Lazetta spoke with Morningstar's Keith Reid-Cleveland about tips on how to make progress.
When it comes to closing the racial wealth gap in the United States, most solutions involve public policy. Proposals including baby bonds, student loan forgiveness, and even various forms of reparations have each been the subject of debate in recent years after being brought to Congress.
But what can individual investors do? What choices can people make in their own lives to help move the needle?
Morningstar spoke to Lazetta Rainey Braxton, CFP, to get her thoughts on how successful attempts to address the racial wealth gap have been and what investors, especially investors of color, can do to protect themselves from the damage it can cause.
As a start, improving your own financial standing and making sure you’re investing in the most effective way is key. But practicing good habits like negotiating for better pay and learning how to invest are also necessary.
Read ahead to find out some of what Braxton shares with her own clients, many of whom are “sandwich generation” wealth protectors, entrepreneurs, and thriving professionals.
Note: This interview was conducted on Feb. 16, 2021. Responses have been edited for length and clarity.
What can people do in their own daily lives to help close the racial wealth gap?
Lazetta Rainey Braxton: I appreciate this question because we, as financial planners, focus on managing things that are within your control, and that's pretty much what you're asking. Wide-ranging policies are things that are outside of your control directly--although you can be an activist and try to make change. There are some strategies you can implement on your own and see returns a little quicker.
A lot of what blocks people when it comes to money within our own household can be very much mental blocks--especially the relationship with money. Some people don't even feel comfortable taking an inventory of what they have. They're afraid of what that number--their net worth--might look like.
Net worth is one of the metrics for which you see in a lot of reports. “What is the net worth of Black families?” Net worth is defined as what you own versus what you owe; you want that number to be prominent, significant, and increasing over time. A way over the hurdle is becoming familiar with your own financial situation.
The other aspect for consideration is lifestyle planning; a lot of people refer to it as budgeting. The goal is to capture what it takes for you to live comfortably.
Baseline, you need a starting point so you are familiar with what you can build upon.
How might people be unknowingly contributing to the racial wealth gap? What habits might be making the problem worse?
Braxton: Going back to the micro level, particularly within the Black community, we often give to the people and things that matter to us, which is totally fine. And sometimes the giving that we do--often to family members--can cause financial sabotage. Family members who know that you're going to give it typically are not interested in building for wealth themselves or returning it back to you.
Also, we should not feel guilty if we make more money than some of our family members or feel obligated out of this guilt to be the family’s bank. Families that have been good stewards of their financial resources shouldn’t fall victim to this guilt factor and overextend themselves when they give. The goal is to give the opportunity to family members to improve their own fiscal responsibility, engagement, and accountability. This often means getting into their financial business and asking questions about why they need the money.
How should people of color go about improving the income gap?
Braxton: You are your biggest asset. We (Black people), historically, don't negotiate very well when it comes to our salaries and our incomes. We already know from statistics that there is the income gap and the wage gap. Do your research and find out what you are worth based on your job and ask for it. It’s a step that we take with our clients in our financial planning journey together.
I ask questions like, What's your position? What industry are you in? Let's look at the pay bell curve for what you are being offered. Are you in the lower, median or upper percentile of the pay scale? You leave way too much money on the table by not doing your research, being prepared, and making that case for yourself.
Who do you feel the lion’s share of responsibility falls on closing the racial wealth gap?
Braxton: The ability to generate and pass on wealth within the white community dates back much longer than it does for the Black community. In fact, wealth in white communities has been sustained over centuries. Blacks have not recovered the long periods endured as slaves, indentured servants, and now as underpaid Black employees and marginalized Black business owners, as evidenced by the wage, wealth and entrepreneurship gaps.
For many Black families, we have to deal with redlining, property and land devalued or destroyed with no legal recourse, and being denied equal opportunities to advance our careers and earnings. For those Black families who lost wealth and are now restarting, they're having to take care of the generation ahead of them and behind them with no wealth transfer available.
Lastly, what letter grade would you give the current efforts that are being made to close the racial wealth gap either from a policy standpoint or just what you see anecdotally?
Braxton: Dismal failing, completely failing. One fundamental concern is that financial education is not mandatory or even offered as a part of secondary education across the country. Interestingly, people didn't want to educate slaves because they felt like they would be empowered and revolt. And I feel almost the same way about financial education. Financial empowerment has far-reaching implications for a thriving society and economy. No one should be left out of this opportunity.
Our country is very capable of doing whatever it wants to do. Fundamentally, educating our children should be a universal starting point. They can grow into leaders who can demolish systems that perpetuate economic oppression and create systems that elevate economic opportunity.