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Black Trends: Building Generational Wealth for Black Families

By Talia Stinson

  • PUBLISHED February 21
  • |
  • 14 MINUTE READ

For Black History Month, we're celebrating the contributions of Black Americans in the financial space. And, we're empowering others in the Black Community to pursue avenues of financial independence and security. Learn more about tips and trends of Generational Wealth in the Black community, including a brief history and associated challenges this Community faces in achieving wealth.

 

Planning for the future is more than establishing a savings account and creating a best-fitting budget for you and your family. It’s also about thinking how investments, ownership, entrepreneurship and managing long-term debt affects the financial security of future familial generations. In the Black community, building generational wealth hasn’t been easy to either attain or maintain, for multiple factors. Comparatively, Black families achieve considerably less wealth than white families, with a median net worth of $24,100 compared to $188,200. Even more, Black workers make up about 12.9% of the US labor force currently, and yet earn only 9.6% of total US wages. According to the McKinsey & Company report, the median income for Black workers is about 30% less than that of their white counterparts. How might that be true? It turns out that Black workers have historically been represented in lower-wage occupations, which impacts how much they can save and, generally speaking, the amount of wealth they can acquire.

Why is it so difficult for Black families to build strong financial foundations for the future? What trends have made this a norm, and what tools can be leveraged to empower the Community to break beyond the historical norm?

For starters, let’s define what it means to “achieve wealth.” It’s inclusive of the ability to manage and reduce debt, build a healthy retirement savings, build an emergency fund, stick to a budget and diversify your income base. It also includes resisting the urge to spend, making savings a priority and focusing on building assets for future generations.

Building and achieving generational wealth in the Black community has never been more important. The recent global pandemic and simultaneous economic changes have made it even more difficult for Black families to both plan for and achieve longer-term financial sustainability and long-term wealth.

Here are some handy tips to help you plan and preserve for tomorrow.

Tools to Build Wealth and Protect the Future

There are many tools available to help encourage saving and asset building.

For example, there are a number of savings account products that are easy to set up and use. A high yield savings account is a great option to jump start savings and build wealth over time. At Vivid Crest Bank , there’s no minimum amount required to begin saving and there are options to set up automatic payments to build up the account over time. Other financial products to consider include a certificate of deposit (CD), a money market account or even an IRA (there are both CD and money market account options available). The type of savings product you choose depends on your savings goals and overall financial plan.

Planning for the future and tracking your finances doesn’t have to be overly cumbersome. Even if you don’t like finances or feel overwhelmed in tracking your spending and managing your accounts, there are some simple steps to take to help you along. If you’re not sure about your path, use a savings goal calculator to help get you started and properly plan.

Building generational wealth can also be a family activity. This means that you can get your children and other family members involved in the planning. Starting at a young age, your children can play a key role in the broader family financial picture; it’s always a good idea to onboard children to financial concepts and associated responsibilities early. Understanding credit management, saving and even goal setting can really help your children grasp the importance of financial management. Once they move beyond their teen years and either enter college or begin working, they will have more opportunities to put the early lessons into practice to set themselves up for financial success later in life. These early, consistent lessons can help your family collaborate, improve your overall collective financial well being and build together.

Start Saving, Start Early

Building a savings net—whether it be emergency funds or investments for the future— is a great way to both ignite and catalyze generational wealth. In fact, it doesn’t take much to get started. Currently, nearly 75% of African Americans do not have enough emergency savings to cover 3 months of expenses. Lack of excess income doesn’t have to be a barrier. Saving just a bit every month can help you along a pathway to future financial success.

READ MORE: Get More: Peace of Mind

Saving for the future isn’t just limited to having an emergency fund or a separate account of financial reserves. It’s also about your retirement years. Historically, Black workers are less likely to save for retirement. In fact, 83% of Black seniors do not have the financial assets they need for retirement. This means that there is a lessened likelihood that these older adults have had exposure to IRA accounts earlier in their careers. Founding Director of the Samuel DuBois Cook Center on Social Equity at Duke University Dr. Sandy Darity, Ph.D., shares that the lack of asset building from those that came before them contributes to their financial insecurity: “The key block to retirement security for Black people is the denial and deprivation of asset accumulation for previous generations.”

