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How To Close The Wealth Gap: Step 1

It may take generations to do it. But it starts with making better decisions with the money we have.

The problem with Black people is not money. It’s what Black people do with their money. —Dr. Dennis Kimbro

The only thing worse than not having what you need is not using what you have. —Rev. Deforest Soaries Jr.

That’s right. Closing the wealth gap does not start with the White House or Congress. It doesn’t start in corporate America or Wall Street, or even public schools or higher academia. It starts with you and me. Step 1 of closing the wealth gap: Make better, more responsible decisions with the money we have.

As I said in an earlier post, “How Badly Do You Want Financial Freedom?”, the definitions of poverty and wealth do not change:

  • Wealth is spending less money than you make, saving and investing the difference in things that increase in value and/or pay you interest, thereby increasing your assets and net worth.
  • Poverty is spending more money than you make, spending on things that decrease in value and borrowing to cover the difference, paying interest to others, thereby increasing your liabilities and decreasing your net worth.

The truth is, we are in a much better position to narrow the wealth gap than our ancestors ever were. The poverty experienced by previous generations of African Americans was based on lack—lack of assets, legal protections, political power, educational opportunity, career options, you name it. With the possible exception of the roughly 25% of African Americans living below the poverty line, the poverty experienced by the rest of us is increasingly a result of poor stewardship—doing stupid things, including things we know from experience and observation that we should NEVER do with our money—not lack. The power to change what we do with our income, our credit habits and our spending decisions lies not with the government or corporations, but with us. To put it bluntly, we must do better.

If you don’t read Black Enterprise and other financial magazines every month, why not? Why aren’t you regularly visiting BlackEnterprise.com and similar Websites to make better choices with your money and boost your own financial literacy? And if you do both, why are you not challenging everyone in your family and network to follow suit?

Have you made reading books about money, such as Rev. Soares’ dfree: Breaking Free of Financial Slavery, a monthly habit? Why not? And if you have, what steps have you taken to share what you’ve learned and get such books into the hands of others?

Are you still spending money you don’t have, using credit to buy the things you don’t have the cash for? (Credit was not created as a substitute for cash you don’t have, but to help you avoid having to carry around excessive amounts of the cash you do have. Any other use constitutes credit abuse.)

When are you going to stop living beyond your means? And if you refuse to create and follow a spending plan or stick to a budget, how will you ever know whether or not you are?

When are you going to stop making excuses for not putting cash aside for emergencies and saving for your own retirement?

When are you going to take insurance and estate planning seriously? How can we close the wealth gap if you refuse to protect your assets so that they can be transferred to future generations? What are you doing to teach your kids about money so that they can be wise stewards of our legacies?

These are tough questions, ones I’ve been forced to ask myself. The truth is, I’ve fallen short and I have to do better—and so do you. The person responsible for what happens to the money in your pocket is not President Barack Obama or Rep. John Boehner. It’s not Timothy Geithner or Ben Bernanke. Step 1 in closing the wealth gap is our responsibility.

 

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  • http://www.feliciajoy.biz/ Felicia Joy

    Thanks for the compelling commentary, Alfred. It’s right on point. This starts with an individual commitment and individual action; leading by example and then cascading new thinking to one’s extended family and community. However, I must also point out that the white to black wealth gap is very much skewed by some exceptionally wealthy white people. Blacks can least afford to be in this subordinate financial position but there are a lot more Americans (ALL Americans) in this position than we are being led to be believe. Exhibit 1: About half of Americans — and clearly we are not 50% of the population — said they couldn’t put their hands on $2K if they needed to: http://blogs.wsj.com/economics/2011/05/23/nearly-half-of-americans-are-financially-fragile/. Exhibit 2: Our country is in a debt crisis and that is certainly not the makings of black folks. President Obama hasn’t served a full term yet and this was a mess made a long time ago; the number of federal black politicians is comparably low and has been; and those who lead committees where funds are often earmarked is even lower. We’ve got our work cut out for us and we need to do it; but I sometimes feel like blacks are always reported to be more likely to [fill in whatever negative statistic regarding health, wealth, family and values you can think of here] and that’s just a superlative I don’t think we always deserve. I know that’s not your bent or intent, Alfred. I’m just making it plain for the sake of our collective confidence.

    • Alfred Edmond, Jr.

      Felicia;
      I totally agree with your points. Black people are not behind in terms of ownership of wealth because they are poorer managers of money than white people. We are behind because we started out behind, with a zero equity (actually in slavery a negative equity) stake in the wealth of America. That’s why I point out that while the 20:1 white/black wealth ration is the worst since 1984, it’s probably a major improvement over where we’ve been historically. The average white American does not manage money better than the average black American; it’s just that white Americans as a group have always had far more assets to work with than black Americans & other minority groups have ever had. Bad money decisions is NOT a “black thing.” It’s an AMERICAN thing.
      Alfred

  • Concerned

    If I may respectfully join in your conversation here. I am probably at risk of being called a racist, but I believe the true root of the wealth disparity between blacks and whites is not that whites are holding you back or that you have been disadvantaged because of slavery (um, last time I checked, that ended nearly 200 years ago), it is because blacks have been led to believe (from other blacks, no less) that they are VICTIMS of racism, that they cannot achieve success on their own merit, that every bad thing that happens to the black community is the result of somebody DOING something to you — thus, you are not failing in school because you are not studying or working hard, it’s because somebody did X). In general, having a nice excuse in your pocket for your lack of success has become a crutch to your community. You as a culture need to begin to respect what an education means, that welfare is NOT a good thing (have you ever heard of anyone getting rich off of that program?), that you need to WORK HARD in school and in your working life to get ahead, and that if you do, you WILL be rewarded. There are many other cultures who have suffered from oppression (I think you would be hard pressed to find a single country that does not have horrible atrocities in their past) and have come to America and SUCCEEDED, but until blacks stop looking for excuses, start to value education and personal achievement, you will never get ahead as a whole. You all need a truly HONEST re-assessment of what is holding you back — yourselves. White people are not racist as a whole — we are just tired of hearing the excuses and being blamed for every single one of your failures.

