A general overview of race and wealth
By Dell Gines
In 1896, the landmark US Supreme Court ruling, Plessy Vs Ferguson, enforced segregation and created the ‘Separate but Equal’ doctrine and the rise of Jim Crow laws.
This had more than just a ‘moral’ impact, but also an economic one.
An example from the state of Georgia:
“Wine and Beer All persons licensed to conduct the business of selling beer or wine…shall serve either white people exclusively or colored people exclusively and shall not sell to the two races within the same room at any time.”
When you restrict the ability to create commerce, or limit it, it affects the population with the lowest income and wealth base the hardest, as it reduces potential clientele and funding.
Couple that with banks and their red-lining practices at the time and the ability for blacks to generate wealth was severely curtailed.
From the Civil War till now, how much has changed economically?
Although there has been ‘progress’ from an individual standpoint, the disparities between blacks and whites, specifically in the economic arena have been persistent.
According to Dr. Claude Anderson, in his book Black Labor, White Wealth:
"…on the eve of the Civil War, records indicated that more than 50 percent of free blacks were paupers; all free blacks collectively held less than one-half of one percent of the nation’s wealth…A century later, in the 1960s, an era considered by many as “great decade for blacks,” more than 55 percent of all the blacks in America were still impoverished and below the poverty line. And, blacks barely held one percent of the nation’s wealth."
Much of the historical change for blacks in America occurred through legislation that made illegal certain forms of discrimination and racist practices.
However, this legislation did nothing to materially change the effects of years of economic disenfranchisement that occurred through unfair restrictions in the work place as well as in business development.
Affirmative Action, although important, was never intended nor designed to correct disparities caused by slavery and Jim Crow.
Where we are today
According to the Urban League’s State of Black America 2004 Report:
• Fewer than 50% of black families own their own homes, vs. over 70% of whites
• Blacks are denied mortgages and home improvement loans at twice the rate of whites
• Black males mean income is 70% of white males ($16,876 gap), black females mean income is 83% of white counterparts ($6,370 difference) (http://www.nul.org/news/2004/soba.html)
But overall, the report said, in most areas of everyday life, Americans are still divided along racial lines, and economics was listed as the most significant racial disparity. The median wealth for blacks, according to the report, is 10 times less than it is for whites. (http://www.blackamericaweb.com/site.aspx/bawnews/ulreport407)
Essentially, disparities created by unequal treatment in the past persist today because much of the Civil Rights Movement has not progressed beyond legislative and social issues into the arena of economic empowerment through entrepreneurialism and financial literacy.
In addition, this is a hard area to move into because essentially and broad scale initiatives to truly empower blacks financially creates competition against non-black businesses.
When you have systems in place such as networks and relationships with individuals in certain arena, it dramatically increases your odds for economic success.
Being that blacks have historically been locked out of certain ‘networks’ it further restricts their ability to access information that generates wealth.
The power of wealth
When you have a specific race with such a dramatic disparity in income, you also have a race that will be materially affected by the issues of poverty in America.
In a 2004 article titled Poverty Spreads by CNN Money, they state that the poverty rate of African Americans remained nearly twice the national rate, with 24.4 percent of blacks living below the poverty line in 2003, slightly higher from 24.1 percent a year earlier. (http://money.cnn.com/2004/08/26/news/economy/poverty_survey/)
When you are in poverty, the ability to acquire wealth and escape poverty is terribly difficulty. Check to check living precludes significant savings and investments, which allow you to grow your wealth and protect your future.
You typically acquire bad credit due to unforeseen financial problems occurring, which force you’re to skip payments. Bank loans are at a higher percentage rate, insurance costs are higher, health care is poorer or unaffordable and the educational system in the inner city environment that most poor blacks live in are worse or insufficient.
Even if racism ceased to exist today, the economic disparities caused by racism would still be pervasive and persistent amongst blacks as poverty becomes cyclical.
To truly eliminate or dramatically reduce disparity between blacks and whites, a holistic paradigm change in how our nation addresses the problem must occur.
Solutions to the disparity
The solution to the black disparity in wealth in America is a dramatic change in government policy and in non-profit funding and missions.
Typically, inner-city and African-American centered programs are geared towards good, but ineffective band aid programs that don’t holistically work to elevate the economic condition of blacks.
There need to be more programs that increase home ownership, that increase business ownership, that train on money management and wealth building. Access to cheap capital for business development, and low interest rate loans for mortgages are crucial.
Subtle red lining must be eliminated in insurance and banking practices, and buy here pay here, check cashing, and other businesses that nearly extort inner city residents must be regulated.
In addition, inner city, heavily minority concentrated schools should be teaching economics, business and financial literacy as core principles.
Empowerment zones and economic development grants for indigenous inner city residents should be appropriated from the federal level, and incentives should be increased for businesses that want to re-locate in urban, low income environments.
To truly decrease the economic disparity caused by hundreds of years of economic disenfranchisement and racism, effective, disciplined, and strategically oriented strategies at all facets of American life need to be enacted.
When it comes to wealth building, amount, time and rate of return determine levels of wealth. If the typical African American has less to invest, the ultimate return, and the ability to secure a retirement, and leave wealth for children is dramatically decreased.
In the following example, it shows the difference between a thousand dollars invested and five hundred over thirty years.
$1000 at 10% at 30 Yrs – Returns $17,449
$500 at 10% at 30 Yrs – Returns $8,725
The although initially the $1000, which was double the $500 invested by the other investor, was only $500 more, at the end of 30 years, it is $8724 more dollars, although still double, that of the poorer investor. If blacks as a whole have less disposable income to invest, over time the disparity remains statistically even, even though real wealth is dramatically more for the white.
Although credit problems are pervasive in all races, being that blacks per capita have more poverty and less wealth reserves, they generally as a group have poorer credit, meaning that they have to pay more for the money they borrow.
The following is the difference in interest paid over the life of a Class A mortgage loan, and a poorer credit Class B mortgage loan.
Class A - $100,000 at 6% at 30 Yrs – Interest = $115,838
Class B - $100,000 at 12% at 30 Yrs – Interest = $270,300
The difference is $154,462 or an average of $429 dollars a month. (Calculations courtesy of Quicken Loans)
Dell Gines is the founder and president of the Urban Center for Economic Education & Development, Inc, an African American charity dedicated to creating entrepreneurialism in inner-city environments. He blogs at Urbanceed.
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