Hidden Wealth: In honor of Black History Month

Black History Month may be coming to a close, but the fight for racial equality and economic empowerment is far from over.

Having access to wealth-building tools enables individuals to achieve economic security and the opportunity to pass on their own opportunities to future generations.?Nonetheless, one of the most significant challenges facing the black community today is the "wealth gap ," which refers to the significant disparities in wealth between Black and White households in the United States.

So where?does?wealth come from??

Answer: Yesterday’s wealth, mostly.

A family’s wealth today is linked to the wealth of preceding generations. Wealth is often built on economic opportunities and inheritances from the past. In other words, wealth is generational. The wealth of yesterday has a big impact on the wealth of today.

Unlike income, wealth accumulation is a slow process that differs from income in its source and pace of growth. Wealth builds slowly from interest on previous wealth and new savings from income. For that reason, it takes a lot of time to build wealth, particularly if you're starting from a disadvantaged position or facing systemic barriers. However, it's important to remember that building wealth is not impossible, and there are steps that can be taken to improve your financial situation and that of the next generation.

Why the racial wealth gap exists?

Answer: The racial wealth gap?began with slavery, and Black Americans have faced significant disadvantages when it comes to accumulating wealth.

Over the course of U.S. history, Black Americans have faced systemic discrimination that has limited their ability to build wealth. In fact, during slavery, black people were considered property and regarded as a source of wealth for their master, and they had no legal right to earn or own anything in their own name.

After slavery, Black Americans were denied access to many of the same opportunities as White Americans, including education, jobs, and housing. This made it difficult for them to build wealth and pass it down to future generations. These factors, along with other structural inequalities, have contributed to the continuing widening of the wealth gap between black and white Americans today.

How Black Freedom Benefited Poor Whites?

It is certainly true that the end of slavery in the United States was a complex process, according to many historians , and scholars have recognized the need to understand it as more than just a single moment of emancipation. The term "emancipation " itself can be problematic, as it suggests a sudden, complete release from bondage when in fact the reality was much more gradual and uneven.

With the end of slavery, poor whites in the South were able to compete more fairly for jobs and economic opportunities. Many poor whites were in direct competition with enslaved labor for jobs, which drove down wages and created a cycle of poverty for both groups.

As a result, white southerners resented the newly-freed black population and actively worked to limit their access to these same opportunities. This included the imposition of Black Codes, segregation, and other forms of discrimination that persisted long after the end of slavery.

As W. E. B. Du Bois describes: Black Americans gained their freedom, but they did so in poverty.

To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships.’ —W. E. B. Du Bois, The Souls of Black Folk

After the Civil War, most of the plans to free slaves that included giving them land were turned down . By 1870, the wealth gap between black and white Americans was a staggering?23 to 1 , with Black Americans having only about 4 cents of wealth for every dollar of wealth held by white Americans.

The civil rights movement caused the fastest time since 1900 when the wealth of different races started to come together. The tireless work of black activists to get equal rights and protections led to the passage of many laws that reduced social, political, and economic discrimination. These laws include the Civil Rights Act of 1964, the Voting Rights Act of 1965, the Fair Housing Act of 1968, and expansions to the Fair Labor Standards Act, which sets federal minimum wage policies.

These laws helped to close the racial income disparity, which in turn helped to close the wealth gap, which fell from 8 to 1 in 1960 to 5 to 1 in 1980. Then convergence came to a halt. Between 1980 and 2020, the racial wealth disparity rose by the equivalent of 0.1% every year.

Today, ?black families hold only 12 cents for every dollar held by white families. The median wealth of black families is approximately $24,100, while the median wealth of white families is $188,100. Also, black households are more likely to have zero or negative net worth, which can make it hard for them to build wealth over time and create a cycle of financial insecurity.

Despite systemic barriers, Black Americans can apply various strategies to help boost their wealth and narrow the wealth gap. Pursuing higher education, entrepreneurship, investing, homeownership, and improving financial literacy can all be helpful tools in building wealth and creating economic stability. Although discriminatory practices and disparities in access to resources can still make it challenging for Black Americans to build wealth, these strategies can still make a difference in narrowing the wealth gap.

The tools to?build wealth?in?this country are available,?but?the?knowledge?is not.

Education and learning about money are both important ways to build wealth and close the wealth gap. While education can increase earning potential for many Black Americans while providing valuable skills and credentials, financial literacy , on the other hand, will help understand personal finance concepts and investment principles. Not only can individuals make informed decisions about their finances, such as budgeting, saving, credit, debt, and asset allocation, but also, with greater financial literacy, they can make smarter decisions about their money, building wealth more effectively over time.

By investing in education and financial literacy, individuals can create a foundation for long-term wealth accumulation, helping them to break the cycle of poverty and achieve greater financial security.

Allow your savings to bloom:

Perhaps the most important habit for building wealth is to save, save, and save more, and pair it with investing. Even small amounts saved regularly can add up over time, creating a path to financial security and ultimately building wealth for the next generation. Most people who save and then invest their money in the stock market with a long-term strategy and diversify their portfolios see their assets grow over time, allowing them to accumulate significant wealth.

The period from 1980 to 2020 has been characterized by significant economic stagnation for many black families in the United States. One of the key factors contributing to this stagnation is the fact that homes and home equity make up the majority of black asset ownership, while white families have more diverse asset portfolios that include stocks and financial assets.

According to the Federal Reserve?Board’s most recent survey in 2019, 61% of white families own stocks, compared to just 31% of black families. This means that white families have benefited more from the stock market's long-term growth, which has been a major driver of wealth accumulation over the past several decades.

Even among the top 5% of Black wealth holders, they are more likely to own conservative investments such as real estate, bonds, and life insurance than their white counterparts, according to a Credit Suisse study

Finally, by combining education, financial literacy, and a commitment to saving and investing, as well as continuing to campaign for economic justice, we can take significant steps towards building wealth and closing the wealth gap.

As we reflect on the accomplishments of our ancestors, let us also work for a brighter future in which all individuals have the chance to generate wealth and fulfill their financial goals.