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Ariel Capital’s 2020 Black Investor Survey: African America’s Continued Fight To Close The Investment Gap

“On March 23, 2020, the S&P 500 fell 2.9%. In all, the index dropped nearly 34% in about a month, wiping out three years’ worth of gains for the market. It all led to a 76.1% surge for the S&P 500 and a shocking return to record heights. This run looks to be one of the, if not the, best 365-day stretches for the S&P 500 since before World War II. Based on month-end figures, the last time the S&P 500 rose this much in a 12-month stretch was in 1936, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.” – CBS News

Ariel Capital released their 2020 Black Investor Survey and the results show that there is reason to be pessimistic today, but potentially optimistic for tomorrow. The survey focuses on middle class African American and European American households earning over $50K in 2019. Some key financial points outside of this survey that should be taken into context though are poverty for African American stands at 21.2 percent versus 9.0 percent for European Americans. This high rate of poverty for African Americans means that middle class African Americans, as noted in the survey, are more likely to have high levels of assistance to family and friends which provides a damper on higher investing capabilities. These high levels of poverty are highly reflective of the median wealth gap between African and European Americas, $24,100 versus $188,200, respectively. African America continues to suffer from weak institution building and therefore the ability for its economic and financial ecosystem to strengthen continues to be suffocated. Firms like Ariel Capital and other African American financial institutions need more investment and support from other African American institutions, like HBCUs, in order to scale and create more employment, wealth, and economic opportunities beyond the grassroots level.

KEY HIGHLIGHTS:

  • The deep-rooted gap in stock market participation between the groups persists, with 55% of Black Americans and 71% of white Americans reporting stock market investments.
  • 63% of Black Americans under the age of 40 now participate in the stock market, equal to their white counterparts.
  • Ownership rates of 401(k) plans are now similar between Black and white Americans (53% vs. 55%).
  • White 401(k) plan participants put 26% more per month toward their retirement accounts than Black 401(k) plan participants ($291 vs. $231).
  • Black Americans are less likely than white Americans to own almost every kind of financial vehicle, with the exception of whole life insurance, which is favored in the Black community.
  • They are also less likely than white Americans to have written wills, financial plans, or retirement plans.
  • For Black Americans, disparities grow every month; while they save $393 per month, white Americans are saving 76% more ($693 per month).
  • Black Americans are also far less likely to have inherited (23% vs. 51%) or expect to inherit wealth (15% vs. 35%).
  • Black Americans are less likely to work with financial advisors (21% vs. 45% of whites).
  • Student loan delay or deferral was reported as being three times more common among Black Americans (16%) than whites (5%).
  • More than twice as many Black 401(k) participants (12% vs. 5%) borrowed money from their retirement accounts.
  • Almost twice as many Black Americans (18% vs. 10%) dipped into an emergency fund.
  • And 9% of Black Americans (vs. 4% of white Americans) say they asked their family or friends for financial support in 2020, while 18% of Black Americans and 13% of white Americans acknowledged giving financial support to family and friends last year.
  • Among Black Americans, 10% discussed the stock market with their families growing up, while 37% discuss the stock market with their families now (compared to 23% and 36%, respectively, for white Americans).
The chart above tracks the participation in the stock market through individual stocks, mutual funds, or ETFS. For African and European Americans, 2020 is an all-time low of participation since tracking began in January 1998. However, the gap of participation has closed from 24 percentage points in 1998 to 16 percentage points in 2020. Primarily due to the all-time low of European America’s participation falling by 10 percentage points and African America’s falling by only 2 percentage points. The closest the gap has been was in 2001 and 2002 when it was 10 percentage points and in 2002 saw African America break through 70 percentage points the only time in the survey’s history when we reached 74 percent.

HBCUs can play a significant role in closing the investment gap by introducing students to HBCU alumni who have gone on to become investors and financial advisors – thus circulating both intellectual and financial capital within the HBCU ecosystem. Even more so, they can assist in ensuring students set up investment accounts like a Roth IRA during their freshmen year and throughout matriculation. The earlier students are engaged in investing the more compounding can work for them over their lifetime which in turn makes for wealthier alumni, larger future donations, stronger African American communities, and more value proposition for HBCUs to promote within the African American community.

