Tag Archives: black wealth

Closing The Wealth Gap: HBCU Couples Should Prioritize Two Homesteads Before Marriage

Owning a home is a keystone of wealth – both financial affluence and emotional security. – Suze Orman

Poor people know they are poor. Unfortunately, it is the African American working and middle class who do not know they are also poor. The problematic reality that because you can buy something does not mean you can afford it plagues much of African America’s working and middle class. These tend to be households who have higher education, higher incomes, and higher homeownership rates – but they also tend to have financial net worths that are just as poor as – well, the poor. Why? They tend to be more acutely indebted due to their education, home, car, and consumer poor, just as financially illiterate, and almost always just as asset poor as their poor counterparts in the African American community. However, any conversation about passive or investment income or financial health as a pillar in line with mental health and other priorities of a well functioning household is often met with angst or disgust. The prioritization of asset accumulation over consumption is met with more resistance than Americans against British taxation without representation – and we know how that ended. But not to worry, there seems to be no revolution brewing here (sarcasm). African American wealth accumulation continues to be an afterthought of the African American household. Upper middle class, affluent, rich, or wealthy being a thought of more as something for “others” and not ourselves. The achievement of degrees, a house, cars, and consumption is all we seem to believe life requires. Should times get tough, many within the community will tell you that a second job, a better paying job, or more education is more times than not the answer to a “better” life. Again, wealth and asset accumulation not so much.

How dire is the wealth situation for African America? Bloomberg recently reported that Black-White wealth gap has not budged in the past 40 plus years and is actually trending worse. McKinsey and Company report that nearly 20 percent of African American households have a negative net worth. The National Community Reinvestment Council’s report shows, “African Americans, who in many categories have the greatest gender economic equality, have the greatest gender wealth disparity though still having little wealth compared to Whites. Single Black men’s median wealth was $10,100, compared to Single Black women’s median wealth of $1,700.” An immense issue when one considers that the majority of African American households are headed up by single African American women. One would certainly suggest that because women are the load bearers for raising and providing for African American children and often extended family that this has also severely hampered their ability to accumulate wealth. An issue that is not as prevalent for African American men. None the less, it proves dire for the community as a whole that this is the case. Last but certainly not least (or all), there is the matter that African American homeownership has never breached above 50 percent which for the majority of families serves as the foundation that a lot of intergenerational wealth is built upon.

One of the general wedges to the wealth gap is asset ownership. Two-thirds of African American wealth according to Bloomberg is held in housing and very little in other asset classes like stocks in particular. This has presented an acute problem over the past 70 years as Bloomberg reports, “stocks have appreciated five times as much as housing prices.” However, the complexity of wealth without a conversation around income and disposable income which is income left over after expenses that can be used for savings and investing is vital to the conversation. African American median income is $45,870 according to Statista, the highest it has been in the past 30 years. The problem of course is that it remains the lowest of all four ethnic groups tracked (see graph below) with Latinos, European, and Asian Americans having median incomes of $55,321, $74,912, $94,903, respectively. Unfortunately, there is not a high enough savings rate that could truly overcome this lack of income. Despite the perception, African Americans are savers in line with their European American counterparts. Again, you can not catch up in a race running at the same speed as someone who is 100 yards ahead of you. This is the problem for African America. We are trying to save and invest at the same rate as those who have in most cases six times our wealth. So if home ownership is already our largest asset, then why are we suggesting that African American couples prioritize having two going into a marriage rather than one after they get married?

