Black Households Will Be Struggling By 2034, Here’s How To Pivot.

When it comes to building wealth, Blacks in America are facing an uphill battle. Although the racial wealth gap narrowed a bit, Black households held less than four percent of total U.S. wealth while representing nearly 14 percent of the population. To make matters worse, based on the US census 2023 data, Black median income trails behind Hispanics (by almost $10,000), Whites (by $32,560), and Asians (by $56,310). By all metrics, income generated from “Black jobs” is 43 percent behind any meaningful socioeconomic change.

According to a McKinsey & Company report, 3.5 million Black households have a negative net worth due to debt. This issue exceeds savings and equity. Some folks don’t make enough money. I will never forget finding out that my mom never made more than $30,000 before retiring in 2020. She was spiritually, physically, and mentally exhausted with no pension and less than $200,000 in retirement savings.

Due to the transitory nature of wealth or lack thereof, Black households generally start with fewer opportunities, assets, and inheritances. the Federal Reserve and U.S. Census estimated over $300 billion disparity between Black and white families in the annual flow of new wealth. White (and now Asian American) Households are 40%-60% more likely to receive an inheritance.

The lack of generational wealth exposes Black families to childhood financial trauma with chronic consumer interest and long-term debt. Additionally, this stagnation hinders investment in equities and home ownership. Despite how the media portrays the exceptions to the norm, there are two Americas in this post-Obama era.

Blacks in America are on an isolated downward trajectory while being the political cheerleaders with little progress to show for it.

The Wealth Gap and the Financial Cost of Black Households

In 2022, for every $100 in wealth held by white households, Black households held only $15. This gap permeates itself into mental wellness crises, proximity to violence, lack of nutrition, educational prospects, etc.

For example, “college access varies greatly by parent income,” according to a study by Opportunity Insights. Children in the top 1 percent are 77 times more likely to attend elite colleges and universities than children with parents in the bottom 20 percent.

This wealth inequality extends from deep systemic issues, stagnant wages, rising costs, and lack of access to capital. Its impacts are cancerous and environmentally contagious. The Internal Monetary Fund (IMF) added that excessive inequality erodes social cohesion and leads to political polarization.

Socio-Capital and Segregated Poverty

Where you live is also part of the problem. I moved to Miami in 1991. It took me a few months to realize how separate and unequal we were. There were parts of Miami that kids casually referred to as “the rich side.” The grass was greener and the area safer. The implication was subtle, we knew that we were not allowed.

According to a 2022 research at Harvard, Stanford, New York University, and the Santa Fe Institute in collaboration with Meta and Opportunity Insights, “a poor child who grows up in Minneapolis, where there’s greater integration between low-income and wealthy kids, reaches an average income of $34,300 by age 35 — or almost $10,000 more annually than the typical income of a poor kid from Indianapolis, where there are fewer social connections between the two sides of the wealth spectrum.”

In essence, Americans tend to be (legally) segregated by income. “Rich people tend to spend time with other rich people, and the same goes for poor people.” The researchers have made their findings searchable at Socialcapital.org.

In his book The Meritocracy Trap, Yale Law School’s Daniel Markovits argued that meritocracy has contributed to increasing inequality and the decline of the middle class rather than democratizing American society.

This social advantage offers better access to food, opportunities, and chance encounters. In turn, it means that your household taxes pay for your school’s resources leading to kids being better prepared. A lot of black kids have no idea what the Middle Ages were. Through that concept on a standardized assessment test, the results line up. Many of America’s Black youth cannot read or do math. That should be just as alarming to you as you just read it.

So What’s the Outlook?

With all the chips on the table, what happens next?

By 2064, a report by Elliott and Abacus Wealth Partners CEO Brent Kessel found that the average white family likely will possess $2.8 million in wealth while the Black family’s wealth will be less than $800,000. That’s a 70% disparity.

Based on the Federal Reserve data on wealth components (Table 1), Blacks in the US have experienced a wealth increase of 12% from December 31, 2019, to March 30, 2024. The problem is that during the same period, Asians saw a rise of 44%, Whites of 36%, and Hispanics of 22%. That’s just the last five years. Going back ten years (i.e. Q4 2013) to see if there is a pattern, I found that:

• Asian household wealth climbed 165%,
• Although depressed by waves of migrants, Hispanic household wealth increased by 98%,
• White household wealth rose 79% for the same period,
• While Black household wealth increased by 55%.

The Black proportional share of the total US is declining by at least 2% annually. At this rate by 2034, using today’s dollars, median Black wealth will decline to $41,657 (from $56,490). That’s a 26% estimated decline in the next decade. While societal changes are needed to address the racial wealth gap, there are critical steps that Black Americans need to take right now to build wealth.

Time is the currency that increases inequality.