    • Shomari

      You list a lot of generalizations there that really show that show your ignorance of the black community. Unfortunately, that is the main stream “Fox news” media view of blacks which help spawn (among other things) the tea party and resulting in our current flawed government. Do you really think that the black people on welfare think its a good thing? I’m sure they are just having loads of fun buying their 100 dollars in groceries and barely being able to pay rent while living in a poor neighborhood. Do you really think that the people on welfare would love to get a decent job and be able to provide for their families and gasp…even take a vacation and actually get to see the world instead of being stuck in their own little bubble. Please refrain from making comments like this unless you actually know and understand people in the situation and not just based off of what you saw on the news or some blog.

      In any case, I don’t really believe that the main problem is that blacks spend too much and don’t manage their money right, the main problem is that they just don’t have enough money. Its easy to say, “don’t rack up credit card bills” but if you are only making 20k and need to support a family its almost impossible to do. Rich people don’t get rich by living frugally, they get rich by either having high paying professions or owning successful businesses. So the answer here is to figure out how to get more black people into higher paying positions. Once people are making at least 50k or so, then we can talk about the things they should be doing with their money. But there isn’t a whole lot of options for people who’s net worth is 5k

      • Alfred Edmond, Jr.

        Shomari;

        Thanks for weighing in with your feedback; you make some excellent points, especially about the inaccurate and outdated stereotypes that “Concerned” expresses belief in.

        That said, wealthy people actually DO get rich by living frugally; they certainly tend to stay rich that way. Of course, what many people call frugal, I call “living within your means;” i.e., always spending less than you have and saving and investing the difference. Check out the classic book “The Millionaire Next Door” to see what I mean.

        There are more black people making 50k or more than ever in our history. As Dr. Dennis Kimbro says, the problem facing black people is not money, it’s what we DO with our money. For example, one of the learnings from The Empowerment Experiment (http://www.eefortomorrow.com) is that if blacks with household incomes of 75k and up increased their spending with black businesses from 2% to 10% of their incomes, it would create 1 million new jobs.

        If we continue to spend more than we make, we will not be able to build wealth, no matter how high our incomes. (Just look at all of the bankrupt former-millionaire athletes as evidence.) Black people making more money is part of the solution, but it won’t solve the problem if we don’t learn and commit to controlling our spending and getting serious about smart investing and money management.

        Alfred

    • Alfred Edmond, Jr.

      Concerned;

      You are clearly speaking out of ignorance, not out of direct knowledge of or involvement with black people, the result of which is the regurgitation of tired, worn-out and inaccurate generalizations and stereotypes that bare little resemblance to reality. To point out that slavery ended 200 years ago, while ignoring the legalized racism (Jim Crow), racist hate crimes (including lynchings and race riots) and denial of legal rights and protections (the Voting Rights Act enforcing black American’s right to vote wasn’t passed until 1964) that continued decades after Lincoln’s Emancipation Proclamation, makes me wonder about your level of commitment to your own education.

      My recommendation is that you take the time and make the effort to personally engage your fellow Americans in the African American community (beyond your few “best friends who are black”), so that you can base your beliefs and share your “concern” from personal experience and relationships with black people, not on distorted stereotypes and misinformation. Start with reading Black Enterprise magazine, any six issues of which would show that most Black Americans are hard-working, upwardly mobile achievers who value education and advancement on behalf of their families, communities and our nation.

      I won’t call you a racist. But I am convinced of your ignorance and seriously doubt that you are truly “concerned.”

      Alfred

      • Seku

        Bravo!! I’m very happy that the issues of Jim Crow, legalized economic disfranchisement,lynchings, race riots, and racist crimes to name a few were made a further part of this discussion. As Black People we must know the truth of our history from varied respects. Our slavery is unlike any in the annals of history and our condition today can be proven to be part of explicit social engineering; the architects of such revealed in the book “The Secret Relationship Between Blacks and Jews Volume Two”. The fact of the matter is that we are where we are and we must do something about it; not just from an individual stand point, which is important but also collectively. We must continued to break both the chains of slavery on our minds and simultaneously break the chains of economic slavery. The question is do we want real freedom or just some likeness of it? We should look in a good dictionary and read the definition of freedom and we will quickly see that we are not free. History will at a cursory glance show that real freedom is not had without economic freedom for any people. We must learn to value each other and what we possess. We must unite our dollars, our intellect and resources at large. We must be willing to want our own! As Malcolm X said, “The white man’s ice is not colder” and for that matter no other peoples ice is colder either. No people seemingly except the black man and women of America want to be America first and themselves second; others are who they are first, in reality, than Americans. This is why they build for their own. We must do the same. Survival is natural for other than sick people. Survival of self, family, group, than others. Join the National Ministry of Trade and Commerce of the Millions More Movement as we begin The Economic Freedom Movement. True freedom nothing else will due!

  • Ron

    The biggest part of the article that may get overlooked is where he talks about insurance and estate planning. This is where we really fall short. Even if we have accumulated any wealth, we don’t do the right things to protect it to transfer to the next generation. Also, we have an attitude instilled in us (in general) that I am not leaving anything to anyone. I am taking it all with me. I am a licensed insurance agent that works in the arena of Insurance Based Financial Planning. My white colleagues have no problem taking information to their people and showing how to create the Family Legacy and they are open to it. I have not had the same success unfortunately. I am new to this site so I hope to see articles that inform us and educate on these very issues.

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