African American Poverty Rates Per HBCU State

HBCUs and strategic PBIs comprise 23 states in the Unites States along with the Virgin Islands and Washington D.C. HBCU Money decided to take a look into the African American poverty rates and overall poverty rates for each state where an HBCU operates. Included are states of California (Charles Drew University), Illinois (Chicago State University), New York (Medgar Evers College), and Massachusetts (Roxbury Community College) which are also states with significant African American populations. The results of these states show a median poverty rate of 34.6 percent for African Americans versus 20.3 percent overall which are show in parentheses per state. There are seven HBCU states where the African American poverty rate is 2X the general population.

Alabama – 40.1% (24.6%)

Arkansas – 35.9% (22.5%)

California – 28.6% (18.1%)

Delaware – 28.0% (18.5%)

Florida – 31.7% (20.3%)

Georgia – 30.9% (21.0%)

Illinois – 37.5% (17.0%)

Kentucky – 34.6% (22.4%)

Louisiana – 47.1% (28.0%)

Maryland – 19.5% (12.0%)

Massachusetts – 24.0% (13.5%)

Michigan – 41.2% (19.7%)

Mississippi – 42.5% (26.9%)

Missouri – 37.6% (18.6%)

New York – 30.8% (19.7%)

North Carolina – 32.3% (21.2%)

Ohio – 42.1% (20.1%)

Oklahoma – 40.2% (21.5%)

Pennsylvania – 32.7% (17.0%)

South Carolina – 36.7% (22.6%)

Tennessee – 37.0% (21.2%)

Texas – 26.4% (20.9%)

Virginia – 28.3% (14.0%)

Understanding the African American poverty rates is vital for HBCUs and alumni because it means many of our resources for students may need to be targeted toward the unique climb that many African American families face as they send students coming from impoverished backgrounds to college. Things such as travel to and from school during breaks, proper funding for nutrition beyond meal planning, adequate clothing and technology, and stronger life planning resources. The latter being significant because for many of these students they will be creating the foundation for their family. How do you do what nobody in your family has ever done? How do we help the families so that they do not overburden the student? While no formal evidence is know, there is anecdotal evidence that suggest a significant amount of HBCU students are likely sending portions of their financial aid or refunds home to help family members. This notion is supported by research from Thomas Shapiro in his book, “The Hidden Cost of Being African American”, where his research shows that African Americans pass money backwards generationally more than any other group.

Beyond just our students though, HBCU alumni should be creating mediums to help HBCUs be in a position to create social capital in our communities. Imagine for a moment, (Insert Your HBCU) Community Center – funded by HBCU alumni – that serves as a place for K-12 students and their families to receive community resources. This can be a place that provides internships for HBCU social work students, interdisciplinary research opportunities, and again an opportunity to position HBCUs as part of the community leadership and endear themselves in African American communities so that as children are aging HBCUs are at the forefront of their mind. For HBCUs this can be an opportunity that allows for the encouragement of more tangible giving projects for alumni and hopefully creating another means to increase alumni giving.

It must be taken into account that building wealth and reducing poverty are not the same thing, but they certainly dance with each other. Our families, communities, and institutions are often digging themselves out of significant holes that contribute to a lot of other issues we see ailing us. The first step for HBCUs, as one set of institutions part of a greater African American institutional ecosystem, is that we must understand there is a problem and look for ways that HBCUs can work with other African American institutions as well as work within our lane of community development in addressing African American poverty.

Source: U.S. Census Bureau

Can NFTs Help HBCUs Close The Endowment Gap?

Black people lived right by the railroad tracks, and the train would shake their houses at night. I would hear it as a boy, and I thought: I’m gonna make a song that sounds like that. – Little Richards

The individual, familial, community, and institutional wealth gaps between African America and all other groups continues to widen. Despite the consequential donations from Mackenzie Scott and Michael Bloomberg in 2020 to HBCUs it is simply not enough consistently and overwhelming enough to put out the fire. That fire being the HWCU-HBCU endowment gap, which is over $100 to $1 – and widening. Ironically, African America is often standing there with a water hose in their hand watching their house burn while waiting on their neighbor to bring a bucket of water over and help. Why do we say African America has the water hose? By HBCU Money estimates, African America’s tuition revenue value to all colleges is worth $60 billion annually – only $6 billion of that goes makes it way to HBCUs. There are 100 plus HBCUs, but only two have institutional banking relationships with African American owned banks. In other words, there are things that if we just looked inwardly there would be substantive change happening. Instead, we continue to wait for the “lottery” of other’s grace to befall upon us. And to that point, one of the greatest financial opportunities of our lifetime maybe falling upon us to use a resource within our institutions – our creativity.

