When examining the United States Financial Industry, there are two things which show themselves prominent. Those being: that African Americans lack financial literacy at a high rate compared to other racial as well as ethnic groups, and that there is large wealth and wage gap based on race. In fact, according to research, for every 100 dollars earned by white non-Hispanics, black families earn only about $5.00. Because of disparities like this, “it is estimated to take 228 years for Black Americans to reach the level of wealth White households hold today.” (The Nation). This raises the question: What has caused African Americans to fall so far behind in the areas of wealth, wage and financial literacy? Well, according to the Nation, “Just as past public policies created the racial wealth gap, current policy widens it.”. In other words, if you are to truly understand the relationship between African Americans and the United States financial industry, you must realize the contributors to these issues which sociologist have found including not only economic predators, but systemic racism along with institutionalized oppression based on government policies.
There are many assumptions as to why these conditions placed on African Americans exist, and unfortunately, “Public opinion polls in the United States routinely reflect the notion that people are poor and jobless because of their own shortcomings or inadequacies.” (aft.org). In other words, few people would have reflected on how the larger forces in society “including segregation, discrimination, a lack of economic opportunity and failing public schools..” have affected not only poor people, but people of color, more specifically African Americans. (aft.org). The past decisions of lawmakers, and those in power have helped to create a system of social stratification. One of these assumptions, and perhaps the most most well-known and often discussed is the mantra that “Black people do not spend their money wisely.” Famous influencers such as Bill Cosby have even touched on this notion. This however is a hasty generalization and one which is not necessarily true. Members of all racial and ethnic groups choose to spend their money on frivolous and discretionary purposes, and when researching further, it can be determined that individual buying habits and behaviors do not play a key role in financial matters as well as issues affecting groups as a whole. In fact, “In looking deeper at the subject, Roussanov and his collaborators, Kerwin Kofi Charles and Erik Hurst of the University of Chicago, found some truth to the ethnic stereotypes on spending, but they concluded that the explanation lies in economics, not culture…poor blacks and poor whites both spend more on visible goods if they live in poor communities, because such spending gives them more status relative to others in the community. But poor blacks and poor whites living among wealthier people do not devote extra portions of income to visible expenditures, since they are too far behind to get more status from the extra spending they can afford.” (upenn.edu). This means that spending among cultural and ethnic minority groups is not a direct contributor to the wealth gap.
In Layman’s terms, that would be similar to saying that a store went out of business because of individual shoppers (shoppers representing black citizens) when in reality it is because of decisions made by corporate (corporate representing the government and institutionalized racist policies which they have created.). In fact, “In looking deeper at the subject, Roussanov and his collaborators, Kerwin Kofi Charles and Erik Hurst of the University of Chicago, found some truth to the ethnic stereotypes on spending, but they concluded that the explanation lies in economics, not culture…poor blacks and poor whites both spend more on visible goods if they live in poor communities, because such spending gives them more status relative to others in the community. But poor blacks and poor whites living among wealthier people do not devote extra portions of income to visible expenditures, since they are too far behind to get more status from the extra spending they can afford.” (upenn.edu). This means that spending among cultural and ethnic minority groups is not a direct contributor to the wealth gap.
Another assumption is that “black people lacking financial education” is the cause of wealth and wage inequality. However, sociologists have found that it is in fact the opposite; The wealth and wage gap have caused African Americans to fall behind in financial literacy and those areas. In Its Racist to Teach Financial Literacy by William A.Darity (Duke), it is explained that “financial literacy courses presume that the problem is simply that students of color lack financial literacy/responsibility. The problem with this language is the implicit notion that the racial wealth gap is a matter of financial literacy, choice and agency, as opposed to inheritance as structure…” (duke.edu).
Wealth versus Income
An important distinction to make when discussing this topic is the difference between acquired wealth and obtained income. The contrast being that “wealth is the net worth of a person, the total value of his assets minus his liabilities while income is the amount of money that a person received in return for his services, sale of goods, or profit from investments.” (differencebetween.net) In other words, wealth is something accumulated over time while income is immediately earned. So, when examining the United States financial industry, it is important to study African Americans and their history in relation to their ability to have wealth.
So, what are the actual causes? What has left African Americans so far behind in this piece of the struggle for equality?
