Black families and wealth: Motivation and challenges

Kelly Kowalski, Cliff Noreen, and Bronwyn Shinnick

Posted on October 18, 2018

SOAF African American findings

African American families are highly motivated to achieve financial stability and are far more likely than the general population to prioritize teaching their kids to save and spend responsibly, but still face significant headwinds to wealth accumulation, according to a new survey.

The MassMutual 2018 State of the American Family survey , which surveyed households making $50,000 or more with at least one dependent under age 26, found that African American respondents were more likely than any other ethnic group to identify the following financial goals as a top priority:

  • Ensuring a stable source of income.
  • Saving enough for retirement.
  • Paying down debt.
  • Not becoming a financial burden to their family.
  • Paying for college education.
  • Transferring wealth to their families.

At the same time, the survey revealed that 58 percent of black families, which includes West Indian and foreign-born Africans living in the United States, said they are actively involved in educating their children about financial literacy, far surpassing their peers from other ethnic groups. That may be due to the fact that nearly half (47 percent) said they wish their own parents had taught them how to handle money.

“The study shows African Americans want to improve their financial situations and are hopeful about the future,” said Evan Taylor, director of the African American market, MassMutual. “At the same time, it sheds light on the financial struggles and inequities that the African American community continues to battle. Those contradictions indicate a need for greater financial education and discipline for the whole family to achieve economic success.”

Success is measured in many ways. When asked how they define the American Dream, 84 percent of African American respondents believed it meant financial security for themselves and their family. Also:

· Roughly 78 percent said the American Dream was synonymous with financial independence.

· The same percentage (78 percent) said it meant “not having to live paycheck to paycheck.”

· 77 percent said home ownership.

· 69 percent selected “The ability to retire at the age I want.”

Yet, financial headwinds facing the community persist which hinder their ability to attain those goals, said Taylor.

Heavier debt and lighter income

For starters, African American households are far more likely to be burdened by credit card debt (68 percent) than the total population (56 percent), the survey found. While the amount they owe, at $10,615, is roughly on par with their peers, their ability to repay those loans is hampered by their lower average income.

The average household income for African American families who responded to the MassMutual survey was $109,996, slightly higher than the $107,801 reported by Hispanic households. Caucasian households reported average household income of $123,795, Koreans $138,357, Chinese $146,784, and Asian Indians $154,759.

Perhaps that explains why 37 percent of black respondents said they have to prioritize their day-to-day expenses over saving for the future, and 32 percent said they wish they were more in control of their finances.

In addition to credit card debt, the survey found that nearly half (46 percent) of African American families have student loans outstanding — so-called “good debt” that can potentially generate a higher future salary, but that chips away at disposable income during the repayment years. That compares with 27 percent of both Hispanic and Caucasian, 16 percent of Korean, 10 percent of Chinese, and 8 percent of Asian Indian households that carry student loan debt. (Learn more: Good debt vs. bad: Keeping it in check .)

Wealth accumulation

Higher debt levels and lower income make wealth accumulation, specifically home ownership, an uphill battle for many African Americans.

Roughly 69 percent told MassMutual that they owned a home, compared with an 84 percent average for all ethnic groups. Reflecting optimism about their future financial prospects, however, 79 percent of black households said they remain confident they will be able to afford a home in the future. (Calculator: Setting financial goals)

For many Americans, real estate is their single largest investment and an important stepping stone to financial stability. As of 2018, U.S. homeowners are sitting on a record $5.8 trillion of “tappable equity,” defined as the total amount of equity a homeowner with a mortgage can borrow against their home, according to Black Knight analytics software firm.1

Consistent with data on the wealth gap, African American households also lagged behind other groups in terms of accumulated investment and retirement assets with an average $283,016 in accumulated wealth. That compares with $297,495 for Koreans, $373,772 for Hispanics, $407,109 for Asian Indians, $428,202 for Caucasians, and $607,713 for Chinese respondents.

Just 37 percent of African American families said they owned wealth-building products such as stocks or mutual funds outside of retirement accounts.

While many black households still struggle to create personal wealth, however, their desire for financial stability bodes well for a brighter future, said Kareen Blake, with Baystate Financial, in an interview. “The best thing I see is that we are eager to learn about how to save and eager to be educated about financial planning,” she said, noting that her own African American clients and extended family are highly dedicated to helping each other succeed through mutual support and education. “We are a very close-knit community and we talk regularly about the importance of being college educated and saving for the future.”

Protecting loved ones

In terms of owning financial products to protect the ones they love, African American families are ahead. Forty-two percent of black households who responded to the MassMutual survey indicated they owned a life insurance policy, the proceeds from which can be used to help replace a portion of the policyowner’s income in the event that he or she should die prematurely, compared with 34 percent of the overall population.

That speaks to the desire among many African American parents to pay their own way. Fully 81 percent of black respondents — the most of any ethnic group — indicated that “not becoming a financial burden to their family” was among their top financial priorities. By comparison, 69 percent of all ethnic groups selected that response.

According to the survey, African American households were also more likely to have long term care insurance policies (25 percent) than the overall population (14 percent), which is designed to cover costs associated with nursing homes and assisted living.

That’s progress, said Tarra Jackson, author of the Madam Money blog, who has teamed with MassMutual to help African Americans improve their finances.

While Jackson is not surprised to see the racial disparity in income, debt, and asset accumulation levels evident in the MassMutual survey, she maintains that the American Dream is attainable for anyone who is ready to begin investing in their financial future today.

A few tips to get started

“Talk to a trusted financial professional,” she said. “You need to understand where you are now and where you are trying to go. A financial professional can help you assess how much debt and savings you have, determine what life insurance you may need, and establish a budget that allows you to save for short-term and long-term goals.”

You can help yourself get ahead by setting up an automatic deposit into your savings or investment account each pay period to be sure you pay yourself first each month, she suggested, before temptation gets in the way.

As you develop a saving and spending plan, set yourself up to succeed.

“Choose an attainable goal for yourself, like saving $50 per pay period or paying off your credit cards, and reward yourself for meeting those milestones,” she said, noting budgets are like diets – total abstinence is not sustainable. “Treat yourself to a dinner out. Splurge a little. When you get into the habit of saving by taking baby steps, then you can start to run.”

And above all else, said Jackson, start putting money away today. The time value of money, a core principal of wealth accumulation, means that a dollar earning interest today will always be worth more than a dollar invested in the future. You’re giving your money a chance to work for you.

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Black Knight, “Mortgage Monitor Report,” May 2018.

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.