Minority Wealth Gap Isn’t Just About Income

Global HR

“Equity,” before it joined “diversity” and “inclusion” as a term for ensuring full representation among historically disadvantaged communities, long referred to financial assets that drive the creation of wealth. As it happens, financial equity is vitally important for achieving inclusive equity and assuring upward mobility for racial and ethnic minorities, according to an expert panel at the inaugural Visionaries Summit in Washington, D.C., sponsored by the SHRM Executive Network and the Aspen Institute.

The Oct. 19 panel presentation, “Pathways to Wealth Creation and Financial Security,” noted that minority workers may lack access to, or comfort with, the world of investments and finance. Providing access to wealth-creating opportunities and resources is critical to ensuring a path to financial security.

A Lack of Resources

“Income does not equal wealth,” explained Tiffany Eubanks-Saunders, managing director and head of diverse segments for the private bank business at Bank of America Corp. in Charlotte, N.C., where she cultivates business development opportunities for traditionally underserved groups.

“The money you make doesn’t turn into family wealth if it isn’t saved and invested,” Eubanks-Saunders said. Often, those from communities and families where having wealth is uncommon “are not taught how to take a dollar and turn it into $100,” then to turn that into $1,000, then $10,000 and upward, she said.

Even when minority entrepreneurs start their own businesses, they have higher rates of going under due to lack of knowledge and social support, Eubanks-Saunders noted.

Her concerns were shared by Carmen Ortiz-McGhee, chief operating officer at the National Association of Investment Companies, a Washington, D.C.-based trade association for private equity firms and hedge funds.

Oritz-McGhee described how—growing up as the only daughter of a single Puerto Rican mother—she felt “on the margins.”

“Wealth, not income, is the primary driver of economic security,” she said. “Access to capital changes everything,” including improving education and health outcomes for families.

Firms owned by women and minorities manage just 1.3 percent of assets in the $69 trillion asset management industry. Access to private equity is “an extraordinary tool for wealth creation” that can create more diverse millionaires, Oritz-McGhee said. Internships for minorities at private equity firms is one way to help achieve change. 

“When people create wealth, they then give back and invest in their communities and don’t exclude people like themselves,” she noted.

Ben Carson, Jr., co-founder and partner at Lake Forest, Calif-based FVLCRUM Funds, one of the few minority-owned private investment firms in the U.S., and one that invests exclusively in minority-owned businesses, pointed to problems caused when spending levels are too high relative to income, especially spending in excess of one’s income, “which is all too common and not sustainable,” leading to prolonged debt.

Behind these problems, Carson said, is a lack of financial literacy.

“We need to acknowledge that those with wealth receive a seat at the table,” and that lack of wealth—more often than overt racial and ethnic discrimination—is what now keeps members of minority communities from advancing, he said.

Cultural Issues

Cultural barriers to wealth generation were highlighted by Beatriz Acevedo, CEO and co-founder of Suma Wealth, which works to close the Latino wealth gap by providing financial education through culturally inclusive content and tools.

When Acevedo was growing up in Mexico, at the age of eight her family lost everything when the economy cratered and the government devalued the peso. Nevertheless, by the age of 23, she had become a highly paid media personality in Mexico City, living in a penthouse apartment. Yet, when she left that job, she found she had no savings whatsoever and suffered the indignity of having her credit card denied when she tried to buy a carton of milk.

Not only was her family unable to pass along ideas about how to create wealth, as middle- and upper-class families might do, Acevedo said, but the idea of wealth accumulation was viewed with suspicion, almost as evil and akin to hoarding. Sharing one’s good fortune by spending what you earn in the community was seen as virtuous.

“The Latino population will never have power if we don’t have economic power,” Acevedo said. Latinos “can’t continue to be the demographic that spends the most and saves the least. It’s critical to bring [Latinos into] wealth generation.”

Doing so will require efforts beyond translating financial wellness resources into Spanish, Acevedo noted. “Most younger Latinos speak English better than Spanish,” she said. Investment advice outreach should “make them feel they belong, not treat them as an afterthought.”

The value of real estate ownership was emphasized by Yuen Yung, chief executive officer at Casoro Group, a minority-owned real estate investment firm based in Austin, Texas. He called lack of home ownership “the number one contributor to wealth gap and the top impediment to the intergenerational transfer of wealth from parents to children.”

Yung observed, “Wealthy people in the U.S. own real estate. The non-wealthy don’t. Wealth is the equalizer. To a large extent, racial disparities in the U.S. are really wealth disparities.”

A Role for Employers

Employers, as sponsors of 401(k)-type retirement plans and other financial wellness benefits, need to target their outreach to minority employees in culturally sensitive ways, said Ida Rademacher, vice president of financial security programs at The Aspen Institute, a global nonprofit working to advance “a free, just and equitable society.”

White Americans participate in equity markets at a much higher rate than non-white Americans, Rademacher said, which is one reason they are better able, over time, to achieve financial security. “Access to markets makes it come together,” she observed.

Employees can “get a foothold on ownership of financial assets” through workplace programs, Rademacher advised, such as savings plans with automatic enrollment, and these benefits can become “wealth escalators.”

“For half of the population, income volatility is real,” she said. Benefits such as
employee-to-employee hardship funds, disability insurance, and
emergency savings accounts can “help employees better manage unexpected shocks” without losing their entire nest eggs. Additional ideas on helping people with limited means to build wealth are
available from the Aspen Institute.

Carson advised that “efficient markets depend on equal access to information; unequal access and unequal information worsen the racial wealth gap.” HR teams can provide access to financial advice and education about making informed investing decisions, directed toward “core demographics who haven’t grown up hearing dinner-table conversations about investing and wealth creation,” he said.

Added Eubanks-Saunders, helping employees “to take income and actually create wealth can change the dynamic,” and resources for accomplishing this often ”are not available to workers except through their employers.”

Related SHRM Article:

Addressing Racial Inequities in Retirement Savings,
SHRM Online, September 2021

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