steered to high-interest loans, even when they qualified for a prime loan. A Harvard University study showed that in Massachusetts, a high-income African American was more likely than a low-income white borrower to get a subprime loan.
I will admit, minorities have less money in savings and investments. Which leads me to the next attributing factor…
3. Complacency
I’m going to keep it 100. Some people are just lazy MFs! For example: tired of struggling, choose to take the “easy” route and earn quick money. Tired of “the man,” use him/it as an excuse to stop trying. Accustomed to a life of nothing, there is little or no incentive to strive for more. Having a few dollars is “good enough,” no point in applying any extra effort. No one in the immediate environment “made it” – unless they “sold out” – so no trustworthy role models to emulate.
4. Misplaced Values and Priorities
This is more prevalent in recent generations. Our ancestors are probably turning somersaults in their graves over the choices we make today. For example: higher education is not a #1 priority, it is viewed as a financial burden or reserved for the privileged. Parenting out of wedlock is openly acceptable, single parents are the norm, and absent fathers are not shameful or accountable. Marriage is taboo. Men rely on women to lead the home. Debt is a way of life. Owning a nice car is priority over owning a home. Designer clothes and gadgets are preferred over saving.
SUMMARY
Yes, we all need more education in financial literacy. But I’d like to think that I’m financially literate, so that’s only a small part of the problem. This is proven by the fact that I own a home, have good credit, a good job by most standards, a little money in the bank, well read, well traveled, and educated – yet I am no exception to the wealth gap between whites and blacks. There are MANY other things that can be attributed to the problem.
Some factors, which have the greatest impact, are outside of our control. No matter how hard we try, these factors (#1 and #2) require black people to work 10x harder, be 10x smarter, and 10x more determined to succeed. Sometimes, even that isn’t enough to close the gap or level the playing field. But then, there are other factors (#3 and #4) that can be corrected by making better choices. These are the factors that the media and non-minorities focus on the most when “analyzing” the black community. I will not try to minimize the effects of these factors because they are substantial. Besides, I am a firm believer in personal responsibility and accountability. Made a poor decision? Live with it, learn from it, and move on! When you can do better, be better, exceed expectations! However, when the odds are stacked against you, I can not expect you to be my equal because it’s damn near impossible.
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Well said Single Ma.
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Thank you for sharing your views. It’s very important for me, as a white woman, to be open and compassionate to your (and all people’s) views, circumstances, and decisions. Thank you for this communication. It is very powerful.
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Excellent! But how do we get the people who need to understand it to understand it so we can change it? Where is the compassion of realizing that blacks just want to be able to take good care of our families just like they do, so why do we have to do it with less?
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Nice Post Ma!
“Tired of “the man….if I had a nickel for every time I heard that, LOL
I read on Harris Interactive that 51% of blacks do not pay the debts on time compared to 34% of whites, this may explain why blacks get denied more loans “I guess they don’t want to take the risk”
Anyway as you said personal responsiblity is the key.
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Great response! It’s a viscious cycle and it appears that this generation will be the first where, overall, our kids will be worse off than us.
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Wish I could just add to my other comment – but I think points 3 and 4 make it VERY hard to overcome points 1 and 2. They can be overcome, but it’s like one step forward, two steps back.
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No body likes to hear the truth, which you laid out here nicely. Thank you.
We’re never going to “catch up,” but we can certainly expect and do better for ourselves, measuring success by our own yardstick (not “theirs”) and building the kind of wealth that traverses generations, so each generation isn’t always starting from zero.
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Wow…Single Ma. Way to hit the nail on the head. I love your view on this subject.
@ Tazzee— you are right about points 3 and 4. They make it extremely hard to overcome 1 and 2. I am hoping the Obama’s make it seem atttainable to overcome 3 and 4.
Role models help people see what they can do. Even us grown folks need a role model. More often than we may know, people need inspiration. The sad fact is that we seem to only allow one Rock Star (Obama family) at a time. I just wish we had more to look up to or choose from.
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I like your analogy in #1. I’m going to use that the next time I’m having similar discussions.
That reads like a great public school your daughter is in. I’ve been looking at a private all girls high school that is similar to what you described and its ~$30k a year.
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Hi,
Interesting post with a lot of good stuff in it, in particular I like your
comments about “higher education is not a #1 priority”, “debt is a way of life”,
and “designer clothes and gadgets are preferred over saving”.
The statement “Parenting out of wedlock is openly acceptable” on the other
hand really bothered me. Are you saying that unless two people are married
it is somehow unacceptable for them to be parents?
My brother and his girlfriend are raising up a lovely baby girl and they are
absolutely wonderful parents.
