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Black Families Haven’t Benefited from Intergenerational Wealth, But Banks Can Help Narrow the Gap

Words by Leon Kaye
Intergenerational Wealth

No matter who the victors will be in next month’s U.S. elections, society’s most stubborn problems won’t dissipate on their own, ever. That’s particularly true of the societal wounds that keep festering due to racial injustice — and one way it is still manifested across society is in the huge intergenerational wealth gap when we compare white and Black families in America.

The foundation of an economic divide

Estimates on how this affects the wealth divide between white and Black families are all over the map. The Urban Institute, for example, has estimated that large monetary gifts and inheritances account for 12 percent of the difference in wealth when comparing Black and white households.

Last year, the Federal Reserve Bank of Cleveland, in a study that found years of comparing annual incomes of white and Black Americans were not getting to the core of understanding this challenge, reached a far more dire conclusion: “We find that the income gap is the primary driver behind the wealth gap and that it is large enough to explain the persistent difference in wealth accumulation.”

Going further, that study's authors added: “The fact that Blacks, on average, have considerably less wealth than whites is troubling, not just because it is an inequality of outcomes, but also because it strongly suggests inequality of opportunity.”

Statistics like those outlined above help explain why, on average, data suggest the average net worth of white families exceeds that of Black families tenfold.

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That’s a huge deficit to overcome, and discussions on how to tackle this problem via public policy offer a wide range of suggestions. Ideas range from revamping the tax code to eliminating student debt to even turning the retirement savings model on its head and having the federal government start a fund, i.e. “baby bonds,” for each newborn in the U.S. based on their families’ income.

This gap in intergenerational wealth has its foundation in the cruelty of U.S. history: the collapse of the Freedman’s Bank in the 1870s, which wiped out the savings of former slaves; illegal confiscation of Black-owned land by their white neighbors, a tragedy that befell one of George Floyd’s ancestors; Jim Crow laws; and most recently, the mass incarceration we’ve witnessed in the past generation.

A harmful past prevents families from building long-term wealth

The impacts of this ongoing intergenerational wealth gap are devastating. Family wealth provides economic cushions at times of need. Having that access to cash (or even a home equity line) can help a family through a rough economic patch. Wealth allows for investments in real estate, and the availability of such funds can pay for a child’s education without turning to burdensome loans.

The recent track record of cooperation between Congress and the White House doesn’t bode well for landmark legislation that could help claw away at this gap in intergenerational wealth. But that doesn’t mean the same institutions that have contributed to this massive divide — namely banks — can’t have a role in solving this problem. Yes, financial institutions have had a role in piling on this problem, whether it’s from decades of redlining, the sub-prime and foreclosure crises of a decade ago, or retail banks’ outright avoidance of Black communities.

Nevertheless, despite what the political landscape will look like three weeks from now, there are still steps the financial industry can take.

Can banks chip away at the intergenerational wealth gap?

In a study published this summer, Boston Consulting Group (BCG) suggested some reforms that the U.S. financial sector could harness that are simple and yet are also forehead slapping. They include integrating financial education and literacy within the typical bank-customer relationship process; judging performance not on the level of debt, but rather on a customer’s financial wellness; working with companies to launch and expand employee matching programs for 401(k) retirement plans; and finding new ways to expand savings products that can help families build wealth.

Granted, the emerging fintech sector has had a leg up with apps that help boost savings by rounding up purchases or diverting a few bucks here and there to help their customers build a nest egg.

To that end, banks could launch such campaigns focused on long-term wealth accumulation if and when another round of stimulus checks ever becomes the reality. Aside from the Americans who desperately need that money now, there are families who could be persuaded to invest or save that cash if they understand the benefits, rather than rushing to the nearest big box store. And opportunities will arise next year, too, once tax refund season is on.

On Thursday, October 15 from noon to 2:15 p.m. ET, Episode 2 of 3BL Forum: Brands Taking Stands - Business Elects to Lead will focus on one of the most important issues that we as a society have got to honestly reckon with – racial and economic inequities – and the importance of business leadership at a time when it’s needed most. One topic of discussion will include the importance of how to bridge this intergenerational wealth divide.

During Episode 2, we’ll feature conversations with senior leaders from BET Networks, Pizza Hut, Zeno Group, Newman’s Own, Chief Executives for Corporate Purpose (CECP), Fresh Energy, Porter Novelli, Northern Trust Asset Management, UnidosUS, The Cavu Group, Tides Foundation, Okta and Ben & Jerry’s. Registration is free.

On October 15, 3BL Forum will discuss how financial institutions can take on the intergenerational wealth gap

Image credit: Larry Crayton/Unsplash

Leon Kaye headshotLeon Kaye

Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.

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