Closing The Gap

Our economists agree that homeownership and retirement planning are a potent pair when it comes to building net worth

to another key point: “You can’t overemphasize, particularly for young people, the importance of good credit,” says Thomas D. Boston, president of the Boston Research Group Inc. “If you have clean credit, you can get almost a 100% loan. There are many ways that you can get into a house, but you can’t do it if you don’t have established credit.”

Your creditworthiness will be measured by a credit score, and not all credit is created equal. “Having a bank credit card is OK,” says Spriggs. “However, if you have a department store credit card, you lose points from your credit score.”

Existing homeowners should have their house appraised at least every other year, according to Boston. “A lot of people who buy a house are like people I know who buy art,” he says. “They think that just because they own some art, it’s going to automatically zoom up in value. However, it may go nowhere.”

Many African Americans are missing out on the benefits enjoyed by families that have home equity they can tap into to pay for college costs, home improvements, or to help the next generation obtain their own homes. But not the Davises, who bought their home for $140,000 with 100% financing.

“Our home recently was appraised at $175,000,” says Maisha, “so we’re planning to refinance our loan. We’d like to pull out some of that home equity and use it for improvements, such as upgrading the bathrooms and installing central air-conditioning. Now that we’re homeowners, we’ve become more proactive about taking care of our property.”

Appraisal costs vary, from $100 and up, depending on the size of the house. “If you do that every other year, you’ll have a good idea of how much equity you are building in that house,” Boston says.

By improving their home, the Davises are taking another vital step toward building wealth for themselves and their children.

If more African American families experienced what the Davises have, seeing a $35,000 increase in home equity in less than a year, that $6,100 median net worth would be much greater.

So with homeownership as the best way to close the wealth gap between blacks and whites, what’s the second rung on the wealth-building ladder? “No. 2 probably should be some kind of retirement account,” says Jaynes. Even for twenty- and thirtysomethings, retirement planning can be crucial.

“Everyone knows that they need to have a job when they get out of school,” says Sharon Epperson, personal finance correspondent at CNBC. “The other part, which is never talked about, is saving for retirement, even at a young age. Young people should be in a 401(k). Or, if they don’t have a 401(k) through their company, in an IRA.”

Although employer pension plans are less generous nowadays, there still remains one really good reason for putting money into an IRA or 401(k), according to Margaret C. Simms, vice president of the office for goverance and economic analysis at the Joint Center for Political and Economic Studies in Washington, D.C. “If there is a

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