In Sociology, Thorstein Veblen describes the idea of predatory or barbaric behavior. “There is a consequent growth of a predatory culture, which may for the present purpose be treated as the beginning of the barbarian culture. This predatory culture shows itself in a growth of suitable institutions.” (Geocities.ws). He explains that Predatory behavior is works through force or fraud. Today that behavior can be seen in industries related to finance which take advantage of minority communities. Often referred to as “economic predators”, a majority of “Rent to Own”, Check Cashing, and Pawn shop facilities have been concentrated in black neighborhoods thus making it difficult for African American families to establish credit. Not only this, but in terms of credit card companies, “African Americans are also more likely to pay high interest rates and suffer more negative consequences of debt than other groups” according to an NAACP study which also found that:
- “When asked to identify their credit score within a range, just 66% of African American households report having a credit score of 620 or above, compared to 85 percent of white households.”
- “When asked to describe their credit score, only 42 percent of African American households reported having “good” or “excellent” credit, compared to 74 percent of white households.”
This is a direct example of predatory behavior.
Not only these, but a system of institutionalized oppression has caused this rift in wage, wealth and financial literacy. Post-slavery, “General William Tecumseh Sherman issued an order in South Carolina. He wanted 40 acres and the loan of an Army mule set aside for each former slave family.” however, “This order was never carried out.” (crf-usa.org). This lack of reparations set Black Americans back even farther in the struggle to create financial stability and lasting wealth. With this new found “freedom”, African Americans had to start from scratch while their white counterparts had hundreds of years worth of a head start. Not only this, but after the emancipation of African Americans, the introduction of sharecropping along with many laws were passed to keep black men and women from successfully creating a legacy for themselves. Laws like this included Jim Crow, and dating prior to the civil rights movement (1954-1968), de-facto and de-jure segregation have left African American families with poor living conditions as well as little wealth and finances. Often the issues associated with poverty include “joblessness, crime, delinquency, drug trafficking, broken-families, and dysfunctional schools.” and unfortunately for areas with a high concentration of people of color, these problems persist meaning that they become isolated not only socially, but economically. This means that, “ultimately, by defining the central problem facing the Black community, as not the deep-seated structures that perpetuate racism and inequality, but, rather, deficiencies internal to Blacks themselves, the focus of policy becomes the rehabilitation of the Black family,” and that “the real problem, Darity and Hamilton argue, is that too many black and Hispanic students begin at a disadvantage; they’re poor, and without money, and so financial-literacy programs are irrelevant.”. In other words, the racial wage gap persists because black families have never been given the chance to meet even half the wealth and means possessed by white Americans.
Other government policies that have helped to hinder African Americans in the struggle for wealth equality include “Redlining” which is derived from policies created in 1933 by the Homeowner Loan Corporation. It “refers to a discriminatory pattern of disinvestment and obstructive lending practices that act as an impediment to home ownership among African Americans and other people of color.” (blackpast.org) and it has been used by banks and other money lending facilities to deny loans to those who have purchased or are looking to purchase a home in neighborhoods deemed a “financial risk”. These financial risks however are overwhelmingly represented by black neighborhoods and neighborhoods with a high concentration of people of color and have thus resulted “ in neighborhood economic decline and the withholding of services or their provision at an exceptionally high cost.” (Blackpast.org). In terms of creating wealth, “these policies resulted in 98% of home loans going to white families, from 1934 to 1962. Not only did the ability to purchase homes give whites the ability to accrue wealth, it also attracted new businesses to those neighborhoods, which increased property values and allowed those homeowners access to other wealth building vehicles like going to college. As a result, wealth in the white communities compounded and passed to future generations.” (btfinancial.com)
Not only this, but two major financial crashes since 1983 have caused the wage gap to broaden because between then and 2013, the average wealth of white households increased by 84%. -three times that of African American homes according to IPS (the Institute for policy Studies). Along with financial instability, the 1980s ushered in the Reagan administration and Reaganomics which drastically affected Black Americans in devastating ways. According to Lumen Learning, “During Reagan’s last year in office the African American poverty rate stood at 31.6%, as opposed to 10.1% for whites. Black unemployment remained double that of whites throughout the decade. By 1990, the median income for black families was $21,423, 42% below white households. “ meaning that since 1976, “ the state of Black America [had never] been more vulnerable.”(lumenlearning.com).
With all these statistics one thing is clear- African Americans have not had the opportunity to make strides in financial literacy because they, unlike white counterparts, have never been given the resources to need nor rely on it. Therefor, the conclusion can be drawn that in order to understand the relationship between African Americans, and the United States financial industry, the contributors to these issues
(which studies have concluded) economic predators, systemic racism, and institutionalized oppression based on government policies, must be addressed and corrected in order for African Americans to make strides in financial literacy.