By: Lynnette Khalfani-Cox
NOBODY HAS TO TELL YOU HOW TOUGH it's been lately for many folks to get ahead. In fact, you probably have your own story to tell.
Even though economists say the Great Recession technically ended in 2009, it's painfully obvious, especially in African-American communities, that the economic slowdown still lingers.
Jobs are scarce, wages are down, prices are up. But consumer advocates say the housing crisis--combined with chronic unemployment--has dealt the single biggest blow to the state of Black wealth this past decade, undoing years of economic progress.
"You can almost hear this giant sucking sound--wealth being sucked out of the Black community," says Maurice Jourdain-Earl, a Virginia researcher who has documented the difficulty African-Americans face in securing mortgages to buy or refinance homes.
Wealth, sometimes referred to as net worth, is the sum of everything you own (such as houses, investments and cash) minus what you owe. Having wealth is what helps you achieve goals, whether it's starting a business or paying for retirement. It can help you ride out such economic challenges as downsizing or divorce, and can also be handed down to future generations, leaving a strong financial legacy.
As many as 40 percent of Black households had a zero or negative net worth in 2009, according to the Economic Policy Institute. Compared with their White counterparts, the economic gap has more than quadrupled in recent years.
Also in 2009, the median net worth of Black households was $2,200, compared with a median net worth of $97,900 for White households. Just a decade ago, in 2001, the median net worth for a Black household was $12,500, $124,600 for a White one.
Less than .01 percent, or about 112,000, of Black households in the United States have a net worth of $1 million or more. Even at $500,000 in net worth, only 333,000 Black households make the cut.
So for every Black billionaire, such as Oprah Winfrey or Bob Johnson, or every well-paid athlete or celebrity, there are scores more African-Americans simply struggling to pay the bills.
As of June 2011, the national Black jobless rate remained at a stubbornly high 16 percent, well above the national rate of about 9 percent. In some cities, unemployment among African-Americans is even higher: 19 percent in Charlotte, N.C, and nearly 26 percent in Detroit.
Even when Blacks do manage to snag and hold onto jobs, we make just 60 cents for every dollar Whites earn. So an increasing number of us are relying on credit cards, or perhaps the occasional payday loan, just to make ends meet.
Many are struggling because of the housing meltdown.
In this country, the overwhelming majority of people's wealth is based on the equity in their homes. But since the housing market collapsed in 2007, property values have fallen dramatically, wiping out trillions in equity. Foreclosures have compounded the collapse, disproportionately affecting Blacks, many of whom were holding subprime mortgages.
Roughly 11 percent of African-American homeowners are in or are facing imminent foreclosure, the Center for Responsible Lending calculates, and 1.1 million Black families will lose their homes by 2012. By comparison, just 7 percent of White homeowners are in foreclosure.
"I've been in the business for 24 years, and this is as bad as I have ever seen it," says Julius Cartwright, president-elect of the National Association of Real Estate Brokers, an African-American real estate trade group.
"The Black community has lost about $1 trillion in wealth due to the housing crisis," Cartwright adds, "and no one has yet come up with real solutions."
After peaking at 50 percent in 2006, the African-American homeownership rate has fallen to about 44 percent, Census Bureau data show. It will likely dip further for three reasons: Many Blacks are at least two months behind on their mortgages, putting them at high risk of foreclosure; others are dealing with subprime loans they can no longer afford; and even more African-Americans are effectively locked out of the housing market because they can't get home loans at all.
WHAT KEEPS US FROM GETTING RICH?
Even before the recession hit, Black Americans trailed Whites significantly in building wealth, primarily because of the historical impact of racism, oppression and political policies.
Take property ownership, for instance. It's well known that having land, real estate and other forms of property help create wealth. Throughout much of U.S. history, federal and state governments have provided so-called "wealth starter kits" to Whites, according to the Insight Center for Community Economic Development, a national research firm that promotes financial stability in economically challenged communities.
In a 2009 report from the center titled Laying the Foundation for National Prosperity: The Imperative of Closing the Racial Wealth Gap, researchers noted that "governments have given gifts of land, education, government-backed mortgages and farm loans, a social safety net, and business subsidies to White families, sometimes exclusively and usually disproportionately."