It is no secret that African American creativity drives American culture. African American creativity has and is often exploited to the social and financial benefit of other groups. There maybe no greater example of that than hip-hop (and the music industry in general) where African American musicians created a genre of music that is now global in reach, but very little of it is actually owned by African Americans. Enter, the internet. Enter, NFTs. The internet is not flat nor is it democratized – after all even on the internet all of the mediums like Amazon, Facebook, Alphabet, Twitter, Square, etc. none are owned by African Americans. However, there is an increasing amount of decentralization that seems to be taking root in pockets of the World Wide Web where opportunities can be staked out. For instance, had an HBCU endowment in July 2011 purchased 5,000 bitcoins which at the time were $13.91 for a total of $69,550, then that HBCU today would have a value of $330 million today. To the best of our knowledge, there are no HBCUs holding bitcoin or any other cryptocurrencies in their portfolio. And while there is still plenty of time to add cryptocurrencies to the portfolio, there is also a new opportunity that one could easily argue is the equivalent of buying cryptocurrencies ten years ago. The NFT.

NFTs or non-fungible tokens are “Non-fungible” more or less means that it’s unique and can not be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different.”, says Mitchell Clark from The Verge. NFTs also work off the Ethereum blockchain, Ethereum being a cryptocurrency and blockchains are a digital distributed, decentralized, public ledger that exists across a network. So what can be a NFT? Again, Mitchell Clark from The Verge, “NFTs can really be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.” NFTs are already showing their potential. A 14-year old girl made over $1 million from selling 8,000 NFTs according to Business Insider. The most expensive NFT sold to date went for $69 million at Christie’s. An amount that would still be greater than any donation ever given to an HBCU. Now imagine unlocking the creativity that exist on HBCU campuses with students, faculty, and staff.

This could ultimately be a win-win for everyone involved if setup properly. HBCUs can provide the space, hardware, infrastructure, and other support needed while students, faculty, and staff can provide the immense creative capital that we know. Unlocking African America creativity on campuses could quite literally means tens if not hundreds of billions into African American families, communities, and HBCUs. The incentive for HBCUs to invest in this infrastructure is simple. Financially more stable graduates, improved retention rates, potentially higher alumni donor rates, and a new stream of income for endowments.

Students could see themselves earning enough to reduce or eliminate student borrowing costs. An immense hinderance to HBCU graduates creating generational wealth for themselves and their family. This barrier to wealth also is something that it could be argued contributes to poor alumni donor giving at HBCUs. HBCU donations of significance often come from older HBCU alumni who tend to wait and give a large donation either at the end of life or through their estate once they have passed on. HBCU students on a whole as reflecting in HBCU Pell Grant numbers are coming from far more low-income backgrounds their PWI counterparts. Brookings reports that almost 60% of HBCU students expect $0 in family contributions (graph below) to their education as opposed to less than one-third for non-HBCU students. On the other end less than 6 percent of HBCU students expect their family to contribute at least $19,300 to their education versus over 20 percent of non-HBCU students. This means that despite HBCUs on average costing significantly less than their PWI counterparts, HBCU students are still more likely to graduate with student loan debt and significant student loan debt loads. The most recent HBCU Money report showing that 86 percent of HBCU graduates finish with debt and a median of over $34,000 in student loan debt versus 40 percent and $24,000 in student loan debt for those coming from Top 50 endowed colleges and universities.

For HBCUs, the previous mentioned is great for their long-term sustainability, but in this case there is a huge financial reward to be had by HBCU endowments today. By providing the infrastructure, helping ensure the intellectual property rights, and more – HBCUs can create financial partnerships with students, faculty, and staff. This means that in the same way there is NIL (name, image, likeness) happening in collegiate sports, HBCUs too could use these partnerships as a means to recruit more African American faculty who often cringe at the pay rates at HBCUs. It also means that if a student, faculty, or staff produces an NFT for example that sells for $100,000, then potentially on a 50-50 split that the HBCU’s endowment just increased by $50,000. There is also the opportunity to have a foray into the entrepreneurship that is already taking root in the NFT as well as the supporting properties that will support it as an industry and asset class. As we mentioned, intellectual property attorneys in this new age will become even more valuable. There are currently six HBCU law schools who could create a focus on both IP and on digital IP in particular and those schools would be rewarded handsomely by being at the forefront of the curve. Simply put, there is just too much opportunity and money that has yet to even scratch the surface of value for HBCUs to not get involved in NFTs.