I, too, am raising “a lovely baby girl” – by myself might I add. And I frequently hear that I’m an “absolutely wonderful parent.” However, I think the BEST way to raise a child is with TWO LOVING, MARRIED parents. I realize there are always exceptions. Some married parents are jacked up and raise the world’s worst criminals! And in other cases, shyt happens. But marriage BEFORE having children should always be the PREFERRED method because it is ordained by God. [-SM]
It would be great if you can clarify your comment about parenting out of wedlock
a bit more.
Thank you.
Thomas
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#3 and #4 plus Financial Literacy are key.
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You have done it again and eloquently explained a very “touchy” subject – KUDOS!
I also notice certain “get rich quick” scams are primarily played on radio stations playing to a certain demographic…i.e. the black community. When I listen to other stations, like a Top 40 station – no advertisements for these scams. I wish the owners/station managers of black radio will quit contributing to the financial demise.
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You’ve brought me out of lurking again. I agree with everything in the article. I get so frustrated sometimes when we play the blame game. I know that there ate disparaging factors that put us at a disadvantage but we need not use that as a crutch to not try to succeed. I tell this to anyone who is giving me half an ear. I love your blog!
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hey single ma! *waving*
well said, bravo. regarding your point about schools and neighborhoods, i am in the process of moving RIGHTNOW because my little guy is starting kindergarten. i am so frustrated at the lack of quality schools combined with diversity. it’s like you have to choose. i’m black, i’m smart, i “raise” my child — so where are the people like me? 1% of us here, 2% there. it’s a damn shame, especially in 2009. some white people pay a lot for housing around my city because they are trying to move to the BEST school district. I have to pay more, not for the best, but rather, just for better than average. why? WHY??
and why oh why is it true what you said about white flight -> decreased quality of school system?? why?
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awesome indeed. i struggle with finding ways to be a part of the solution … many times it’s like we’re preaching to the choir, any suggestions here? i wish there was some way you could get this response to the Mr. Bernanke;-). again, great job!
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GREAT post, Single Ma! I was totally ashamed when I recently learned more about how the mortgage laws in the 50’s screwed over Black (and Asian) veterans who tried to take advantage of the GI Bill for buying homes. That was one of the *major* ways in which White veterans achieved finaicial security, and federal regs completely shut out nonWhites. Fast-forward to the present, and that’s a huge contributor to point #1, since owning a home makes it easier to get other loans, send your kids to college, help them out during rough patches, secure your retirement, etc., etc., etc..
I’m going to remember your running analogy for the future – I know of a lot of folks (especially White teens I used to work with) who keep insisting that ‘racism is over – why do we have to deal with it?’ Aside from the fact that racism is FAR from over, they just couldn’t get why problems in the past related to the present.
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Excellent points! This reminded me of a conversation I had over the weekend with my girlfriends (who are Black). When I said I couldn’t afford weekly $100 hair treatments because of my savings goals, they laughed. That sounded ridiculous! It is too bad there is such a disparity amongst people of color. But, our community is too worried about the bling bling and hair swanging.
GI Jane
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I guess Bernake should have been asked the following question instead: what should we be teaching our children to insure they have financial responsibility? Are there programs we can implement into public schools to teach financial independence? I’m not sure I’d ask it along color lines, though, it’s more of an American problem than a race issue. In Europe, students are taught finance at an early age and the difference between the races in terms of wealth is minimal.
I say focus of education of the future and move on from the past. Yes, a hard past to move on from, but those who don’t are doomed to repeat it, right?
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While financial literary is definitely a factor in determining household wealth, it is not the only factor on should review. Other factors that should be considered are 1) inheritance, 2) available opportunities, 3) upbringing, 4) personal characteristics, 5) location ect. These factors, in many respects, are out of one’s control. So, I would argue to Mr. Bernanke, that one cannot simply point to financial literacy as the reason for the household wealth disparity between blacks and whites, there are other factors involved.
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I’m back by way of Aretha again! I love your spot. I thought at 26 I would have my thing on a string but I see that life is way harder than I anticipated at age 17! I’m trying really hard to get it together. I remember Dave Ramsey use to be my FAVORITE financial guide but he didnt have to go through what I would have to go through to gain wealth, good credit etc. Needless to say you’ve been added to the blog roll :)
Go.
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Ah-men!
Have to agree with you, even though I truly do not like to define whites as rich and blacks as poor, because I know many white people who are just bumming along and many black people who are on the top of their game, yourself included :-)
I think more along the lines of rich and poor and how rich get richer and poor get poorer, I know some folks feel like they can not catch a break-white, black, yellow-all in the same situation.
however I do understand what you are saying , you remind me of Sister Souljah and her book “No Disrespect”, she outlined the problems that exist in black communities, including single parenting at a very young age, giving up on trying, placing value on posessions above all, not education or savings, etc.
