structural sinking boat


Financial Coaches, Let’s Be Upfront About Economic Structural Racism

Financial education messaging is too often presented as if individual behavior and attitudes are the cause of our growing economic challenges rather than our social, economic, and political systems.

Marsala Flats. Sicily, Italy. Photo credit: Alex Berger via, CC BY-NC 2.0.

structural sinking boat

Marsala Flats. Sicily, Italy. Photo credit: Alex Berger via, CC BY-NC 2.0.

The most significant economic challenge most Americans face is staying afloat and building wealth in the regressive economy we have lived in for the last 40 years. But if you are African American, you have the additional challenge of navigating the racial wealth divide.

Our regressive economy, created and upheld by political and corporate policies and practices, is marked by widespread economic instability, a growing racial wealth divide, and economic growth that is limited to those with substantial wealth. During these regressive years, the demand for increased financial education has become louder and louder as income inequality grows.

Most personal financial education is presented as if our economy functions as it did over 50 years ago—for white Americans, and when the U.S. economy was at its height with strong economic mobility and growth that disproportionately went to lower- and middle-income households. And financial education messaging is too often presented as if individual behavior and attitudes are the cause of our growing economic challenges rather than our social, economic, and political systems.

African Americans bear a disproportionate burden of the structural barriers that develop and maintain income disparities and asset poverty. Our regressive economy, the hoarding of resources, and racial segregation in all its forms are fundamental barriers that prevent African Americans, as a population, from building wealth. This reality makes it essential for financial planners, counselors, and educators to actively address structural inequality and the racial wealth divide.

Though racial economic inequality cannot be solved through financial planning alone, it is through personal finance—challenges in finding an affordable apartment to rent, paying for higher education, and even financing a car—that African Americans most directly and personally experience the racial wealth divide. On the community and individual level, it is through personal finance that African Americans will make strides toward developing financial stability, as we continue to fight for the structural changes in the economy that will make the racial wealth divide a thing of the past.

What is Wealth and What Does the “Racial Wealth Divide” Look Like?

The first step in creating a personal finance plan that addresses racial economic inequality and our regressive economy is to understand the financial goal of sustainable wealth.

Wealth is a measure of total assets minus liabilities, or debt, and is critical to economic stability. Wealth is the leading economic indicator that reflects a family’s ability to overcome unexpected financial challenges. It is often the difference between whether a financial setback like a job loss or a medical emergency becomes a temporary economic challenge or leaves a family in financial ruin. Wealth provides the collateral security to attain financial stability, take risks, and acquire additional wealth, as well as the resources to make intergenerational transfers that seed financial stability and mobility for future generations.

The centrality of financial stability to most all social measures and the foundation of wealth to financial stability has helped lead me to the conclusion that the foundation of racial inequality is racial economic inequality, and the foundation of racial economic inequality is the racial wealth divide.

It is in the area of wealth that we most clearly see the sedimentary results of intergenerational inequality. According to the 2019 report, “Ten Solutions to Bridge the Racial Wealth Divide,” which I co-authored, racial wealth inequality increased by more than $40,000 from 1983 to 2016. In 1983, white median wealth was $110,160, while Black wealth was $7,323, and Latino wealth was $4,289. In 2016, white median wealth had increased by $36,000 to $146,984, while Latino median wealth increased by only a couple thousand to $6,591. Black wealth declined by about $4,000, to a mere $3,557.

We see that throughout this 33-year period, African Americans and Latinos never got close to accumulating middle-class level wealth, which represents assets at a level that provides economic security and opportunity. The 2017 report “The Road to Zero Wealth: How the Racial Wealth Divide is Hollowing Out America’s Middle Class” estimated middle-class wealth as ranging from $68,000 to $200,000. The report also noted that about 72 percent of Blacks and Latinos had not reached middle-class wealth, while about 60 percent of whites had attained middle-class wealth or higher.

The Role of Public Wealth in Creating Private Wealth

There is a mythology that private wealth is created through private effort instead of collective assets, but this is not true. No one builds wealth alone. Private wealth (savings, homeownership, investment wealth) is derived from a combination of individual activity, public investment, and public wealth. Public wealth encompasses shared resources like nature and societal or community wealth such as libraries, infrastructure, property, and intellectual property. It also consists of cultural or knowledge assets, such as music, indigenous medicine, the internet, and language.

