Why should Black Americans focus on building generational wealth?
For starters, McKinsey Global Institute reports that today’s median annual wage for Black workers is approximately 30%, or $10,000, lower than that of white workers.
Fortunately, there are numerous ways the Black community can build their fortunes.
Spoiler alert: simply saving money is not enough.
Here are ways to make sure your hard-earned dollars are working for you.
1. Know the Will Power of Financial Planning
Racial wage gaps aren’t the only hurdles to building Black generational wealth. Black people are 50% less likely to have a will planned compared to other groups. And nearly 70% of Black Americans don’t have an estate plan or a will, according to Black Enterprise.
Building generational wealth means planning and ensuring the financial security of your loved ones once you pass on. An estate plan, which addresses how your assets can be distributed if something happens to you, is an excellent way to solidify financial stability for yourself and others.
But estate planning involves much more than money. It concerns your assets, like your belongings or even your digital assets (bill-pay logins, social media, etc.).
If you don’t feel ready for estate planning, you can still create a financial plan for the next 5 to 10 years. Financial planning is a great opportunity for Black individuals to expose themselves to financial wellness and develop a strategy that will work for their goals and aspirations.
If the thought of planning your financial future seems daunting, consider investing in financial services.
2. Learn to Mind Your Own Black Business
Rates of entrepreneurship among the Black community have surged 38% since the pandemic. Even the great resignation has highlighted how Black workers have changed their perception of the workforce.
Whether it’s to increase revenue or to find more fulfilling work, starting a business or a side hustle is yet another chance for Black communities to invest in their talent. While this type of investment may not be the same as investing in the stock market, it’s still a wise way to build generational wealth.
Owning a business teaches owners the importance of balancing books, managing projects and/or people, and the true value of investing in oneself. Not only can Black communities transfer soft skills to younger generations, but they can also transfer their businesses, firms, or LLCs.
3. Invest in the Stock Market and Real Estate
Anyone can invest in the stock market. Despite there being few barriers to getting started with investing, a CNBC survey reported that half of Black U.S. adults don’t currently own individual stocks, mutual funds, bonds, exchange-traded funds, cryptocurrency or real estate invested in the stock market. A recent survey by Ariel-Black Schwab, however, found that many Black Americans invested for the first time in 2020.
To further understand the importance of investing, consider the historical impact that discrimination, debt, and disparity have had on Black communities.
Saving money as a liquid asset, or cash that can be used in the next 3-5 years, will only get us so far. In fact, even if we make it far, our white counterparts have been investing for so long that they have the advantage of capitalizing on their own generational wealth. Meanwhile, Black families lag behind with debt, accrued through medical expenses, student loan debt, or other expenses.
Another reason why a typical savings account isn’t enough is because of interest. A savings account can only grow so much in the next 10 years, whereas stocks can as much as triple within a decade when invested properly. Therefore investing in your retirement, like a 401K or a Roth IRA, can mean the difference between a great retirement or one filled with struggle.
Lastly, remember that while investing involves risk, you can make the most out of your investment if you invest wisely. This leads us to a very important part of building generational wealth for Black people: financial literacy.
4. Become Fluent in Your Finances
Financial literacy is the key to helping close the racial wage gap in the United States. As a growing number of Black Americans begin investing in the stock market and starting businesses, it’s essential that they understand the gravity of their decisions and the way those choices can pay off in the future.
According to the 2021 TIAA Institute-GFLEC Personal Finance Index, Black Americans answered an average of 38 percent of the study’s financial literacy questions correctly, whereas white Americans answered an average of 55 percent of questions correctly. The growing need for financial education in Black communities is obvious, not in just statistics alone, but in the way we frame thoughts and conversations around money.
Financial literacy doesn’t have to be overwhelming. There are many online resources tailored to those building generational wealth. No matter if you’re a student about to graduate, a professional getting her first job, or someone interested in putting more money towards your retirement, financial literacy is a muscle that you’ll continue to flex throughout your entire life.
5. Become Proactive in Reducing Student Loan Debt
Finally, it’s no secret that a college degree on its own isn’t enough to close the racial wage gap between Black and white Americans.
Student loans can finance four years of higher education, but once that time has ended, students are expected to make payments to lenders.
Some students receive a grace period of up to a year, but if that year isn’t spent negotiating to get a better paying job or properly budgeting one’s money, that grace period ending could bring on financial stress.
Black student borrowers struggle with student loan debt, with 29% making monthly payments of $350 or more. In considering ways that Black degree-holders and students can build generational wealth, there are many options. Graduates can refinance their student loans, or create repayment plans that focus on prioritizing interest rates over the overall amount.
Another way to reduce debt before starting higher education is to open a college savings account. There are different kinds of accounts you can start to contribute towards your child’s education. The best fit for you can vary based on timing, taxes, and more. Ultimately, the conscious investments that you make now will determine the financial stability of your future and that of generations down the line.
Is There Hope for Building Black Wealth?
There is plenty of hope for building Black wealth and it lies within the actions that we take every day. When you choose to increase your financial literacy, or when you decide to invest in yourself or stock, you’re giving yourself the power to determine your future.
Of course, there are social, economic, and historical factors that continue to affect our lives, but we too can steer the course.
By continuing to educate yourself and those who may very well inherit your assets one day, you’re doing your part in eliminating the wealth gap.