The disproportionate economic challenges Black American households face didn’t start with the pandemic, but it has created a dire situation for millions across the country.
According to a McKinsey & Company report, the median annual wage of Black workers was 30% lower than white workers and more than 3.5 million Black households have a negative net worth because of debt.
Before the pandemic started, one study found that Black households were still recovering from the 2008 financial crisis and were more vulnerable to volatile economic downfalls like the one last year.
“Oftentimes, the issue with savings and wealth building is that folks don’t make enough money,” Shelley Stewart III, co-author of the report and head of McKinsey & Company’s research on Black economic mobility, told CNBC.
“We need to address that as a broader society, typically with communities of color,” Stewart added.
To start building wealth, experts told the outlet Black Americans can start with a few steps.
Start Having Conversations About Money
Initiating conversations about income and financial planning may be tough at first, some experts say that by doing so, you might start making better decisions, avoiding mistakes while brainstorming plans for the future.
The 2020 Ariel-Schwab Black Investor Survey found that more Black households are talking about the stock market than before, with 10% of Black respondents saying they talked about the stock market growing up compared to 37% saying they talk about it now.
Start a Saving Routine
Even if it’s a small amount each month, starting a savings routine can be a helpful way to get a handle on monthly finances.
Many Americans, and 73% of Black adults in the US, don’t have enough saved up to cover three months of expenses, an April 2020 Pew Research Center survey found. Starting to save can help build up that fund and may open up a pathway to investing.
“If you save more, it gives you more flexibility to take more risks and do more things that could bode well for your future down the line, Delano Saporu, CEO and founder of New Street Advisors Group, told CNBC.
Consider Buying a Home
Buying a home is a way to invest money, McKinsey & Company’s Stewart explained. Black homeownership has wavered over the years –– in part because of practices like redlining, gentrification, and Black Americans having more debt –– though owning a home can be a generational wealth builder.
“Housing is a proven creation of a nest egg of wealth,” Stewart added.
Think of Those Who Are Coming After You
“You may have to sacrifice something you need or want so that the person behind you can jump over you,” Malik Lee, founder and CEO of the wealth management firm Felton & Peel told CNBC.
That sacrifice could look like cutting annual spending to put towards kids’ saving funds or buying a life insurance policy so that heirs can receive an inheritance.
Regardless of the pathway, Lee noted that wealth building takes time.
“Don’t think that your wealth is going to change overnight because of some get rich quick scheme or because you dumped everything into an alternative investment,” Lee said.
“Wealth building doesn’t happen overnight.”