Mint Images – Tim Robbins
The racial wealth gap — the disparity in median wealth between the different races — is a persistent struggle, and it appears to be worsening, especially between White and Black Americans.
According to a recent study by McKinsey & Co., Black Americans can expect to earn up to $1 million less than White Americans over their lifetime. The median White family had more than 10 times the wealth of the median Black family in 2016, according to the Federal Reserve’s most recent Survey of Consumer Finances. White families had the highest level of median wealth, at $171,000, while Black family’s median wealth was $17,600 and Latino families was $20,700.
White workers, on average, are paid more than Black and Latinx workers at almost every education level, according to a 2018 report by the Economic Policy Institute. Whites with an advanced degree received an hourly wage of $44.46, while Latinx earned $38.47 and Blacks earned $36.23.
Many social, historical, political and institutional forces have contributed to this gap, and closing it is a daunting task. Yet Many CEOs and other nonprofit leaders agree that financial education and job training can help individuals who are far behind gain some traction.
Research shows that Black Americans’ knowledge of saving and investing significantly lags behind Whites. A November 2019 study by the Global Financial Literacy Excellence Center at George Washington University and TIAA Institute found that, on average, African Americans answered 38% of their joint Personal Finance Index questions correctly. In comparison, Whites answered 55% of the questions correctly.
And often, those who need personal finance education the most have the least access to it in school.
According to the Next Gen Personal Finance’s report on the 2018–19 school year, 1 in 6 U.S. high school students was required to take at least one standalone semester of personal finance for graduation. Meanwhile, 3.9% of students from low-income schools (defined as one that has at least 75% of students eligible for free or reduced-price lunch), were required to take a personal finance semester to graduate.
“Education is critical. That is the great equalizer. We always say we’re a land of opportunity, and opportunity in a knowledge economy comes through education and training,” Merck CEO Ken Frazier recently told CNBC’s “Squawk Box.”
Here are three ways to grow knowledge and wealth and help to close the racial economic divide.
Take advantage of online resources, nonprofit partnerships
The first step toward increasing your financial literacy is to take advantage of the many educational resources out there, many of which are free and great for parents, teachers and students.
Next Gen Personal Finance, a nonprofit personal finance organization, has free online games and activities on topics such as budgeting, investing and paying for college, as well as free lesson plans on subjects like budgeting, saving and managing credit.
There are also age-appropriate resources for children on the Consumer Financial Protection Bureau’s Money as You Grow section, as well as the nonprofit Khan Academy, which provides free online courses.
The National Endowment for Financial Education provides financial education to people of all ages, like free online courses, learning activities and quizzes.
The Council for Economic Education is geared toward helping K–12 students learn about economics and personal finance. The organization provides resources and training to educators, with two-thirds in low- to moderate-income schools.
Check with your school district to see what is being done in the classrooms. While only 21 states require a personal finance course for high-school students, others still include the education in their curriculum. Currently, 45 states provide some personal finance in their curriculum. Some schools link up with nonprofits.
Education is critical. That is the great equalizer.
In New Jersey, for instance, before the state mandated a financial literacy curriculum, Roosevelt Middle School in West Orange linked up with the nonprofit group Circle of Rainbow Sisters Seeking Spiritual and Wellness Connection to teach its middle-school students about personal finance.
The program “gave them real-life practical activities to do at home to try to reduce expenditures,” the school’s principal, Lionel Hush said. “I think at first they were a little dubious, but once they got through the program, it was something they found very beneficial.”
Seek out free training opportunities
The nonprofit think tank Economic Policy Institute has studied the racial wage gap and found that after controlling for age, gender, education and region, Black workers were paid a median 14.9% less than White workers in 2019.
“There are 5 million inner-city and other African American kids who want access to the economy,” Merck chairman and CEO Ken Frazier told CNBC earlier this month.
“They want to be participants. They want to be citizens,” he added. “They lack the education, and there are opportunities.”