Every HBCU state except for Pennsylvania offers a homestead exemption. What is the homestead exemption? According to Investopedia, “The homestead exemption is a way to minimize property taxes for homeowners. It is also a legal provision offered in most states that helps shield a home from some creditors following the death of a homeowner’s spouse or the declaration of bankruptcy. The homestead tax exemption can provide surviving spouses with ongoing property tax relief, which is done on a graduated scale so that homes with lower assessed values benefit the most. The homestead exemption is helpful since it is designed to provide both physical shelter and financial protection, which can block the forced sale of a primary residence.” A person or couple can only have one homestead at a time, unless they both enter into the marriage with their own homestead. At which point, both parties are allowed to retain their individual homesteads. This means both properties will be taxed at a reduced rate creating more disposable income. Something they would not be able to do if they simply purchased a second home later in the marriage. What is that second homestead worth potentially?

According to Mortgage Calculator, the average annual property taxes in the United States is approximately $3,800. The homestead exemption typically saves approximately $500 off of that tax bill. That $500 invested annually for 30 years at 8 percent return is worth over an extra $60,000 to a household and that is just the tax savings reinvested. Naturally, the second homestead would be rented out by the couple and used to generate additional passive income. Assuming the couple could generate a profit of $200 per month or $2,400 annually off that second property, they now have $2,900 to invest annually which over the course of 30 years at 8 percent return is worth over $350,000. We have not even added on the building of the equity from appreciation or the extremely low interest rates that accompany homestead properties versus traditional investment properties. Banks are far more likely to see a homestead property as a lower risk than investment properties which they believe a borrower is more likely to walk away from than those that are homesteaded. Equity borrowed from the home could be used to reduce the households general tax bill overall further, leveraged to purchase non-homestead investment properties, or simply borrowed and used to invest in the stock market and because it is seen as “debt” does not carry tax liability on it. In other words, if a couple borrows $50,000 of equity out of their homestead property and make $10,000 on it, then they would only be paying taxes on the $10,000 but you still actually have $60,000 at your disposal. Whereas if you saved $50,000 and then made $10,000 on it, then you would be paying taxes on the entire $60,000. That almost $3,000 per year that would be coming from that property would also be an increase of 6 percent on the African American median income.

In the end of it all, assets and income go hand in hand. The more assets a family has the more income they produce and vice versa. In some ways, it is the epitome of the chicken and the egg conversation. For most African Americans, whom we see are highly unlikely to receive inheritance (see graph above) it becomes all about their family’s initial income and the race to acquire assets. Grievously, far too many African American families get the income and never convert it into assets. Taking advantage of prioritizing this little loophole can provide a family an extra $1 million in asset value and $80,000 in passive income if properly managed. An amount that currently would equal almost two times the African American median income. It is these small decisions that could have a monumental impact on the future of African American wealth and the closing of the wealth gap. In order for this to work as part of an overall strategy, HBCU alumni must prioritize having a sense of urgency about their finances and then be strategic about wealth and asset accumulation before tying the knot.

6 Financial Things HBCU Men Must Do Before Getting In A Serious Relationship

Teach self-denial and make its practice pleasure, and you can create for the world a destiny more sublime that ever issued from the brain of the wildest dreamer. – Sir Walter Scott

So you are a man now you say? You have graduated from your HBCU with degree in hand and maybe you have your dream job, maybe you are still looking, and maybe you are contemplating going to graduate school. Regardless of where you are in life, there is a strong chance that you have a desire to be in love. Before you give someone the world, make sure you have taken care of a few things before you embrace the responsibility that comes with a serious relationship.

Societal norms put the financial burden of courtship on men in heterosexual relationships. Historically, this makes sense because it has only been in very recent decades that women have earned the right to their own financial independence within many societies and in more than a few still have limited financial rights. However, this presents a bit complicated in the United States for African America where the women have surpassed men by leaps and bounds in almost every major category. It also does not help that African American men have the highest unemployment rate among all groups in the country, which creates a courtship complexity of sorts within the community. African American men who are 20-24 years old as of December 2018 had a 11.8 percent unemployment rate, while their European American men peers were at 5.9 percent and African American women peers were 7.5 percent. That being said, for African American men who are part of the LGBTQ community, the instability can be even more pronounced since both parties are part of the most vulnerable economic population and will be facing additional discrimination.

