Financial institutions should address their lack of trust with black communities

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In the midst of a pandemic that brought black Americans distrust of medical systems in the foreground, another source of mistrust with acute consequences persists: financial institutions.

As has been well documented, the current economic crisis has disproportionately impacted Black Americans, who faced higher rates of unemployment, job loss and financial insecurity. A banner year for the stock market has exacerbated racial disparities wealth, stressing that differences in employment and income do not fully take into account the inequalities associated with them.

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Federal Reserve survey data consistently shows that black households on average hold less in the stock market than white households. In 2019, the median shareholding for a black household was less than a third of a white household. This chasm corresponds to broader trends in the income gap and the capacity of black households to save.

Long-term data also reveals that black households tend to invest less in stocks – about half. This is true for Black Americans with a university education. And when available, households of color also opt for employer-sponsored retirement plans. less often.

Saving and investing are of paramount importance for building wealth over time, planning for retirement and, possibly, inheritance transmission. Beyond raw asset figures, why does this dichotomy exist?

“There is a level of mistrust of traditional financial services due to predatory lending practices,” says Jason Ray, founder of the Philadelphia-based company. Zenith Wealth Partners. Such practices include payday loans, when creditors provide short-term, high-interest loans (usually less than $ 500) workers who often wait for their next paycheck. High bank overdraft fees, adds Ray, that are disproportionate impact people of color, doesn’t inspire much confidence either.

During Black History Month, when Americans discuss the legacy of racism in this country, the legacy of Jim Crow, the legacy of slavery, we are really talking about a continuing legacy., not just the story: redness, or geographic and racial restrictions on financial services, resulting in decades of disinvestment in some neighborhoods. Rent discrimination (including by a former president). Exclusion of trade unions. These blows add up.

Philadelphia is no stranger to these trends, as one Report 2020 of the municipal comptroller’s office. Historic redlining still has an impact and alters neighborhoods of color, many of which have the highest poverty and homicide rates in the city today.

Yes mistrust plays a role in the wealth gap, how can we encourage sound financial decision-making and market participation of doubtful Philadelphians?

Recent engagements of local businesses, including Comcast and the 76ers, to support communities of color through charitable donations, advertising airspace and a program to encourage the purchase of Black-owned businesses will help. Such goals are especially important for black-owned businesses in Philadelphia, a number much too small which needs institutional support to develop. If these efforts are successful, confidence in the larger financial systems should follow. But that’s a big if.

“Businesses,” says Ray, “need to coordinate with community organizations.” Charitable contributions must be well tracked and transparent. The most important ? “Meet people where they are. It can be through youth organizations, churches or premises charitable foundations.

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We need to make sure that promises aren’t just promises, that responsibility matters. The money must stay and awareness must be localized – $ 100 million only counts if the right people have access to it and, more importantly, have options for where to take their newly available resources.

However, promoting top-down financial literacy and strengthening the links between institutions and consumers cannot go further. Awareness efforts must start at the bottom. Because the stakes are so high in financial planning, it helps to have community members who can address specific concerns and hesitations. Ray says it clearly: “The consulting industry is about trust.

A member of Association of African American Financial Advisors, Ray is part of another unbalanced ratio. According to Bureau of Labor Statistics, among workers classified as “personal financial advisers” in the United States, white advisers are 10 times more numerous than black advisers.

Go forward, local financial institutions must move that needle by hiring people of color and reaching out to universities for representative recruitment. Philadelphia is a college town and a city with a majority of people of color. It shouldn’t be that hard.

Matthew Jeffrey Vegari is an economics writer and researcher who previously worked for the City of Philadelphia as a political associate.

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