The acute importance of closing the endowment gap must be at the forefront of HBCU alumni conversations if our institutions are to be sustained into the next Millenia. It must be if we are to take serious the closing of the individual and institutional wealth gaps for African America. More importantly if HBCUs are to move beyond simply surviving and into empowered institutions that are truly able to serve the social, economic, and political interest of African America and the Diaspora, then having the institutional wealth and endowments necessary to do so is paramount. Climbing this mountain will be no easy task, but we can simply look at the wealth that has been created by our labor and our creativity as an enduring possibility of possibility. This time we must be the ownership of that creativity and protect its ownership at all costs.

Texas Southern University Host NAREB’s Black Homeownership Summit

“We need to intentionally invest in health, in home ownership, in entrepreneurship, in access to democracy, in economic empowerment. If we don’t do these things, we shouldn’t be surprised that racial inequality persists because inequalities compound.” – Pete Buttigieg

On the campus of Texas Southern University on November 4th and 5th, the National Association of Real Estate Brokers, an organization representing the interest of African American real estate professionals, hosted a homeownership summit with focuses on not only homeownership, but also student debt, access to credit, and investing. The importance of such an event being held on an HBCU campus can not be understated.

Intertwining African American institutions with each other has long been a struggle for the community’s development with African American institutions often operating on islands instead of a connected ecosystem. Events like NAREB’s Black Homeownership Summit at Texas Southern University helps highlight the power, potential, and scalability of what happens when African American (and Diaspora) institutions work together. What better place to address Black homeownership after all than on the campus of an HBCU? Soon to be African American graduates and professionals will be at the vanguard of trying to close the acute homeownership crisis that African America continues to face (graph below).

One of the keynote speakers at the NAREB Black Homeownership Summit event was Teresa Bryce Bazemore, CEO and President of the Federal Home Loan Bank of San Francisco, speaking exclusively to HBCU Money about the event said, “We need all the parties in the housing finance industry and other stakeholders to collectively work to eliminate the barriers to homeownership. In this new environment, all consumers including Black and Brown people should be able to participate equally in the dream of homeownership. We need initiatives that can help potential buyers with improving their credit, saving for down payments and understanding the entire home buying process from A to Z. We also need to make sure that the lending rules are equitable.”

HBCU Money’s Suggested Five Initiatives For HBCUs Can/Should Be But Not Limited Too:

  • Making financial literacy a mandatory part of matriculation for HBCU students. This can be done through the financial aid office, workshops, or a class.
  • Providing HBCU students work study jobs that go into the community at African American K-12 schools and teaching financial literacy.
  • Partnering with African American owned banks and credit unions. Due to their deposit bases, many African American owned banks and credit unions simply can not participate in the primary mortgage market and there are few to none African American owned non-bank mortgage lenders. This leaves the African American community in an extremely vulnerable position to predatory lending as has been demonstrated and shown time and time again. HBCUs are a key to growing assets within African American financial institutions through students, alumni, and institutionally.
  • Offering more scholarships for ALL students. Scholarships are purposed to reduce student loan debt, but they are often resigned to high achieving students despite the majority of students being in the middle. This becomes highly problematic for African Americans who usually do not have the familial wealth to assist in paying down or off their student loan debt. HBCUs while cheaper than our PWI counterparts on the whole could be doing even more to reduce the student loan debt burden for African American students by ensuring that any student who is academically eligible has an opportunity to reduce their student loan debt burden. This provides an opportunity upon graduation that more of their initial paycheck is going towards wealth building and potential homeownership rather than debt burden.
  • Encouraging the use of startups like HBCU Real Estate, who has part of their mission statement to use a portion of their profits to provide down payment assistance for HBCU alumni who seek to purchase primary or investment properties.

Homeownership and real estate ownership have long been a cornerstone to establishing generational wealth in the United States. Despite this, the African American homeownership has never crossed over the 50 percent threshold and according to MarketWatch and has always maintained a 20-30 percentage point gap between African and European Americans. African America’s civilian noninsittuional population as of October 2021 was 33.7 million and its civilian labor force is 20.6 million and the African American labor force 20 and over is 19.9 million. Assuming that 44 percent of the 19.9 million are homeowners (8.7 million), it would take approximately 1.5 million more African Americans to become homeowners to get African America above 51 percent. Based on the most recent data provided by Zillow, the typical value of U.S. homes is $308,220 as of September 2021. Between 1999 and 2021, the median price has almost tripled from $111,000 to $308,220. This means in order for those 1.5 million to acquire homes they would need down payments of approximately $16.2 billion using FHA’s 3.5 percent down financing or $10,800 per potential African American homebuyer. While it does not on the surface seem like a lot to many, that number represents almost 45 percent of the African American median net worth, but a mere 6 percent of European American median net worth.

