Did you know? White households in the United States have 8 times more wealth than Hispanic households and 10 times more wealth than African American families.
The United States is one of the wealthiest nations in the world. There are more than 614 billionaires and 12 million [millionaire] households in this country. This doesn’t include the families who live comfortably on six-figure salaries.
Despite the vast wealth in the U.S., there are overwhelming racial wealth gaps in every state. A recent study by the Federal Reserve Board revealed the following income data.
- Income for White Families – $188,200 (Median) and $983,400 (Mean)
- Income for African American Families – $24,100 (Median) and $142,500 (Mean)
- Income for Hispanic Families – $36,100 (Median) and $165,500 (Mean)
- Income for Diverse Groups (American Indian, Asian, Alaska Native, Pacific Islands and Native Hawaiians) – Lower wealth than white families but higher wealth than Hispanic and African American families.
Causes of Racial Wealth Gaps in the United States
When it comes to finances, communities of color are struggling to get ahead. If these disparities continue, future generations will have to deal with a legacy of poverty and lack of opportunities. Home ownership, a college education and business ownership will be out of reach for many families of color.
Wealth inequality in the United States isn’t new. In fact, it’s rooted in hundreds of years of unjust laws and unfair labor practices. Many white families have benefitted from the results of these injustices for several generations.
Other causes of racial wealth gaps include:
- Low Education Levels
- Lack of Financial Literacy
- Wage Disparities
- Low-Skill Employment
While we can’t change past injustices, improving our financial literacy skills is one area that we can focus on today. Here’s the hard truth about wealth gaps (racial or otherwise) in the United States. It really doesn’t matter how much money we earn if we don’t understand how to use it to our advantage.
Why Financial Literacy Matters?
From buying a new car to applying for credit, you’ll make thousands of financial decisions throughout your lifetime. Why not educate yourself so you can make the best decisions about your money? That’s why financial literacy is essential for everyone regardless of race or gender.
Quite simply, financial literacy is a knowledge of personal finances and the ability to apply a variety of financial skills. Personal finance categories include savings, budgeting, money management, spending and credit.
Mastering these skills builds confidence and self-sufficiency. People who are financially literate:
- Make financial decisions based on facts – not emotions.
- Reap the benefits of higher credit scores and lower interest rates.
- Save a larger percentage of their income than people who don’t understand how money works.
How Financial Illiteracy Prevents Wealth Creation in Communities of Color
By now, you probably know the startling facts about money and communities of color. Just in case you don’t, here are a few things to think about.
Overall, six percent of people in the United States don’t have a bank account (unbanked). In terms of communities of color, 16.9 percent of African Americans and 14% of Hispanics are unbanked.
Not having a bank account can be expensive. People who aren’t affiliated with a bank spend billions of dollars each year at check cashing businesses. In addition, unbanked consumers are more likely to apply for payday loans and title loans that have high interest rates and fees.
Many unbanked consumers say they don’t have bank accounts because of the fees that banks charge for their services. What they don’t realize is they will spend more money over time on alternative banking services.
Financial illiteracy causes people to make decisions that will lower their credit scores. These include applying for multiple loans without considering their ability to repay them, purchasing cars with high-interest loans and maxing out their credit cards.
Other ways financial illiteracy impacts wealth creation in communities of color are:
- Excessive spending prevents people from saving money for emergencies and retirement.
- Limited home ownership or real estate investment opportunities due to lack of money for down payments and closing costs.
- High student loan default rates which lead to wage garnishments, late fees and poor credit.
Moving Beyond Basic Financial Literacy Skills
If you have mastered basic financial literacy skills, resist the urge to rest on this achievement. There is still much more to learn about money if you want to generate wealth.
Implementing basic financial literacy skills won’t make you rich. But it’s a good place to start. To become wealthy, you must take your money knowledge to another level.
Millionaires have multiple assets that they have accumulated. These include stocks, bonds, cryptocurrency, real estate, profit sharing/employee stock options and other high-yield investments. Learn about and invest in these assets if you want to add more zeroes to your bank account.
Once you learn all you can about money, it is important to give back. Show other people in your family and community how to master their money. If we build our finances and help each other in the process, we can slowly close the wealth gap in communities of color.
Want to increase your financial literacy and build wealth? The following resources can help.
- Financial Starter Kit: Gain Financial Literacy and Avoid the Pitfalls of the American Dream by Symone B. Beez
- Get Good with Money: Ten Simple Steps to Becoming Financially Whole by Tiffany Aliche
- The Power of Generational Wealth by Gerald Grant Jr. and Gerald Grant III
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