Let’s talk about the racial wealth gap present in the personal finance and homeownership community. It is not “business as usual” this week. It didn’t feel right for me to blog about one of my previously planned content ideas so I wanted to take this moment to highlight the shocking truths about the racial inequality in the finance and real estate worlds.
Many of us were taught to “not see color” and thus led to ignore the issues in our country. Did you know that Blacks and African Americans make up only 13% of our countries population? I will never truly understand how difficult it must be to overcome hundreds of years of oppression all while fighting to make allies out of 87% of our population.
One of the more heartwarming moments of this past week was millions of people coming together to participate in #BlackOutTuesday. Not only that, but White Fragility by Robin J. DiAngelo hit the #1 spot on Amazon’s best sellers in cultural anthropology meaning that people are taking steps towards understanding their white privilege! Every state in our country has come together to organize protests in support of the Black Lives Matter movement. I can’t remember the last time we were this united! Clearly people are listening and taking the time to learn more about the issues at hand.
Despite the progress we have seen with encouraging everyone to get involved in the Black Lives Matter movement, we still have a long way to go. I’ve seen countless posts from my white friends mentioning how they never truly understood their white privilege until this week. I’ve also unfortunately seen numerous people who still don’t understand that there’s an issue.
Are you taking the time to educate yourself on the systemic racism that still trickles down every aspect of our country? Skip down to the end for some resources I found helpful this past week.
There have been numerous quotes that are circulating the internet, but this one really stuck out.
“The problem is that white people see racism as conscious hate, when racism is bigger than that. Racism is a complex system of social and political levers and pulleys set up generations ago to continue working on the behalf of whites at other people’s expense, whether whites know/like it or not. Racism is an insidious cultural disease. It is so insidious that it doesn’t care if you are a white person who likes black people; it’s still going to find a way to infect how you deal with people who don’t look like you. Yes, racism looks like hate, but hate is just one manifestation. Privilege is another. Access is another. Ignorance is another. Apathy is another. And so on. So while I agree with people who say no one is born racist, it remains a powerful system that we’re immediately born into. It’s like being born into air: you take it in as soon as you breathe. It’s not a cold that you can get over. There is no anti-racist certification class. It’s a set of socioeconomic traps and cultural values that are fired up every time we interact with the world. It is a thing you have to keep scooping out of the boat of your life to keep from drowning in it. I know it’s hard work, but it’s the price you pay for owning everything.” – Scott Woods
This set of “socioeconomic traps” stem from opening a bank account to buying a home and I wanted to dive deeper into those subjects today.
Racial Inequality In Banking
I was shocked to find out the significant differences in minimum banking deposits for BIPOC vs white communities… Banks are supposed to be impartial yet they continue (to this day) to discriminate against minorities.
According to New America, a significantly higher deposit is required in predominantly black communities ($80.60) than in predominantly white communities ($68.50). The discrimination in banking doesn’t stop there. It is actually cheaper to maintain a checking account in a predominantly white neighborhood (minimum balance of $625.50) than in a Black neighborhood ($870.50).
What’s even crazier is that these deposits and fees make up a bigger chunk of the average Black person’s income compared to the average whites. New America dives deeper into this: “The average white individual needs to deposit approximately 3 percent of a paycheck in order to open a checking account in their community and keep 28 percent of a paycheck deposited to avoid a fee or account closure. For Blacks and Latinx, these amounts are more than double. Blacks need to initially deposit 6 percent of a paycheck and keep 60 percent unused in their account and the comparable values for Latinx are 6 percent and 54 percent.”
Due to these costs (amongst other issues), 18% of African Americans remain unbanked (without a bank account). This is significantly higher compared to the 3% of whites who remain unbanked.
How does being unbanked affect someone? Well for starters, cashing a check is more expensive if you do not have a bank account – it can cost anywhere from 2-5%! It also makes paying bills more difficult, especially if they have to purchase money orders or pre-paid cards. The fees and time it takes to use these services add up. This can also set families back because they’re unable to build credit history. Another downside to being unbanked is constantly having to worry about the safety of your money (lugging cash around can lead to being mugged or just plain old misplacing).
