By Marie S.
Today, as more Blacks are reaching success in their respective fields, their income consequently increases. But, why do studies show that Blacks even with higher annual income levels than some Whites, tend to have lower net worth?
Home ownership is a fundamental basis for the financial status enjoyed by the middle class. However, when a home is purchased by an African American, it brings with it certain underlying effects.
In a study conducted by the Brookings Institution in 2001, it showed that the value of homes owned by Blacks were 18% less than the value of homes owned by Whites. An appreciation gap has been observed. Homes in neighborhoods that are predominantly Black do not appreciate as much as those in neighborhoods that are significantly White. The gap occurs when the Blacks in a neighborhood comprise more than 10% of its homeowners. The gap increases as the number of Blacks in the neighborhood increases.
Hence, even if two homes were purchased with the same value, the one located in the predominantly White neighborhood will have a higher value, after a number of years.
Stock investment is an instrument that can be used to elevate one’s financial standing. This however, is not commonly utilized by the Blacks. For starters, the incomes of African Americans’ are generally lower. If they earn more, they extend financial help to other relatives in need, leaving them with less spending or investment power. They also have little, if any, exposure to stock markets. It is not common practice among their families to invest in stocks. And in the financial district, less than 6% of the professionals on Wall Street are African American. The majority of the African Americans then, do not gain the benefits that can be derived from stock investments such as dividends, income from increased stock value and lower tax rates (15%) compared to income tax rates (up to 35%).
The conclusion of the study is that, even when incomes are the same, net worth differentials may persist because of variations in inheritance levels, home appreciation rates, helping with relatives’ financial problems, and a lack of participation in the stock market.
Let’s try to fix this.