In Monday’s column, I discussed the many ways that life has improved for Black Americans since the era of Martin Luther King Jr.
These include economic improvements.
Fewer Black Americans are poor than 50 years ago, and more than twice as many are rich.
Over the past 50 years, according to a new study by the Pew Research Center, the proportion of Black Americans who are high-income (more than $156,000 a year) has risen from 5% to 12%.
Yet Black poverty in this country remains disproportionate.
At the end of 2022, white households had a median net worth of $250,400, while Black households had a median net worth of just $27,100.
Is this due primarily to racism, as social justice advocates maintain?
Our nation has a long history of segregation and discrimination.
But – in today’s world – not every disparity can be attributed to racism.
In American sports, for example, Black people are overrepresented in professional football and basketball. White people are overrepresented in professional hockey and tennis. Hispanic people are overrepresented in Major League Baseball.
Geographic and cultural differences – that lead to differences in abilities – provide a better explanation for this than racism.
White households on average have much greater wealth in this country than Black households.
Yet Asian households have the highest median net worth of all: $320,900.
Are white Americans really discriminating in favor of Asian Americans?
Perhaps there is another explanation.
For example, earned income – and ultimately net worth – is highly correlated with education.
Asian American households, on average, have greater educational attainment than white households.
And white households, on average, have higher levels of educational attainment than Black households.
Studies show that better-educated individuals of any race have higher incomes.
For example, 2020 census data shows more than 9 million Black Americans with higher incomes than the median incomes of white Americans.
(There are also counties in Appalachia where the median household income of white Americans is thousands of dollars less than the median household income of Black Americans.)
Aside from formal education, there is the matter of basic financial knowledge.
According to the 2023 Personal Finance Index report from the TIAA Institute and the Global Financial Literacy Excellence Center, American adults have a “generally poor” level of financial literacy.
Polls show that only about a third of adults have a high financial knowledge – as shown by their ability to answer five questions about topics like compound interest, inflation and risk.
The percentages are much lower for Black and Hispanic adults.
High school financial instruction overwhelmingly lowers loan delinquencies, improves credit scores and reduces the use of expensive services like payday lending.
Yet, according to the Center for Financial Literacy at Champlain College, just seven states – Alabama, Iowa, Mississippi, Missouri, Tennessee, Utah and Virginia – require high school students to take a semester-long personal finance course.
And five states have no personal finance requirements whatsoever.
Aside from differences in education and financial literacy, some of us are born into affluent families – with all the advantages that entails.
Families are the primary transmitters of social capital.
Some children are taught the advantages of industriousness, self-reliance, personal responsibility and the deferral of gratification. Others are not.
Personal striving also plays a role in determining who thrives.
Economic inequality between individuals can often be the result of differences in aptitude, effort, resourcefulness and persistence.
Household formation also plays a role.
For example, white, female-headed, single-parent families have had a poverty rate more than double the poverty rate of Black married-couple families in every year from 1994 to 2020, the latest year for which data is currently available.
The data also shows that Black married couples in which both husband and wife are college educated earn slightly more than white married couples where both husband and wife are college educated.
None of this refutes the notion that employer biases can be responsible for disparities in income and, ultimately, household wealth.
As I mentioned in my previous column, serious wealth accumulation is a process that takes decades.
Yet when I think back to the ’80s and ’90s, I recall countless business meetings where – unless lunch was being served – there wasn’t a Black face in the room.
That certainly wasn’t because there weren’t any African Americans qualified to sit at the table.
Even after formal discrimination ended in the United States, informal discrimination endured for many years.
Black people in America suffered through 250 years of slavery plus another 150 years during which they were denied equal opportunities.
They were forced to attend separate but unequal schools.
They were routinely passed over for jobs and promotions.
They were subject to redlining, which confined them to the poorest neighborhoods in town.
They were denied personal loans and mortgages, even when their incomes and credit scores were adequate.
It’s not possible to quantify exactly how much these factors from years past affect the median net worth of Black households today.
But the effects were obviously subtractive for long-term wealth creation.
As I noted in my last column, circumstances have improved for most Black Americans.
Government programs have played a role. But then so has the private sector.
In the pursuit of profits, businesspeople hire the most qualified people they can find for every position.
Passing over better-qualified candidates because of their skin color is not a smart business move.
Especially since those individuals can take their talents to a competitor.
Other factors also affect wealth accumulation.
It’s not just a matter of how much we make. It’s how we budget. How we spend. How we borrow. Whether we insure. How we save. How we invest. And whether we own our homes – and build equity – or rent.
In short, not every economic disparity implies racism.
Yet it is impossible for any fair-minded person to deny that historical discrimination has played a role.
Here’s the good news…
Whether a person is Black, white, brown or purple, the rules of wealth creation are the same.
Americans of any race are extremely unlikely to end up below the poverty line if they follow three steps in what is often called “The Success Sequence”:
- Finish high school.
- Get a full-time job.
- Get married before you have children.
Studies show that the wealthiest Americans stay in school as long as they can, earn as much as they can, save as much as they can, invest as smartly as they can and leave their money untouched – so it can compound in value – as long as they can.
These are the basic principles of wealth creation, available to strivers of every race, gender, creed and orientation.
They are the first steps to achieving financial independence – and participating in the American Dream.