How is this fair?! These are items that many don’t even stop to think about and they are present. There is systemic racism trickling down most of our society today.
Racial Wealth Gap In Net Worth
What is net worth? How do you calculate it? Simply take all of your assets, add them up and then subtract all of your debts and liabilities. Some argue that mortgages aren’t included in there while others still consider they should be added. Here is an example of common assets and liabilities:
Assets:
- Income
- Cash
- Investments
Liabilities/debts:
- Car loan
- Student loan
- Credit card debt
You can read more about net worth here.
Now that you know what your net worth is, I bet you can predict that there’s currently a wealth gap between white households and Black households. Take a few minutes to think of what the racial wealth gap is. Write it down. Now it’s time for the cold hard truth.
Let that sink in. The wealth gap right now between Black and white households is $130,680. I think it’s safe to venture that you didn’t think it was this massive.
But, that’s not even the craziest part! What’s even more shocking and disappointing is that this wealth gap is getting worse with time.
So not only is the racial wealth gap massive, but it is getting larger and larger with time. One of the reasons this could be is homeownership.
Racial Inequality In Homeownership
As a real estate agent, I am a huge advocate for homeownership. I have seen it change countless lives and I truly believe it is a good financial investment. In fact, according to a study done by Duke University in 2018,
According to this study, homeownership seems to be the most straightforward way for people to build wealth. In America, home equity is a large part of most people’s net worth but unfortunately there is a racial gap here as well.
White Americans own a disproportionate amount of property. In fact, according to a Lending Tree study, “White Americans make up an average of 59% of people in the metros featured in our study, but they own around 73% of owner-occupied homes.”
So how did this huge homeownership gap start? Have you heard of redlining? I remember learning about it for my real estate licensing exam but I cannot quite recall if we covered it in school.
Redlining is the practice of outlining certain neighborhoods to “avoid” for mortgage lenders and other financial institutions. They delineated these neighborhoods based on the idea that the population there would be more likely to default on mortgages. Historically, these neighborhoods tended to be Black or Hispanic. This practice was outlawed in the 1968 Fair Housing Act and the 1977 Community Reinvestment Act (CRA), but it certainly set Blacks and Hispanics back.
By making the purchase of a home more difficult, it became harder for Blacks and Hispanics to build generational wealth and is one of the reasons for the net worth gaps. Since whites have had a “head start” of sorts in the homeownership path, they can afford a lot more of the current inventory. According to Forbes, Black buyers can “afford just 55% of all homes for sale, while white buyers could afford nearly 80%.”
Just like the net worth gap is worsening, the racial wealth gap in homeownership is worsening as well. According to Forbes, “In 1900, the disparity between black and white homeownership was 27.6%. Now, it’s 30.3%.”
As evident throughout this blog post, the racial wealth gap in the personal finance world has been worsening over time. I realize that this might be quite discouraging to some of you, but I hope this serves as a wake up call to a lot of us and encourages everyone to become an ally in this fight. Fast forward a few weeks, the protests might end and the black squares on everyone’s Instagram feeds will be pushed down, but the movement must live on. Black Lives Matter and since Blacks only make up 13% of our population, they cannot endure this fight alone.
How To Help Minimize The Racial Wealth Gap
In order to make a lasting change, we must all become allies in the Black Lives Matter movement. What is an ally?
Some of the ways you can help is by sharing BIPOC owned businesses, educating yourself, and donating to the causes.
- Guide to becoming an Ally
- Have tough conversations with your friends and family if you feel like they need to work on their views.
- Use your social media platforms to bring awareness.
- Get involved with your local community and start patronizing more Black owned businesses.
- List of more ways you can help – this includes petitions, FAQ, places you can donate, etc.
- Melyssa Griffin created an informative guide with a list of books, podcasts and other resources to educate you. It also includes action steps to take and leaders to follow.
- Evan Arbour also created a resource guide with classes, social media, and parenting resources to help.
- My Money Chronicles compiled a list of African American personal finance bloggers.
- Money mindset coaching – small business owned by a woman of color.
- Budgetnista – small financial education business owned by a woman of color.