A relationship can be an expensive endeavor, according to a USA Today study the average date cost $102.32 and if you assume one date a week in a relationship that comes out to a total of $5,320.64 per year. This of course is not including special dates or holidays where the purchase of gifts, etc. can drive that cost even higher. The problem of course is that African American median income, last among all ethnic groups, is at $40,258 according to the 2017 Census. In other words, over 13 percent of African American income can be used up in dating, while no other groups even spend 10 percent.

To say the calculus is complicated would be an understatement. Do African Americans simply not date? This of course would be problematic since one of the fundamental ways of building wealth is through the scalability of marriage. Instead, get a strong financial foundation under you by adhering to these six principles and objectives:

BE HONEST. BE HONEST. BE HONEST.

This honestly could be the whole article, but it is certainly worth leaning into. Being honest about your finances up front with the person you are dating can take a lot of pressure off them and yourselves. This does not mean you have to tell them everything right away, but if you can not afford to do something tell them and do not feel ashamed of it. If you want to share with them that you have certain financial goals you want to meet, then do so and let them be part of what you are trying to accomplish not an adversary to it.

HAVE AN EMERGENCY FUND – NO, SERIOUSLY.

African American men are the most vulnerable population as it relates to employment as the numbers bear out. As such, if you are a recent graduate and happen to have employment you can not save fast enough. Most personal finance experts will say as a general rule 3-6 months of expenses is a healthy emergency fund, but for African American men 9-12 months is much more imperative. An emergency fund can take the edge off of dating because you know that you and your date are not spending your potential car note or rent payment. Do NOT touch it except for an emergency. Also, do not base your emergency fund off expenses, but instead use gross income. You want to have 9-12months of gross incomes saved. Saving based on  your income instead of expenses will allow you to maintain some semblance of a normal life should an emergency arise.

SET EXPECTATIONS AND A BUDGET.

Once you decide to send someone flowers every Monday, fine dining every Friday, and a trip every other month you have set an expectation. Now, this is not to say you can not do those things, but they need to be within the confines of your budget. You should have an amount that you are going to spend every month on dating activities. If you want to save for something a bit more costly, spend a bit less each month and set it aside until you can afford that moment. Should your finances change and you need to alter the budget and expectations, remember – be honest.

BE CREATIVE.

Contrary to popular belief, you do not have to spend a lot on someone to let them know you care about them. The internet is full of helpful resources that can help you create low to no cost dates. Feel free to also use your social media networks for ideas.

DO NOT CONFUSE INCOME WITH WEALTH.

Income is not wealth. Again, income is NOT wealth. Assets build wealth and you have to use your income to acquire assets. Beyond your emergency fund, you should be thinking about saving to invest in stocks, bonds, real estate, etc. Find a financial/investment adviser as soon as you have a job. You do not have to wait until you have “money” to start investing. The earlier you start, the greater chance you will have of creating wealth over the long-term. Passive income, money earned from not having to work, should be a central focus of what you use your income for. Do no squander away the opportunity to set up yourself and future family while you have the opportunity.

LEAVE THE MATERIALISM FOR SOMEONE ELSE.

We have all seen that friend or friends who gets a job after college and decides to go on a spending spree for the nice car, clothes, and showing off for Instagram. This is not the man you want to be. Becoming a slave to material possessions and forsaking your financial future while being part of a labor population that is the most vulnerable is not only not smart, but dangerous. Material things lose value and defer from your ability to invest among other things.

Ultimately, if you are a man and are not financially safe or stable, then you are not ready for a serious relationship with anyone. Do not confuse stable for rich. Most of the time financially stability can be achieved in a relatively short period with the proper sacrifices (like having a roommate or two or three) after graduating. Becoming financially literate is vital to helping remove the stresses of finances in African American relationships. A stress that is often noted as being the greatest area of conflict within relationships. After all, love does not cost a thing, but bad financial habits do.