Saving for retirement is not easy, more so when you are black living in America. As African Americans age, there seems to be an array of health financial problems that converge, posing a potentially devastating impact on their well-being. Compared to the other racial groups in the country, black people are more likely to suffer medical conditions that lead to more complications and insurance as they grow older. These health problems are more exacerbated by financial troubles that include lower savings, low homeownership rates, and Social Security income. For the blacks in America, these problems serve as a bitter reminder of the yawning racial wealth gap.
According to financial literacy and fitness experts, individuals should save at least 15% of their annual income for retirement. It is no surprise that one-fifth of Americans are not saving at all according to data from the National Institute on Retirement Security (NIRS). For the Blacks and other people of color, these hurdles are even higher. Institutionalized racism has compromised the earnings, savings, home value, and overall wealth of African Americans, which paints a dark picture of the financial insecurity that will hit them in their retirement years.
How Bad Is It?
Financial calamity can wreck even the best of us. It is no exception for the African Americans, it doesn’t matter your income level or race, if it happens it wreaks havoc on everyone. Financial impotence strikes across every demographic indiscriminately. However true that may be, for minorities, it’s worse, far worse. In the event of a downturn, small or a market-wide downturn, they would fall harder, and at an unprecedented rate. Compared to the White counterparts, minorities have far fewer resources to pull them out, and honestly, they are even less likely to know someone in a better position who could spot them the needed cash. But one thing that is certain; financial insecurity is in no way an equal-opportunity offender.
The ability to use ones’ stacked cash (emergency fund) to cover uncertainty is a popular heuristic. PEW Research stipulates that common emergency expenses for instance a hospital bill or a sudden job loss can end up costing you as much as $2,000. Most American households, irrespective of income, do not have that much money set aside to cover such emergencies. However, the White families have an upper hand in that they could turn to liquid assets, such as stocks or bonds or even other savings to bridge up the gap, mitigating the effects from the sudden shock. Such revelations are distressing, but not at all surprising. Minority communities in America continue to struggle economically. In 2016, the median white household wealth totaled more than $149,703 while the Black’s had $13, 024. Black people in America seem to be struggling to fit into a safe middle class. And even if an African American makes it to the middle class, it is even much harder for them to maintain that position. “When comparing intergenerational economic mobility by race, the data show that more than half of African Americans raised in the middle quintile fall out of the middle as adults, compared to about a third of whites,” Erin Currier- PEW Researcher. “Unfortunately, there were so few black parents in the top two income quintiles that examining the economic mobility of their children is not possible,” she added.
Where are these Disparities Coming From?
The truth is, African Americans receive lower lifetime earnings. Institutionalized racism means that employers are always getting away with consistently underpaying Black Americans and other minorities. It is hard to save when you are not earning enough money. While the African-American buy power significantly increased, crossing the threshold of $1.4 trillion, with a higher projection of $1.8 trillion by 2024, more African American households are reporting an income of $100,000 or more. However positive the news is, there still remain some negative impacts of the recession ringing true for African Americans, especially when it comes to saving, personal income or cash flow, retirement, or simply in terms of net worth.
Additionally, part of the problem is that the means by which families accumulate their wealth are stacked against the minority communities. For instance, let’s take housing- which makes up about 60 percent of the average American household’s wealth- even in the past, decades after cessation of redlining, a majority of the African Americans and Hispanics were still barred in one way or another to owning a home compared to the non-Hispanic whites. In 2016, the homeownership rate for the non-Hispanic whites was 72 percent while for the Hispanics was 45 percent, closely followed by that of the Blacks at 42 percent. Buying a home for an African American made significantly less meaning as the benefits were much more muted when compared to the non-Hispanic whites. Part of the reason why this is true is the fact that Blacks and Hispanics-due to circumstances- are much more likely to stay in low-income neighborhoods which means that the value of their homes will not appreciate at the same rate as those of the non-Hispanic whites. Even when these families do make it to move to ‘nicer’ white neighborhoods, their lives do not change much. As a matter of fact, one research shows that, once a neighborhood becomes more than 10 percent black, property values begin to decline largely in response to their presence.
This goes to show that African Americans have less in home equity. To highlight this, the aftermath of the housing crisis left the African American economy crippled. While it indeed cut across all demographics, Blacks were largely affected. While non-Hispanic whites were likely to be the demographic that owned more homes, they also owned other valuable assets. For the Blacks, their homes accounted for a larger portion of their equity. When the recession came, it gutted almost all of what the African Americans had. Another report from ACLU shows that by 2031, the recession will have lowered white’s wealth by 31 percent while for the African Americans, it will be by 40 percent.
Another report from Urban Institute shows that incomes and lower credit scores have also added to the wealth disparity and contributed to the widening homeownership gap. Lower-income impacts the affordability capacity of the African American for a down payment on homes. Additionally, low credit scores also make it harder for African Americans to obtain mortgages. Only 21% of Black households have a FICO score that is above 700, compared to more than 50% of the white households.
Nonetheless, African Americans continue to be at a great disadvantage, but through the power of education and buying property, African Americans can make the necessary moves to begin to close the gap. First and foremost, establishing a solid savings plan is a key ingredient to success.