Public wealth is what entrepreneur and writer Peter Barnes refers to as the commons. He describes the commons as the gifts of nature, plus the gifts of society that we share and inherit together, and “that we should pass onto our heirs, undiminished and more or less equally.”

Private wealth development is the practice of leveraging one’s assets, the assets of others, and public assets into greater economic security for oneself. Private entities, like corporations, take public assets and concentrate financial return from public wealth to their largest shareholders, or shift their costs on to the public. Because most forms of public wealth are poorly defined, lack property rights, or are poorly managed, corporations see public assets as mostly free for the taking. For example, most extractive industries such as fishing, oil, coal, mining, and timber take wealth from our shared natural resources while paying little or nothing for them.

Private corporations siphon off the wealth created by public and community investments for private gain. They grow their profits by shifting costs off their balance sheets and onto the public ledger. Examples of this pushing off to the public ledger includes leaving local government to clean up the harm of an industry’s pollution, or a corporation having its employees subsidized by publicly funded health care and in some cases, food aid like SNAP benefits. Ultimately, private wealth is greatly dependent upon the wealth of our public resources. The battle to bridge the racial wealth divide will require using public wealth to advance economic security for low-wealth households.

Personal finance plans are often designed to further the capture of public wealth for the already wealthy, like finding loopholes in the tax code that can only benefit higher-income households. Yet this strategy of capturing public wealth for the individual is too often forgotten when dealing with lower income individuals. It is even more important for those with low wealth to utilize assets that can help stabilize and strengthen one’s economic position. These assets could include things such as free or subsidized daycare, groceries, or transportation; free job or entrepreneurship training, and scholarships. Government, nonprofit and for-profit programs and expenditures all should be considered as opportunities that can be utilized to help achieve financial stability and wealth development.

Throughout our nation’s history, white Americans have had privileged access to different forms of public wealth, which has been leveraged to create a wealthy broadly white American middle class. Our nation needs to make a dramatic reinvestment in broadening wealth and opportunity to all its citizens.

In the past, massive government investment in wealth building, such as the Homestead Act and post-World War II housing boom, were effectively “whites-only” programs that created the much-celebrated American Middle Class. Since the end of legal segregation and discrimination, there has not been a similar mass investment for Black people and other people of color, which would have a tremendous impact on shrinking the wealth divide. As the political will is developed to take much-needed action, it is the responsibility of those in personal finance to serve asset-poor clients in helping them piece together and leverage public and private assets that can economically advance their households.

Personal Finance for African Americans Enduring the Racial Wealth Divide

As stated in “Why Financial Education Should Get Political,” personal finance cannot be separated from political or macroeconomic policy. In fact, personal finance has always been political. For the last 40 years, it has reflected the conservative politics of our regressive economy, holding the poor accountable for their financial situation while counseling the wealthy to take advantage of public assets and subsidies.

In my over 15 years of research, education, and advocacy on the racial wealth divide, I have yet to find a personal finance curriculum that has at its center the reality of racial economic inequality, our regressive economy, and the need to equitably redistribute public wealth. I am hearing positive reports about the work of and think there are some promising practices in the Savvy Consumer Toolkit of Alameda County Community Asset Network. The Association of Financial Counselors Planners and Educators has also been engaging the issue of racial wealth inequality over the last few years. Members like Saundra Davis of Sage Financial Solutions and Pamela Capalad of Brunch and Budget have been incorporating these issues into their financial presentations.

Personal finance should of course be focused on how an individual or household addresses their individual economic challenges, but it certainly does not need to perpetuate the falsehood that an individual or household’s finances solely or even primarily derive from the action of the individual or household. A personal finance plan for African Americans in the context of our regressive economy and growing racial wealth divide has to be designed to deal with the asset poverty of family, friends, and community that is so common in our communities. Such a personal finance plan will:

  • recognize that personal finance is impacted mainly by forces beyond the control of a household,
  • recognize our regressive economy and the deep racial stratifications in the economy,
  • take into account community asset poverty as a personal finance challenge,
  • identify outside assets (public and private) that can assist a household’s economic development,
  • and create best practices factoring each of these points in.

I look forward to working with many others to develop such progressive financial planning framework that is more and more needed by a growing number of Americans.

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