The same governments that boosted White wealth took land from people of color, denied them education and erected barriers to home and business ownership, the report states, noting that segregation and Jim Crow laws pushed many African-Americans "to the margins of the economy, where many remain stuck today."
THE SILVER LININGS
Fortunately, statistics don't tell the whole story. Some of us have managed to choose wisely, hang on to our assets and even boost our wealth.
Fear of getting overextended during the housing boom was one factor that kept 56-year-old Yvonne Parker from pursuing a costly mortgage.
Parker, a health care case manager, and her husband, a regional sales manager for an insurance company, moved to Lithonia, Ga, from Detroit 28 years ago. The couple bought a four-bedroom, three-bathroom Cape Cod, which they paid off in 2001.
Since then, Parker has turned down offer after offer to tap the equity in her home or to trade up to a bigger, fancier house. She knows she made the right decision.
"I'm certainly not perfect," she says. "Do I spend too much on clothes, and could I have saved more? Yes. But one of the best things I ever did was to not jump out there and buy a bigger house and get a huge mortgage to go along with it."
Because she has no credit card debt and no mortgage, Parker is able to travel when she wants. Her husband plays golf each weekend. They're planning for a secure retirement, and they managed to put their daughter through Spelman College--at a cost of about $25,000 a year--with no student loans.
Some of us are building wealth by launching our own companies. Robert L. Wallace is a case in point.
He grew up poor in the projects in Baltimore, one of eight children living in a one-bedroom apartment. By the time he became a young man, "I got tired of being poor," Wallace says. "I wasn't knocking Mom and Dad, but I saw very clearly the contrast between the quality of life among Blacks and Whites."
It was being tired of poverty, Wallace says, that drove him to ultimately become an engineer, author and entrepreneur.
Wallace is the founder, president and CEO of BITHGROUP Technologies, an information technology services firm in Baltimore. Among the 27 million businesses in the United States. Wallace's firm is among the 1.9 million of those companies, or 7 percent, that are owned by Blacks.
Says Wallace, who has written numerous books, including Black Wealth: Your Road to Small Business Success (John Wiley & Sons): "Economic power is the ability to control your economic destiny."
KEYS TO BUILDING BANK
THE TASK OF building wealth in our families and communities is daunting but not insurmountable.
Below are key strategies to get you going. (Other articles throughout this issue also offer advice, based on factors such as your age and financial goals.) The time to start is now.
Demos, a public policy research and advocacy organization, reports that 84 percent of Blacks with credit cards carry a balance each month, and 51 percent of African-Americans admit to not paying all their bills on time, according to a 2009 financial literacy survey from the National Foundation for Credit Counseling.
GET SMART ABOUT INVESTING
A lack of investments or other financial assets puts Black families at greater economic risk in times of crisis, such as job loss, divorce or a death in the family. But only one in four African-Americans owns stocks, bonds or mutual funds, according to a Washington Post-Kaiser Family Foundation-Harvard University poll.
AVOID PREDATORY LENDERS AND HIGH-COST FINANCIAL SERVICES
There is no one with either a checking or savings account in 21.7 percent of Black households, and more than half of Black households use alternative financial services including payday lenders, check-cashing companies or pawnbrokers, according to a recent FDIC report.
Mistrust of mainstream financial institutions, a lack of access to traditional credit and a lack of banks in many of our neighborhoods help explain the trend. But there is at least one big reason to stop: Payday lenders may charge interest rates of more than 400 percent on an annualized basis.
MAKE OWNERSHIP A PRIORITY
Material goods such as cars and clothing don't help you build wealth; these are depreciating assets that lose value over time. You must own a house, investment property, land or a small business to create a positive net worth.
DO SOME BASIC ESTATE PLANNING
Create a last will and testament. A will is the foundation of a good estate plan because it spells out your wishes to the state--and to your family--about what to do with your assets after your death. Regardless of your financial situation, having a will is a good idea.
INCREASE YOUR EDUCATION
Experts say that one reason for Black-White income disparity is that too few African-Americans hold college degrees. Even with an increase in the number of Blacks pursuing higher education, only 19 percent of Blacks have degrees, compared with 27 percent of Whites.