Purchasing power depicts an economy’s living standard and it has been very low in African Americans. A 2019 Survey of Consumer Finances shows little change in the disparity in wealth among racial and ethnic groups.
The data shows that a typical white family has eight times the wealth of a black family. Black ranks among the lowest of all ethnic groups. An interesting observation from this survey was that Black and Hispanic wealth rose faster than white families from the period of 2016–2019. Unfortunately, this rise in wealth only resulted in a modest change in the wealth gap.
A recent article from the Bookings Institute shed light on the vulnerability of black households as a result of COVID-19. The black wealth gap had previously been exacerbated by the Great Recession and recovery was much slower than white households. Now, with the loss of income, which has disproportionately affected women, non-whites, and low-wage earners, it will have an influence on the ability of blacks to start closing the wealth gap.
Despite this doldrum, we know that black purchasing power is increasing at a much higher rate than whites. A 2019 Nielsen report revealed it was $1.4 trillion, which is more than the Gross Domestic Product of Mexico. This was a rise of 114% from 2000 to 2018, dwarfing the increase in spending power of whites which stood at 89%.
What does this increased spending power tell us about how can Black Americans use this to amass wealth? Below I provide five things that black Americans can begin doing wither their increasing purchasing power, instead of continuing to consume goods and services which will not have a long-term benefit.
1. Get Financial Education
Invest in a financial coach. This can be the single biggest investment that you make on your wealth-building journey. Your coach will help you to take the guesswork out of getting started, and help you in creating financial goals, and provide the tools to execute on those goals.
2. Pay yourself first
One of the initial steps, that you can take in creating wealth, is to pay yourself first. The most seamless way to accomplish this is to have the money taken directly from your paycheck and get it transferred to an account that you do not have immediate access to. Once you begin building up those funds, you can identify the best ways to invest them so that they can begin to grow.
3. Create a workable budget
It is easy to overspend when there are no guardrails to guide you. Ideally, you want to adopt the habit of creating a budget. At beginning of the month or when you receive your paycheck, consider creating a list of your expenses. This will help in cutting down miscellaneous and impulse spending. It will also allow you to hold yourself accountable.
4. Minimize or eliminate your consumer debt
This step is really important yet not as simple as it sounds. It all depends upon how much you can control your “wants”. You should live a life you can afford regardless of what’s the latest device, car, or fashion. There is no need to borrow for the things that are not necessities. Instead, encourage yourself not to take on debt for frivolous items but only for the things that align with your goals or that can generate income.
5. Invest in real estate
Real estate is a proven approach for building wealth. Not only does it increase in value, but there is also the opportunity to generate rental income. While there can be barriers to purchasing real estate, due to the required down payments, there are many different first-time homebuyer programs that black families can avail themselves of in order to make this investment. Seeking out resources from local nonprofits, and realtors to understand the different programs would be an advantageous approach. For example, exclusive first-time buyer programs. While purchasing real estate, be aware of your rights a consumer. Unfortunately redlining, though illegal, still exist, and so does many other discriminatory practices.
6. Start a business
Develop a business idea, write the plan and then fund it. You may start a business that doesn’t require a large capital. There are tons of viable businesses that do not require a large capital. Although it is challenging, it can be a viable step in building wealth and a well-secured lifetime.
Being smart in financial matters is crucial in increasing your purchasing power. This smartness comes from proper knowledge and education. When you have the awareness, you will know how to save, budget, minimize debt and invest. These techniques will help you grow your wealth. Planning for the future should also start as early as possible. With proper financial planing, there should be no obstacle in ensuring that when retirement comes, expenses are covered and that you will even be able to leave a legacy for future generations.
Tanya Taylor, CPA, MBA is the founder and CEO of Grow Your Wealth. Her mission is to help professionals and business owners ditch bad debt and create a 6 or 7-figure retirement income by learning how money works in 6 steps so that they can build a legacy without feeling stuck.