Fight Back: How to Combat Racial Wealth Inequality

When Saundra Davis decided to change careers in her mid-40s, she opted to earn a master’s degree in financial planning. Her goal, she says, was to understand what wealthy folks knew about acquiring, building and transferring wealth and apply those principles to her low- and moderate-income clients.

As she got to work, Davis encountered a system that historically kept poor people, including people of color, out of the running when it came to building and passing down assets. “There were things [wealthy] people knew about money that most black, brown and poor white folks just didn’t know,” says Davis, who now works as a financial coach and financial behavior specialist in San Francisco. “We have to help people recognize their personal power within this larger construct, which is, quite frankly, designed to crush them,” she adds.

[See: 10 Tips for Couples and Young Families to Build Wealth.]

When we talk about wealth inequality, Americans usually focus on the top 1 percent — the CEOs, entrepreneurs and hedge fund managers whose increasing concentration of assets overshadows everyone else’s. But when you step back and look at the rest of the population, there is “still a lot of wealth inequality to go around among the remaining 99 percent,” says Fabian Pfeffer, assistant professor in the department of sociology and Institute for Social Research at the University of Michigan.

One particularly pernicious example is racial wealth inequality. This term typically refers to the difference in wealth (assets, such as real estate, investments and savings, minus debts) between certain minority groups (typically black and Latino households, although it can also include Native Americans and others) and white households.

For example, in 2016 white family wealth was seven times greater than black family wealth and five times greater than Hispanic family wealth, according to the Urban Institute. Middle-income white families (earning $37,201 to $61,328 per year) own nearly eight times as much wealth as middle-income black earners and 10 times as much wealth as comparable Latino families, according to The Road to Zero Wealth, a report from Prosperity Now and the Institute for Policy Studies. Additional data show that middle-income black and Latino families were hit harder by the Great Recession, and many are still playing catch-up in rebuilding their wealth.

“The numbers are so tremendous that people immediately understand that they’re not in line with a just society,” Pfeffer says.

[See: Basic Money Lessons You (Probably) Missed in High School.]

Why does racial wealth inequality happen? Well, it’s a complex topic about which entire books have been written, but there are a few broad strokes to understand. First, America has a history of racist policies, which blocked access to wealth accumulation for many families from black, Latino and other minority groups. Those policies range from the nearly 250 years of uncompensated and forced labor through slavery to federal housing policies that blocked homebuyers of color. “The legacy in discrimination in homebuying, access to credit, debt or free higher education, even if it happened two generations ago, has an impact today and is reflected in people’s assets and bank accounts,” says Chuck Collins, Boston-based director of the Program on Inequality and the Common Good at the Institute for Policy Studies, where he co-edits Inequality.org. “[White] families got on the express train to middle-class wealth-building … and blacks and Latinos showed up at the station for a train that never came.”

For example, homeownership is a great first step for building wealth, Collins says. “It’s a forced savings program, which you can borrow against for problems or for your children’s educations,” he says. But between 1934 and 1968, the Federal Housing Administration and other groups blocked people of color from homebuying opportunities by refusing to underwrite mortgages in black communities, according to The Road to Zero Wealth report. This led those families into more predatory and “wealth-stripping” debt products like “land contracts,” which carried higher costs and for which a missed payment could result in eviction and the loss of all equity. Discriminatory administration of benefits through the G.I. Bill of 1944 also blocked many people of color from accessing home, tuition and business benefits in the years following World War II.

But not all wealth inequality has roots in the past. Studies have found that even today, obstacles that stack the deck against minority families continue to make it harder to maintain and grow familial wealth and compound wealth inequality. Those disadvantages might include fewer pathways to high-quality education, lower housing values in majority black or Latino neighborhoods and tougher access to credit and loans. “There are ongoing processes that maintain that system [of wealth inequality],” Pfeffer says.

[See: Dear Younger Me: 12 Financial Truths We Wish We Knew Earlier.]

So what can we do as individuals to fight generations of inequality? Experts recommend several strategies for starting to bridge the wealth gap in your own life and in your region.

Reach out to your community. Racial wealth inequality doesn’t just impact families of color. It impacts entire communities, experts say. For one thing, mounting wealth inequality affects low-income white families, too, and working through solutions together can buoy up everyone.

“This is an inclusive effort,” Davis says. “The more we stay divided, the harder it will be to heal the system that is oppressive to low-income people of any ilk.”

Plus, asking people of color to tackle the racial wealth gap alone is almost like asking women to take full responsibility for reducing sexual harassment at work. It doesn’t work. “The cards are stacked against low-income families and families of color, and the onus shouldn’t only be on them [to fix it],” says Caroline Ratcliffe, senior fellow and co-director of the Opportunity and Ownership initiative at the Urban Institute.

Look into whether you can work with local nonprofits, financial coaches and local employers to bring financial and savings coaching into existing platforms, Ratcliffe says. Your city may even work with a nonprofit, such as Earn, to provide incentives to savers.

Get political. If this problem speaks to you, call up your senator, get engaged in local politics and try to make changes in your community through financial literacy workshops and policy change. “It can be hard to have these big changes on the federal level,” Ratcliffe says. “But there are things happening in people’s backyards that can move the needle to improve financial health and well-being for folks and communities.”

Ask whether your local government can assess debt collection practices, such as parking fees, to ensure they’re not driving the most financially vulnerable families into greater debt, Ratcliffe says. Perhaps city governments can address employment practices. For example, is the process of checking applicants’ credit reports before offering them a job harming more vulnerable workers? On a bigger level, consider voicing support for redistributive measures, such as reparations and inheritance tax on the wealthy, Pfeffer says.

Think about your financial legacy. If you want to break the cycle of mounting wealth inequality, start to build your own financial literacy and work on getting your financial house in order. Build a financial plan and bring on a financial professional — someone who adheres to fiduciary responsibility — to help fill the gaps in your knowledge and work toward building wealth, says Frank Paré, a certified financial planner and national president of the Financial Planning Association. Think of it not just as good financial housekeeping for yourself, but as an investment in the skills, wealth and opportunities you can pass to your children and grandchildren.

“I would ask that [my clients] involve their kids and understand that the money they accumulate should be viewed as the beginning of their legacy,” Paré says. “They have a responsibility and a duty to see beyond themselves — be grateful, see beyond themselves and look to the next generation.”

More from U.S. News

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Fight Back: How to Combat Racial Wealth Inequality originally appeared on usnews.com

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