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I’m surprised you think that Burnanke “chose the easiest, least controversial, way to answer a loaded question in 10 words or less” by saying that minorities need better financial literacy. Any of those kinds of “you people need to…” answers is controversial to me. In this case, like you (and Kate) said, most Americans need better financial literacy.
Similarly, #3 and #4 are problems across American culture in general. (Or maybe I just think that because I’m middle aged. Back in my day… No, actually, we were all lazy back then, too.)
Another similar problem, although I see it attributed to generation Y more than to blacks these days, is the sense of entitlement that keeps people from struggling to better themselves. Kids think they should be able to have everything their parents have (cell phones, cable, jewelry, video games, etc.) right from the starting gate.
I’ve always thought that part of the problem is that even if there is no racism at all, people still get jobs based highly on who they know. If all your friends and family are ex-slaves, they can recommend you for jobs on their old plantations. If they are all maids and construction workers, that’s a problem, too. My friends are all programmers, and I absolutely don’t want to be a programmer, so I never get jobs from them. All my jobs have been either from places hiring a lot of people at once or with very high turnover where no one looks perfect for the job so they are willing to take a risk with me, an unknown.
And it’s not just jobs. Your friends and relatives give you advice on things they know about. The good $1 stores or the stock funds with the lowest fees.
And then when you have less money to work with, you end up in bad neighborhoods, etc.
I’ve also witnessed the housing problem you talked about. Once I was helping a friend find an apartment in a new town, and we found two apartment complexes right next to each other (with a fence in between) that were similar in every way except for rent. I actually asked the more expensive place, “Your apartments have the same square footage as the ones next door; but they cost $100 more per month. Why would anyone choose your complex?” The lady’s answer was that her complex only had residents that could afford to pay $100 extra. That was sickening to me.
I have no conclusion, just those thoughts. Good entry on a controversial topic; thanks for sharing.
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This was a wonderful post. As usual, you were spot on with your blog.
My breakthrough came in 1990 – I was broke. I had $9.00 left after putting aside what I needed for rent on the first. I had to decide how I was gonna eat and put gas in the car to go to the temp job I had. I decided that ignorance is NOT bliss! It will have you hungry and walking. So off to the library I went. I asked the Librarian to show me the section on personal finance and I haven’t looked back yet.
I will admit that I am not as savvy as you, SingleMa, but my knowledge as allowed me to buy a condo and a home, have good credit, and savings and investments.
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@summer – Why does “white flight” decrease the quality of schools? I think it is because if a school district has “white flight”, the property values go down, and then there is less money to collect in property taxes to run the schools.
Why do the property values go down? Supply and demand… if fewer people want to buy a house because the neighborhood is now mixed, then that forces the value of the house down.
This is just my own theory though. Does anyone else have a better explanation?
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I think @summer brought up a good point – property tax runs schools. If the property taxes don’t exist at a great enough number, then the school’s quality goes down.
If you want a good school you have to pay for it, either in taxes or through tuition.
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I also sort of observe a tendency to focus on personal use assets instead of working assets. For example, a really nice car but a not-so-nice house. Yes, this is broader than one group or another.
Yet I find it odd when I go to my friend’s house in my 17 year old Integra and park it next to all the Mercedes and Cadillacs in his neighborhood (but the house don’t go with those nice cars).
Should be the other way around; the personal use assets come after, not before, the working assets.
Big Hat No Cattle gets you nowhere except having to work real hard to pay that Big Hat off because you had No Cattle to buy it with in the first place.
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@beth – good explanation. that makes sense. it’s sad and disturbing, but it makes sense.
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Kate said: ‘In Europe, students are taught finance at an early age and the difference between the races in terms of wealth is minimal’
I’m afraid this is a complete and utter untruth. As a black person born and living in the UK (just one country on the European continent) it gets very tiring to read people misrepresent ‘Europe’ like this.
I dare you to go to Paris and say that ‘Black kids are thought about finance and that there is less of a financial gap between white and black’.
or better yet, go to inner cities in UK, where we have an epidemic of children killing children over sneakers, or a stare. Where people can barely afford to heat their homes yet have the latest blackberry.
Please don’t sell our problems short. they are no different from yours.
Our inner city schools are turning out kids who can’t spell, read or write. Many with zero prospects and inner cities are overwhelmingly black.
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That was a rather blanket/ignorant statement. And where does he propose people get the resources to up their financial game? The playing field is not and will never be level, and comments like his are idiotic.
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