Engage in the Process of Building Wealth in Your Lifetime

Most Americans avoid money conversations, yet have no problem spending to adorn themselves with facsimile of wealth. Financial conversations lead to better decision-making. Additionally, these conversations can help you avoid making mistakes while boosting your immunity against scams and get-rich-quick schemes.

“You make money and you just put it in an account and that is it,” said financial advisor Delano Saporu, CEO and founder of New York-based New Street Advisors Group. “How do I increase this money that I have made? How do I deploy it?” he added.

Talking about money with your spouse, friends, and family should be your top priority. You have to engage with the economic system. You can’t spend your way into wealth. Encouragingly, 37% of Black millennials are talking about stocks and real estate, according to the 2020 Ariel-Schwab Black Investor Survey.

The next step is all action. John Hope Bryan says this all the time, “wealth starts in your mind.”

The Need to Improve Saving Rates and Cash Flow

The most important thing to do is to start saving, even if it is just a small amount every month.

Almost three-quarters of Black adults do not have enough emergency savings to cover three months of expenses. It’s a problem. The Black median bank balance is $2,110. White median bank balance is nearly 6x more (source: Bankrate.com)

Most emergencies will run you nearly $3,000 these days. Cut this issue by lowering expenditures when and where it’s needed. Once you build up that emergency fund, you can put money into assets that could give you a higher return. Your cash flow will give you flexibility. Some strategies can lower your taxes every pay period, ie investing in your employer-sponsored retirement plan. Beyond that, acquiring capital will help you participate in the global economy.

We Can’t Have Black Households without Buying Homes

As you accumulate more savings and start to think about how you can invest, you have to put yourself in a position to buy a home. This will require that you review your expenses, lower your debt to income, and improve your credit.

It’s not just a place to live, it’s a long-term investment. Renting will only lead you to paying more during your lifetime for experiences that aren’t yours to keep. The average American can expect to pay over $384,000 to $576,000 for rent from the age of 22 to 38. That’s a pretty penny considering rent has increased by 30%-40% for the past 5 years.

Home values have increased by 52.7% per square foot since 2019. It’s encouraging to see Black homeownership increase between 2019 and 2021. However, it remains below the 2004 peak. See Table 2, if you squint enough. Black homeownership as a share of assets increased by 44%.

Less than 30% of Black Households Invest in the market

Start investing as early as you can so that your earnings can earn money. Take advantage of your company’s retirement plan, like a 401(k). Even a modest matching contribution of $3,000 annually is worth $805,269.84 (at 8% for 40 years). With your portion, your total would amount to $1.6 million (from a $120,000 contribution).

Black people should dive into asset diversification. Equities have roared in 2023 and 2024. They are likely to continue to perform into 2025 post-federal rate cut. Equity positions as a share of wealth for Blacks has gone down 12% while other groups have gone up. Hispanic Americans are pouring into real estate (+44%) and investing (+93%).

We can’t be afraid of the market and the volatility. Remember that, long-term stock investments tend to outperform shorter-term trades. Not sure why but people still don’t understand that you aren’t likely to time the market. Focus on time in the market instead.

Ultimately, spending won’t help you build wealth, investing will. You have to mind your strategy and consider a long-term approach. Additionally, a portfolio that includes assets with different performance characteristics often leads to better risk-adjusted returns. Simply don’t put all your eggs in one basket.

Finally, mind your exposure to debt too many jump into the big flip or risky position on credit. Just don’t. See Table 3. No matter the race or ethnicity, America has a spending problem. Play the smarter position. Keep your dollars. You will save more by not swiping. Or consider, everything you buy costing 2.5x – 3.75x to keep, maintain and replace.

Plan and Strategize for Future Generations

It’s not a sacrifice. This is called purpose.

Most people spend more than they earn, covering themselves with items to feel better. It’s avarice. Consider the future and try not to rob yourself of your next opportunity. The more you spend today, the more time it will take for you to stop working. In the end, building wealth is about being patient and having PURPOSE.

My wife and I were able to build wealth in a short amount of time without feeling deprived. Why? Every action was not a sacrifice. They were steps to get us to a brighter tomorrow. Here are a few good rules to consider:

• Keep at least $2,500 per adult in your household for emergencies,
• Add $5,000 for every child,
• Neve buy a home that’s more than 25% of your gross pay,
• Your net housing equity should never exceed 25% of your net wealth,
• If you have a pension + home, they should not be more than 35% of your net wealth,
• Your Equities should be more than 37.5% of your wealth,
• And all that fancy stuff at the house should never be more than 7%.

If all that doesn’t make sense, just live within your means. You know what that means. It’s the conscious part of you that you ignore before saying YOLO. If you want one more source, check out “Median Household Income Increased in 2023 for First Time Since 2019.”

Armed with knowledge, the choice to pivot is yours.

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