Those opportunities include the nonprofit Year Up, which offers low-income, mostly Black and Latino, young adults six months of intensive training and a six-month corporate internship in information technology, sales and customer support, business and financial operations, software development and support. The organization has partnered up with more than 250 corporations, including Merck, Amazon and Bank of America.
For those interested in breaking into the world of finance, the nonprofit Wall Street Bound trains underserved young adults, ages 18 to 24, on the ins and outs of trading. The organization screens and accepts candidates into the program and provides credentials training, as well as mentoring and support.
Participants receive technical training through Wall Street Bound’s partnership with Maverick Trading. They’ll learn how to trade stocks and options, and once they complete the qualification program, they will have access to the firm’s capital to trade and manage. They will keep between 70% and 80% of the profits they generate.
“We know that talent and IQ is equally distributed,” Wall Street Bound’s founder and CEO Troy Prince recently told CNBC. “Opportunity is not. This demographic — they do have the innate hunger [and] behavioral and cognitive abilities to succeed. It is only a matter of connecting them with the opportunities through education and access.”
More from Invest in You:
Here’s the advice that set up multi-generational wealth for this Black family
Here’s how much you’ll really need to buy your first home
In your 20s? Master the basics of personal finance to get yourself on track
Meanwhile, financial literacy entrepreneur John Hope Bryant, founder and CEO of the nonprofit Operation HOPE, has advocated for Congress to pass bipartisan legislation to provide significant tax benefits for individuals and companies that provide internships and apprenticeships to individuals and youth coming from underserved communities. It’s part of what he calls The New Marshall Plan.
“We need to move the needle on this economic inequality,” Ariel Investments co-CEO and president Mellody Hobson recently told CNBC.
“The role of the CEO and the role of the corporation has changed, and while many may want to sit out on these issues, they can’t. They literally can’t,” added Hobson, who is also a member of the board of directors at Starbucks, JPMorgan Chase and Quibi.
Some companies already have started. For example, last year JPMorgan Chase announced a new $350 million, five-year plan to help educate and train underserved populations.
Talk to a financial expert
Experts often suggest working with a professional to take stock of your finances and build your wealth. Yet many Americans don’t use a financial advisor. In fact, only 1% of those polled in a November 2019 CNBC Invest in You survey said they used one.
One of the reasons is cost. Yet these days, financial planning is not only for the ultrarich.
A growing number of advisors are working with a less wealthy population, offering complimentary consultation or services on an hourly basis. In addition, there is plenty of free financial advice available online these days, like through your 401(k) provider, bank or credit union, your discount brokers, like TD Ameritrade or Charles Schwab. Also, robo-advisors and micro-investing apps help you to get started with savings and investing with low barriers to entry.
The Foundation for Financial Planning offers pro bono financial planning through its local chapters to those in need. During the Covid-19 pandemic, the Financial Planning Association also has financial advisors who will work with you for free. You can also call investment advisors and see if they are taking on any pro bono or reduced-fee clients.
If you are looking for a Black financial advisor, check out the Association of African American Financial Advisors.
Before hiring an advisor, though, be sure to do your homework to understand how they charge and what services they actually offer. FINRA and the SEC each have websites that enable you to do background checks. To verify someone’s CFP certification and background, go to the CFP Board’s website.
“There are so many advisors out there,” said certified financial planner Winnie Sun, president and founder of California-based Sun Group Wealth Partners and a member of the CNBC Financial Advisor Council.
“You want to take the time to do your due diligence to make sure that the two of you can work together and it’s a long-term relationship.”
FINRA’s Investor Education Foundation has research, videos, quizzes and other tools at its website, SaveAndInvest.org.
The SEC has details on different investment terms and products on its website Investor.gov, as well as tutorials on topics such as how the market works and retirement strategies.
Nonprofits also have free resources available. Organizations like the Women’s Institute for Financial Education and Savvy Ladies cater to women investors and feature initiatives such as money clubs and free help lines.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.