It’s no secret that the racial wealth gap in the United States is growing. When it comes to personal finances, people in communities of color lag behind in earnings, homeownership and net worth.

The key to eliminating financial inequalities is an area in which many black people and Latinos have the greatest challenges – credit. A recent study by the Urban Institute revealed alarming statistics about credit disparities by ethnicity and race.

Here are just a few of the findings of the study.

  • Median Credit Scores in 2020 – White Americans (725), Latinos (661) and Black Americans (612)
  • Have a Credit Card – Asian Americans (91%), White Americans (87%), Latinos (76%) and Black Americans (72%)
  • Have No Credit Scores –  Black Americans (18%), Latinos (15%), White Americans (13%) and Asian Americans (10%)

Unless people have large amounts of cash in reserves, they need to be able to qualify for loans to buy homes and cars. Maintaining good credit allows people to pay lower insurance rates, get approved for credit cards and pay low security deposits for their apartments.

If we are to grow as a community, we must identify and repair the problems that prevent us from having the good credit that we deserve.  Here are three factors that impact credit of people in communities of color – and how to fix them.

1. Underearning

In many U.S. cities, the cost of living exceeds the wages that people earn. As a result, they live from paycheck to paycheck and never get ahead. This is especially true for communities of color.

Underearning impacts black and brown people the most. Consider this. Black women are the primary breadwinners in millions of families. Yet, they earn 63 cents for every dollar that a white male earns. To put this in perspective, it will take a black woman 579 days to earn the money a white male makes in a year.

In addition to wage gaps, there are other reasons that people in communities of color earn less than white people. Many people of color have attained less education than white people. Low-wage jobs are more likely to be held by black people and Latinos. White people own more businesses than people of color.

Solutions for underearning include:

  • Begin a side hustle to earn extra money.
  • Start a full or part-time business.
  • Apply for jobs that pay higher wages.
  • Take technology certification courses or obtain a college degree.
  • Acquire in-demand skills.

2. Little or No Money in Savings

It is nearly impossible to save money when you don’t earn enough to pay your bills. However, you must find a way to keep as much of your income as you can.

Without savings, you will have to rely on credit, loans from family members or hand-outs from charitable organizations.

Regardless of your age, it is never too late to start saving money. Whatever money that you have, make a point to save at least 10% of it in a bank account. It may take a while for you to build up your emergency fund. But your efforts will pay off over time.

Solutions for saving money include:

  • Earn extra money.
  • Eliminate unnecessary expenses.
  • Make a budget and stick to it.
  • Reduce energy costs.
  • Prepare your meals at home.

3. Financial Illiteracy

The truth is most people in the United States have a poor understanding of money. In general, we don’t know much about how to earn/keep money, credit ratings, retirement options and investments. However, one thing that most people know how to do is spend money. Unfortunately, overspending and underearning are two reasons why one percent of the people control the majority of the wealth in the U.S.

Solutions to improve financial literacy include:

  • Read personal finance books.
  • Listen to financial podcasts.
  • Get a financial mentor.
  • Take personal finance and investment classes.
  • Ask for help with your finances.
  • Hire a professional financial advisor.

A financially savvy man once said, “Money doesn’t make you happy, but neither does being poor.” We must learn to master our credit (and money) if we are to contribute to our communities and leave a financial legacy for our families.

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