Here’s How Black Americans Can Start Building Wealth Right Now

When it comes to building wealth, many black Americans face an uphill battle.

The median annual salary of black workers is about 30% lower than that of white workers, according to a report by McKinsey & Company. The report also found that 3.5 million black households nationwide have negative net worth due to debt.

“Often the problem with saving and building wealth is that people don’t make enough money,” said report co-author Shelley Stewart III, who leads McKinsey’s research on economic mobility. Blacks in the United States.

“We have to approach this as a larger society, usually with communities of color.”

Additionally, black households typically start out with less family wealth. McKinsey has estimated a $ 330 billion gap between black and white families in the annual flow of new wealth, 60% of which comes from inheritances.

Because of this lack of generational wealth, black families tend not to be exposed to investment, said certified financial planner Kamila Elliott, president of Grid 202 Partners, a Washington, DC-based financial advisory firm.

The cost of this discrepancy can be enormous. By 2064, the average white family will likely own $ 2,782,727 in wealth while the black family’s wealth will be $ 789,164, according to a report by Elliott and Abacus Wealth Partners CEO Brent Kessel. That’s a 70% gap.

While societal changes are needed to close the racial wealth gap, there are also steps black Americans can take now to start building wealth, experts say.

The most important thing to do is start saving, even if it’s just a small amount each month.

Almost three-quarters, or 73%, of black adults don’t have enough emergency savings to cover three months of expenses, according to an April 2020 Pew Research Center survey.

Once you have this emergency fund set up, you can invest money in assets that might offer you a higher return, such as the stock market.

“If you save more, it gives you more flexibility to take more risk and do more things that could bode well for your future,” Saporu said. The son of Nigerian immigrants, Saporu was a dedicated saver, which enabled him to start his business a year after business school.

As you accumulate more savings and start to think about how you can invest, consider buying a home. It is not only a place to live, it is also an investment.

There is also the option of continuing to invest in real estate, such as buying a house or an apartment for rent.

“Housing is a proven creation of a nest egg,” McKinsey’s Stewart said.

Start investing as early as possible so that your earnings can make money. Take advantage of your company’s retirement plan, such as a 401 (k), especially if your employer provides a matching contribution, advised Elliott of Grid 202 Partners.

Don’t be afraid of risk, like investing more in stocks than in fixed income. In fact, many black Americans, especially older ones, are too conservative, said CFP Malik Lee, founder and CEO of Atlanta-based wealth management firm Felton & Peel.

“You need the power of the market behind you,” he said.

While there may be a distrust of finance professionals, he advises finding one that you are comfortable with. There are also many – like Lee, Elliott, and Saporu – that don’t have a minimum account requirement.

Wealth can also be generated by owning a business. Still, before you quit your job to start a full-time business, make sure you’ve saved at least six months to 10 months of expenses and a five-year track record, Saporu advised.

Going alone allowed him to make more money, instead of being undervalued in a bureaucratic system, he said.

“You have to take a risk to have inordinate rewards,” Saporu said. “When people are [financially] comfortable and getting on the right foot, they can take those risks. “