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To understand the financial planning landscape for African Americans and the resulting insecurities in retirement planning and beyond, we first need to examine where they originate. We know that Black Americans typically experience higher levels of economic insecurity than Americans overall. Pew Research found that fewer than half of Black adults say they have an emergency fund, and some have taken multiple jobs to make ends meet. In addition, they don’t have enough to meet basic needs, and in the same study, another four-in-ten (43%) describe their household finances as just meeting their basic needs.
These statistics connect to what’s often referred to as the racial wealth gap. Wealth is defined as the “total financial value of what an individual or household owns minus all debts."It’s an essential metric to determine what’s possible financially from being able to afford a home, an education and non-essential expenses. Numbers indicate, funds that are available to African Americans often only cover the bare minimum. Since there is less money to spend on investments, equity or even retirement, it creates an insecure economic situation based on the inability to build savings and the subsequent influence on loans and other financial commitments. This also results in a cascading effect that can affect multiple generations. For example, gains in household wealth have shown that it can enhance the probability of children getting a higher education than their parents and in turn, accessing well-paid positions in the workforce. The absence of family wealth therefore has a significant impact on the financial progress of low-wealth families.
One of the more staggering numbers in this context is provided by the NAACP. White families on average make 10 times more than Black families.
With few financial resources and less employment opportunity, the African American community tends to be more conservative and is reluctant to trust market volatility. As a result, they are not as comfortable in the equity markets as other groups. They are also twice as likely to borrow from defined contribution savings (for example retirement plans) and more than twice as likely to take a hardship withdrawal. They heavily rely on Social Security as their only retirement income and numbers from the Employee Benefit Research Institute also show a significant retirement savings gap between African American and white Americans.
Because of the racial wealth gap and lower average earnings, Social Security is likely going to be less than for white Americans. While some families contribute to retirement plans or invest, less financial resources lead to African Americans often ignoring retirement. They are also more likely to put their family first, using excess funds to support a child’s education or other more immediate needs.
Retirement and legacy planning is something that takes the back seat for many African Americans as a result of their socioeconomic status and historic factors like the wealth gap. At the same time, there is also a lack of access to financial planning resources and a different attitude towards financial advice based on historic biases.
Financial Literacy and Diversity, Equity and Inclusion in the Financial Services Industry
Research identifies one of the key differences in financial planning for African Americans in their understanding of financial planning. Financial literacy contributes to financial well-being and is therefore crucial. For example, according to the Teachers Insurance and Annuity Association of America (TIAA) “Borrowing and debt management” is the area of highest personal finance knowledge among African Americans, where it should be connected to savings.There is a need to define/clarify the line between advice and education so that the goal of providing meaningful financial and retirement education to achieve financial wellness is not lost. In turn, programs that support financial education are often not available to African American communities and access is limited.
According to recent data, only 24% of financial professionals in the United States are people of color. Most often, we look for people who are similar to who we are when looking for advice or input. Because people of color are severely underrepresented, so is the access to financial advice driven by diversity. This can lead to animosity, a lack of trust and an avoidance of access to financial resources. As the Employee Benefit Research Institute points out “Black and Hispanic Americans were more likely to report feeling treated unfairly by financial service companies.”
Several organizations provide specific guidance and opportunities for African Americans in financial services. This also includes help in finding African American financial professionals and their firms.
The Association of African American Financial Advisors (AAAA) supports all facets of the financial planning profession. From degree programs to mentorship opportunities – this organization offers many resources available to financial professionals.
The Coalition for Equity in Wholesaling specifically raises awareness towards a lack of diversity in the financial sales profession. They partner with many of the large insurance carriers around the country and provide resources for those looking to create a more diverse wholesaling landscape.
One of the premier educational institutions in the financial services industry is The American College of Financial Services. They offer resources and pointers on how to become more diverse and increase partnership, participation and support in financial services.
Increased diversity among financial professionals is important to reach more people and build inclusion. While factors like the wealth gap will likely take generations to overcome, making a conscious effort to be more inclusive can make an immediate impact.
Because information is such an important piece of the puzzle, we want to provide free resources that can help with retirement income planning even if there is no access to a financial professional.
- Consider our Retirement Income Gap worksheet to see where you might be lacking for a comfortable retirement.
- Check out our Risk Assessment Tool to see where retirement products fit into your strategy.
- See some of our other blog articles on financial planning and retirement income goals to figure out a good starting spot for retirement income planning.
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