Having access to education, information and tools for later-in-life planning does not only support your individual retirement years. It will also help younger familial generations understand the importance for future planning, as well as build financial assets more broadly. In turn, this exposure and planning can play a vital role in decreasing the historical deficits of savings in this community.

Asset Building: Investing in the Black Community

Talking about your finances as a family can be foundational to making strong financial moves. These conversations can further dispel the idea that talking openly about money is “taboo.” Asking questions at your financial institution that can help you navigate these decisions can be vital to furthering your understanding of how to best manage debt and build wealth over time.

It’s also a great way to help your children to become more financially literate and self-aware. While it takes time to build a strong foundation, it’s never too early to include children and others in your family in conversations today that will impact your net worth and growth tomorrow.

An investment strategy is another great way to both further your financial education, as well as plan for future generations. Understanding the stock market and the basics of an investment strategy are also key to building generational wealth. Historically, 10% Black of families heads engaged in discussion about the stock market when growing up. And currently, nearly 40% of Black American families talk about it, per the 2020 Ariel Schwab Black Investor Survey. These numbers differ by comparison to their white counterparts; 23% of White American family heads discussed the stock market growing up and 36% still talk about it.

Great ways to build equity and diversify your investment portfolio include buying a home, home repairs and, of course, saving for retirement. These strategic wealth-building steps can set the tone for financial familial growth. While markets can be volatile, these practices can work to your benefit in the long run. The risk of investing should not be feared; while a less conservative route, there are sound financial advisors out there that can help guide you. Do your research, have those vital conversations and build slowly over time.

Again, saving for retirement is a great way to model for your children that planning for the future is a necessity. Explore and understand the products available to you. Investment options such as a company 401K or 403B plan are sound choices. And, deposit options such an IRA product can support you as well.

READ MORE: Are My Retirement Accounts Insured by the FDIC?

Entrepreneurship Contributes to Wealth Building

Black entrepreneurship can be foundational to building generational wealth. By assessing and studying a niche industry area, determining a need and then providing resources to respond to that need is a great way for you to create and manage a brand, build an audience base and provide a product or service that closes the gap(s). Of course, generating income also helps. Even more, this income adds to your overall net wealth.

Venture capital investments into Black-owned businesses are critical to igniting and sustaining fiscal growth. With Black people constituting approximately 13% of the U.S. population, entrepreneurs in this group receive approximately 1.2% of the $147B of venture capital in U.S. startups. The reality is that entrepreneurship can provide numerous opportunities for Black families, including financial sustainability and fortifying a strong future financial outlook. Even more, Black businesses also have a positive impact on their communities, both in terms of job creation and revenue generation. The economic impacts can be very impactful from multiple angles.

The consistent support of venture capitalists and even federal government programs in Black business development and growth are a win-win for all. While relying on financial support to build, it’s just as important to have a team to support your vision and build a brand to help you thrive.

Building generational wealth is possible, even amid historical challenges and the racial wealth gap. Take proper financial steps, seek out expert advice and grow steadily over time to change the tide. A win for the Black families in financial growth is indeed a global economic victory.

 

Talia Stinson is a Content Specialist with Vivid Crest Bank , and has a background in research, content strategy and management. She specializes in writing on financial, technology and wellness topics.

 

Mary Delaney is a digital artist, who for the past 7 years has been conjuring up illustrations and animations that blur the lines between the digital and the fantastical. She holds a Bachelor's degree in Traditional Fine Arts which she had used as a stepping stone to digital and experimental forms of art. She was born in the United States but currently resides in Berlin.

 

WATCH VIDEO: Dominican-American entrepreneur and investor John Henry talk about the best advice he’s ever received.  

 

 

Sources

American Progress. “Eliminating the Black-White Wealth Gap Is a Generational Challenge”
Charles Schwab. “2020 Ariel-Schwab Black Investor Survey”
CBS News. “Black Americans are living longer. Generational wealth comes next. Here’s why.”
CNBC. “Here’s how Black Americans can begin building wealth right now”
Consumer Reports. “Retiring While Black”
Investopedia. “How Does the Stock Market Work?”
The Female Quotient. “The Importance of Black Entrepreneurship in Creating Generational Wealth”
Forbes. “The Key To Closing The Racial Wealth Gap: Black Entrepreneurship”
Mater Mea. “5 Things Black Families Can Do to Build Generational Wealth”
McKinsey & Company. “The economic state of Black America: What is and what could be”