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When it comes to wealth creation, many black Americans face an uphill battle.
According to a report by McKinsey & Company, the average annual wage for black workers is about 30% lower than that of white workers. The report also found that 3.5 million of the country’s black households have negative net worth due to debt.
“Often the problem with saving and building wealth is people not making enough money,” said report co-author Shelley Stewart III, who leads McKinsey’s research on black economic mobility in the United States
“We have to approach this as a broader society, typically with colored communities.”
In addition, black households tend to start with lower family wealth. McKinsey estimated a $ 330 billion discrepancy between black and white families in the annual flow of new wealth, 60% of which comes from inheritance.
Because of this lack of generational wealth, black families tend not to invest, said certified financial planner Kamila Elliott, president of Grid 202 Partners, a Washington, DC-based financial advisory firm
The cost of this loophole can be enormous. In 2064, the average white family will likely own $ 2,782,727 while the black family’s net worth will be $ 789,164, according to a report by Elliott and Abacus Wealth Partners CEO Brent Kessel. That’s a 70% difference.
While societal changes are needed to fill the racial wealth gap, there are also steps black Americans can take now to start wealth accumulation, experts say.
Talk about it
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The most important thing is to start saving, even if it’s only a small amount each month.
Almost three-quarters, or 73%, of black adults don’t have enough emergency savings to cover expenses for three months, according to an April 2020 survey by the Pew Research Center.
Once you’ve built this emergency fund, you can put money into assets that could bring you a higher return, such as the stock market.
“As you save more, you have more flexibility to take more risks and do more things that could bode well for your future down the line,” said Saporu. Saporu, the son of Nigerian immigrants, was a dedicated saver who enabled him to start his company a year after graduating from business school.
Buy a house
As you accumulate more savings and are thinking about how to invest, consider buying a home. Not only is it a place to live, it is also an investment.
There is also an option to continue investing in real estate, such as buying a house or apartment to rent.
“Housing is a proven creation of a nest egg of wealth,” said Stewart of McKinsey.
Invest in the market
Start investing as early as you can so you can start making money with your earnings. Make use of your company’s retirement plan, like a 401 (k), especially if your employer pays a contribution, advised Elliott of Grid 202 Partners.
Don’t be afraid of taking risks, for example by investing more in stocks than in fixed income investments. In fact, many black Americans, especially older ones, are too conservative, said CFP Malik Lee, founder and CEO of Atlanta-based wealth management company Felton & Peel.
“You need the power of the market behind you,” he said.
While there may be a distrust of financial professionals, he does advise finding one that you are comfortable with. There are also many – like Lee, Elliott, and Saporu – who don’t have a minimum account requirement.
Found a company
Wealth can also be generated through corporate ownership. Before you quit your job to start a full-time business, however, make sure you have at least six to ten months of savings and a five year roadmap, Saporu advised.
Going through alone allowed him to make more money instead of being undervalued in a bureaucratic system, he said.
“You have to take a risk to get oversized rewards,” said Saporu. “When the People [financially] are comfortable and find the right grip, they can take these risks. “
Think about future generations
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