The history of racism, discrimination and violence runs deep. Whenever black Americans have made progress, they have been removed either legally, such as when the city council of Manhattan Beach, California, used eminent domain in the 1920s to keep Bruce’s Beach away from a black couple who exploited a resort for black people, or violently, as when the middle-class community of Tulsa and dozens of other black communities across the country were burned down by white mobs. The result is that black Americans lag far behind white Americans in all economic statistics.
The median white family has 10 times the wealth of the median black family, according to a report, “The Economic Impact of Closing the Wealth Gap,” by McKinsey & Co., a management consultant. And black Americans can expect to earn $1 million less than white Americans in their lifetime. Prosperity Now, a nonprofit advocacy group, said in a report that the median net worth of black families will be zero in 2053 if nothing is done.
One of the surprises for me, however, is that there are proven solutions, but they probably won’t be applied to black America in large enough numbers to solve the problem. And none of these solutions are likely to solve the problems by themselves.
Let’s discuss the pros and cons of improving financial literacy in the black community: the “Baby Bonds” proposal that was introduced in Congress, housing programs that would close the gap between black homeownership and whites and guaranteed income programs that have proven to be extremely successful. And, probably most controversial of all, reparations.
Many people, including economists, financial planners, and educators, both black and white, believe that financial literacy is a tool to help close the wealth gap. It is extremely important that we increase the level of financial literacy in the black community.
According to the National Endowment for Financial Education, students who take financial literacy classes at a young age were less likely to take out high-interest loans, like payday loans, and less likely to rely on credit cards at high interest rate.
But economist Andre Perry, a senior fellow at the Brookings Institution, said in a column, “Financial literacy classes won’t fix the racial wealth gap: Stop blaming black people for the exploitation that robbed them of their wealth for generations”.
He continued, “While it is wonderful to teach high school students good financial habits, it is absurd to argue that it will narrow the racial wealth gap. Black people can save every discretionary penny for the next 250 years and that still wouldn’t close the racial wealth gap in this country.
There are many who agree with Perry. But many financial experts still believe that financial literacy is a key part of any larger plan.
The idea was first proposed by economists William A. Darity Jr. of Duke University and Darrick Hamilton of the New School for Social Justice. Sen. Cory Booker (DN.J.) has proposed legislation that would create a federally funded savings plan for every child born in the United States. Accounts would start with $1,000 with an additional deposit of up to $2,000 annually until the child turns 18, depending on family income. The child would then have access to money to buy a house or pay school fees. An analysis by financial services firm Morningstar concluded that baby bonds would halve America’s racial wealth gap after the first children reach their 18th birthday.
But despite having a dozen co-sponsors in the Senate, including Senate Majority Leader Charles E. Schumer (DN.Y.), and nearly as many co-sponsors in the House, the legislation hasn’t not advanced. He has no Republican support.
California has planned a pilot program that would provide grants to organizations to provide guaranteed income to participants to alleviate poverty.
Stockton, Calif., launched a pilot program in 2019 under former mayor Michael B. Tubbs in which the city gave $500 a month to 125 residents of low-income neighborhoods in the city for two years. After the first year, a study by independent researchers found that full-time employment increased among those who received guaranteed income and that their financial, physical and emotional health has improved.
According to the Urban Institute, the black homeownership rate is 42.3% compared to the white homeownership rate of 72.2%. Without a response, the organization said, black homeownership rates will fall even further by 2040.
Last year, a group of housing and civil rights leaders announced an initiative to dramatically increase black homeownership in the country. The Black Homeownership Collaborative, a coalition of more than 100 organizations and individuals, wants to bring black homeownership to the level of white homeownership, which would require 5 million more black homeowners, a 72% increase.
The group wants to create 3 million new black homeowners by 2030 through a 7-point plan to reach its goal within nine years: homeownership advice; down payment assistance; housing production; credit and loan; civil rights and consumer rights; homeownership sustainability, and marketing and awareness.
The group also called for increased funding for housing counseling services and a targeted down payment assistance program.
Darity and Kristen Mullen in their book “From Here to Equality” say the total amount of reparations should be dictated by the amount needed to eliminate wealth disparities between black and white Americans. This would require an expenditure of $10 trillion to $12 trillion, or $200,000 to $250,000 per eligible beneficiary per year over 10 years. This, they say, would align the wealth of black families with that of white families.
And the House Judiciary Committee voted HR 40, a reparations bill, out of committee in early 2021. This bill was originally introduced by the late Rep. John Conyers Jr. (D-Mich.) in 1989. There are now nearly 200 House co-sponsors and more than 20 Senate co-sponsors for a National Reparations Act.
However, passage is unlikely. The legislation is strongly opposed by Senate Republicans. A national poll by the University of Massachusetts Amherst and the WCVB found that 62% of those polled opposed reparations to slave descendants. A Reuters poll found that only 20% of those polled were in favor of reparations.
I hope we will see parts of each program enacted over the next few years. There’s a lot more going on with local repairs. We have seen communities like Asheville, NC, and Evanston, Illinois, passing reparations bills at the height of the social justice movement during the pandemic. And 11 US mayors, including the mayors of Los Angeles and Denver, have agreed to pay reparations to small groups of black residents in their cities. The programs are said to be intended to make amends for past wrongs, but the mayors did not give details on the cost of the programs or how the beneficiaries will be chosen.
Roger Ferguson, former CEO of TIAA, the giant financial services company, probably said it best: “None of these things are magic bullets or magic wands. And the reason I think there’s no silver bullet is that it’s taken us literally hundreds of years to get to this place, and I hope I don’t think that ‘it will take 100 years to fix it, but I think it will take time to undo three of the centuries of damage.