Just for perspective on that $16.2 billion, there are no African Americans with a net worth more than that, but there are 45 Americans whose single net worth exceeds $16.2 billion. The road to achieving more African American homeownership will be no small task, but events like NAREB/Texas Southern will go a long way in us doing the hard work together, lifting the heavy load together, and ultimately achieving our goal together.

$6 Million Donation to University of the Virgin Islands Will Create First Public HBCU Medical School

“The human body experiences a powerful gravitational pull in the direction of hope. That is why the patient’s hopes are the physician’s secret weapon. They are the hidden ingredients in any prescription.” – Norman Cousins

The University of the Virgin Islands simply continues to impress. The HBCU that few people know or talk about as an HBCU keeps its head down and continues the vital work of African Diaspora building. In recent years, UVI has seen a meteoric rise into HBCU Money’s Top Ten HBCU Endowments seemingly out of nowhere. This time the University of the Virgin Islands leads once again showing the constitution of action and strategic planning with the creation of the HBCU Diaspora’s fifth medical school and first ever public medical school. The latter being long overdue.

While it would have been preferable that the medical school bear the name of a historical figure of African descent, Ianthe Blyden or Myrah Keating Smith, two Virgin Islander nurses who were renowned for their healthcare work. Instead, it appears the medical school will retain the name of its financial benefactor, Donald Sussman. Mr. Sussman, according to UVI’s press release, “the founder of Paloma Partners, was a member of the UVI Board of Trustees from 2008 to 2012.”

The public HBCU medical school’s importance can not be overstated. Public institutions represent a way for a group to extract their economic interest from an overall pool of funds that citizens pay into. In other words, Citizen A pays their taxes into an overall pool of taxes, politicians then decide how those funds will be disbursed to the public institutions representing the different interest of the citizenry. The problem that has plagued the interests of African Americans is that we pay into the system, but rarely have public institutions that are able to leverage pulling out funds from the pool to meet our social and economic needs. In this case, that social need is a vast investment in our health outcomes. UVI’s medical school will allow African Americans a significantly more affordable route to the community’s production of medical doctors and health professionals than can currently be offered by private institutions. That is because public institutions, through that tax pool, are able to subsidize the cost of the education they are providing. The lack of a public HBCU medical school has meant that many African American doctors are often forced to go after hospital positions that are well paid and more likely to cater to non-African American patients or medical facilities upon finishing medical school. Community health clinics become out of the question with six-figure student loan debts.

How dire is the situation for African American doctors and health professionals? Asian Americans have 1 doctor for every 117 people in its population, European Americans have 1 doctor for every 457 people in tis population, and African Americans have 1 doctor for every 914 people in its population. Institutionally speaking, there is only one African American owned hospital left as well, run and operated by Howard University.

There is an over 25 percent greater chance if you are African American ages 18-49 that you will not see a doctor because of costs to our white counterparts and a 50 percent chance if you are 50-64 that you will not see a doctor because of cost compared to our white counterparts according to statistics gathered by the American Community Survey from 2014. It is without a doubt that the COVID-19 Pandemic and Recession has probably only exacerbated those statistics. With other factors impacting African American health such as unemployment which means no insurance, poverty, no home ownership, and more, one could argue that African America has been in a health crisis and in order to stop the proverbial “bleeding” then we need to address a severe shortage in doctors and nurses coming from our community. The new medical school at UVI will go a long way in doing just that.

HBCUs medical schools, however, must connect themselves more strongly to HBCU undergraduate pipelines to ensure the best of the best from our institutions remain within our institutional ecosystem. It would not hurt to develop a Pre-K to Medical School strategy either. This means that HBCU alumni from all institutions must support more endowed scholarships at these HBCU medical schools for HBCU undergraduates looking to go to medical school. It also means that we can not rest simply on having one public HBCU medical school. We need others, expeditiously. The building of a global Pan-African health system that is centric to our needs is something we need more of – again, expeditiously. The creation of HBCU medical schools will go a long way into the formation of doing our part in accomplishing that. Let us hope it is not another 55 years before the next one is created, but for now let us celebrate and support the wonderful accomplishment of our brothers and sisters at University of the Virgin Islands.