As the largest racial minority in the United States, blacks make up approximately 13.2% of the population, but have a spending power of over one-trillion dollars. So why is it that blacks have the lowest net worth of all racial classes?
During the Civil War, small banks were established throughout the country to be financially responsible for freed and runaway slaves’ deposits. However, many of those individuals lost their money because the banks “lost” their deposits. And after the Civil War, blacks had practically no economic resources, access to capital, or entrepreneurial abilities, making it almost impossible to build, accrue, and pass on wealth. But in an attempt to financially assist soldiers and emancipated slaves with transitioning into “freedom,” Congress established the Freedman’s Saving and Trust Company–a financial institution for blacks. The bank’s objective was to help blacks “increase their financial strength.”
With the assistance of the bank, the black economy grew, allowing hospitals, churches, small businesses, charities, schools, and other organizations to open and flourish. Ultimately, the bank had 37 branches in 17 states. However, because money was stolen and poorly invested by the bank’s upper management and board of directors, it failed. And unfortunately, the FDIC didn’t exist during that time, and therefore, blacks lost all of their money.
This historic fact has aided, abetted, and perpetuated the attitudes and financial customs of black people today. In the 21st century, many blacks still don’t possess bank accounts, but instead rely on check cashing services, prepaid debit cards, and those alike. And living an “all cash” lifestyle allows for more spending and less saving. However, because of the history of being financially defrauded, blacks have grown to rely on tangible items to justify their finances. In other words, many of them feel more secure being able to see and spend their money instead of trusting a financial institution. Consequently, the more items bought and the more expensive items may be, signifies many blacks’ interpretation of their net worth and status as opposed to what a savings account may indicate.
To add fuel to the fire, banks haven’t attempted to improve their broken relationship with blacks by redlining. To the date, loan process lenders are avoiding to offer mortgage services to low and middle-income black areas and charge higher mortgage interest rates to blacks than they would whites in those neighborhoods. These discriminatory practices only makes it virtually impossible for blacks to use their income to purchase properties, land, and businesses.
Studies have shown that managing: household expenses and budget, money and debt, investments, and to save for college education are areas that many blacks aren’t financially literate. This fact is attributable to African-American’s poor financial experiences and history. Long-term financial planning, personal debt, and how to increase engagement with financial professionals aren’t financial realms in which many black families are believed to be knowledgeable. However, to say many doesn’t mean all.
In a 2013 survey, Prudential Research reported that 40% of blacks considered themselves to be spenders, 51% savers, and only 9% that actually invest. Furthermore, 54% of African-Americans believe that their “overall financial situation is better than that of their parents when they were their age, that their own financial situation is better now than it was five years ago, and that they believe the next generation of their family will have a better financial situation than their own.”
Despite where blacks “consider” themselves to be in the financial spectrum, reports provided by the Census Bureau shows that blacks have the lowest net worth of all racial classes. This is primarily attributable to the fact that they were robbed of the many privileges naturally warranted to whites.
To this date, blacks only possess 5% of America’s wealth, oppose to whites that own 61%, Asians 28%, and Hispanics 6%.
Therefore, the real reason why blacks spend their money and don’t save is because systematic racism prevented them from safely investing in banks, and is currently impacting their ability to own property, land, or businesses, thus leaving them with nothing to pass down to future generations. They were forced into a mindset of poverty–spend now before it’s gone, impacting them generationally. Historical experiences blinded African-Americans from recognizing the importance of financial literacy and because of their monetary ignorance, blacks possess the least amount of wealth in America.
The conversation about money must be prioritized in the black household. Black families must learn to become more proactive with money management. On the brighter side, the upper black middle class is evolving, and therefore, financial planning and debt consciousness have become more prevalent among blacks.
Vice president of strategy and insights at U.S. Bank Robyn Gilson said that, “Personal financial knowledge and confidence is critical to the health of our national economy.” She added, “It has never been more important for parents to engage in an ongoing dialogue with their children about personal money management and ways to maintain good financial habits. Students need to feel informed, prepared and confident in the decisions they are making today, which can impact them for years to come.”
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