As protests continue to roll across the country – and world – it has forced many leaders, officers and people at home to address, learn and simply think about systemic racism within the judicial system, particularly police departments. For many, though, the protests have had further reach, as we analyze all areas of the United States that show signs of systemically racist issues, both in the past and present.
The personal finance field certainly can’t escape such a look. Whether discussing jobs, real estate, investing or retirement, there’s long been clear signs that people of color’s ability to save is the result of such racism – along with outright predation. Often the stats are well known, whether it’s the woefully low rates of retirement savings that those in the black and Hispanic communities have as they near their late 60s or the racial wealth gap that has persisted. Even in a few cases where strides have been made, it doesn’t compare to the jumps in wealth, housing and stock ownership or retirement security experienced by those of Caucasian backgrounds.
Instead, often the numbers presented provide a broad look at the issue, leading to little change. Yet, as many cities in the United States reconsider how it polices due to the killing of George Floyd and corresponding protests, there’s a possibility that more people will also reconsider other ways in which trusted tools for wealth often leave people of color lagging behind.
The Lack of Participation in the Market
Despite the U.S. currently working its way through a recession brought on by COVID-19, stocks have already recovered from the impact of the shelter-in-place orders which sent the market tumbling in March. White people benefit, by-and-large, from this recovery far more than black people. That’s because of the much greater rate of participation in the market.
By 2017, only 36% of African Americans participated in the stock market in some way, which includes a 401k, compared to 60% for those of a white racial background.
This isn’t just a trend, but a concerning truth for black people. One of the reasons that financial service firms say this trend exists is because in surveys, those that identify as black say they, essentially, don’t trust Wall Street, according to researchers Philip Aka and Chidera Oku who studied the low rate of savings among the racial group in their paper Black Retirement Security in the Era of Defined Contribution Plans. But, by using that slant, it’s making it seem as if it’s on black people to ignore the history of predatory lending, redlining and other unfair practices used within the financial industry, which has left many families of color worse off.
While education plays a role in this, so does the need for the right teachers. Many of the same firms pointing to black people’s mistrust for their lack of participation in the market also don’t hire African Americans at a rate to encourage customers to trust them. Only 10% of the seven million employed in the financial services in 2015 were of African American descent.
“Having fewer African Americans in financial institutions not only contributes to lack of trust, but also decreases the number of African Americans who can serve as financial role models to other African Americans,” wrote Aka and Oku in their research.
Job Crunches Hurt Black People More
In the 2008 recession, the unemployment rate nationally reached 10%. For African Americans, the rate of unemployment peaked at just above 16%.
This discrepancy regarding unemployment isn’t unusual. Since 1972, when the Bureau of Labor Statistics first began evaluating black unemployment rates, black unemployment has stood at nearly double the rate as white unemployment, no matter the education level achieved or time period, according to the Economic Policy Institute.
Even now, as the unemployment rate stands at over 13%, the rate of black unemployment reaches 16.8%.
The impact of not having a job is only matched by the lack of the same pay, when compared to a white person, in the similar job. According to the think tank American Progress, a white person’s median weekly earnings stood at $943 compared to $727 for a black person.
“Lower wages for Black workers then translate into lower savings as families have less money left over after paying their bills,” wrote Christian Weller, the researcher for American Progress.
Weller also found that when African American workers lose a job, they have to search nearly five weeks longer than a similarly qualified white person.
This Coalesces Into Retirement Savings, Or Lack Thereof
Since retirement savings is simply the result of the investments and experiences you had in the workforce throughout your life, black people’s lack of retirement savings is the manifestation of the systematic racism they have faced. It’s not a surprise, based on the issues people of color deal with in investing and in the job market (not to mention real estate), that their retirement savings would also lag. It’s partially because of the impact of compound interest, which builds and expands throughout one’s life. The rates of difference become staggering across the two racial groups since only one gets to take full advantage of the phenomenon.
Looking at those 70 or older, and the mean net worth of all retired households comes out to just over $400,000, according to the think tank Brookings Institution. The mean net worth of black families 70 or older is $84,000. If you don’t include the housing equity, then that number plummets to $34,700.
It’s one reason why, for households 70 years or older, African American homes rely on earning more income by working part-time to cover 38% of household expenses, compared to 32% for the entire population.
This leads to a reliance on programs not meant to support an entire household. Nearly 50% of African American households rely on Social Security for 90% of retirement income, according to the National Committee to Preserve Social Security and Medicare.
Just over one-in-three African Americans rely on Social Security as the sole source of retirement income.