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The History and Impact of the Racial Wealth Gap

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According to the Federal Reserve, 3% of Whites are without bank accounts. For Black and Latino adults, this unbanked number is much higher at 13% and 9% respectively, with another 27% and 21% underbanked.

This gap causes an economic disparity between Whites, Blacks, and Latinos. It is a primary factor in the racial wealth gap. While some in the banking and credit union industry are looking for ways to support and build up these unbanked and underbanked communities, a lot of work still needs to be done.

Exploring the racial wealth gap

The wealth gap between African Americans, Latinos, and Whites in America is large and long-lasting. The average White family has almost eight times the assets of the average Latino, Black, or African American family, with few signs of change on the horizon.

Slavery and its after-effects in the United States were major factors in creating and keeping this wealth gap for Blacks and African Americans. As for those of Latin heritage, the gap, a result of systemic and social barriers that have still limited the economic mobility of Latinos, has improved some recently. Still, Latino assets as a whole remain much closer to the African American and Black levels than those of Whites.

History of the racial wealth gap

The Black racial wealth gap goes right back to the founding of America. Arriving in the early 17th Century, people of African descent, just like Whites, often comprised free, indentured, and enslaved persons. As the decades wore on and the British were driven out, free and indentured Blacks became much less common, replaced almost completely by enslaved Blacks.

After the Civil War and its broad promises of personal and economic freedom, Blacks continued to suffer extreme poverty in the South, often subsisting as low-wage workers and sharecroppers. In the North, they were at the bottom of the employee pool. As a group, Blacks throughout the country faced very low wages and extreme economic insecurity.

The Latino wealth gap is mostly the result of long-standing social barriers that kept Latinos, and other people of color, from economic success in America. Most Latino families in America don't have access to the savings and investments necessary to build up their assets. Reliable employment with consistent higher income and access to banking has long been missing in Latino communities.
Current wealth gap and its effect on Black and Latino communities

Prior to the start of the Covid-19 pandemic, the average White household had nearly eight times the wealth of the average Black, African American, or Latino household. Job losses during the pandemic have hit these latter groups, which had less income and assets to sustain themselves, much harder than Whites. The recent census shows that Whites own 86.8% of the nation's wealth while only accounting for 68% of its population.

In a rare bit of good news, the Federal Reserve found that the Latino unemployment rate before COVID had been only 4.8%. However, the pandemic led to a huge increase in Latino unemployment to 18.5% in April 2020, lowering a little to 14.5% in June. This last figure still exceeds the rate they experienced in the 2008 Recession. Further, given the heavy representation of Latinos in some of the hardest-hit sectors of the economy, they have continued to suffer dire economic impacts. Worse, they have received little assistance from government relief.

Making banking more inclusive

One factor that is both cause and effect of this wealth gap is the relative lack of financial literacy and wealth among Black, African American, and Latino communities. But there are ways to make banking more inclusive and less hostile to these groups.

More affordable banking

No matter how fairly an individual institution may try to handle them, overdraft fees strike at the financial heart of less wealthy Americans. Last year, banks made $30 billion in overdraft fees, taking that huge sum out of the available assets of lower-income Americans. In the same way, checking accounts with service fees strike much harder at African Americans, Blacks, and Latinos. These latter groups pay twice the bank fees that Whites do, and pay them more often or more accounts.

Employ a diverse workforce

Race-based discrimination in the workforce makes higher-income jobs and promotions less available to Latinos, Blacks, and African Americans. This lack, in turn, prevents the accumulation of wealth common among middle and upper-class White Americans. As the diversity of the workforce increases, so too will the diversity of wealth.

Offer free financial literacy

Financial institutions need to offer free courses, tools and resources in financial literacy. These cover learning things like how to open a checking account to understanding retirement savings. They can help to expand financial knowledge for African Americans, Blacks, and Latinos. Expanding this knowledge and access will increase use of these services.

Power Financial Credit Union is driving financial inclusion

Power Financial Credit Union has put a variety of these wealth-building initiatives in place for its members and staff. Here are just a few of the things Power Financial Credit Union is doing to address the racial inequality in banking.

Eliminating overdraft fees

Last year, Power Financial Credit Union became the first credit union in South Florida, and one of the few nationwide, to completely eliminate overdraft and insufficient funds fees. This step has returned nearly $1 million to its members.

Focusing on the community

Power Financial Credit Union focuses on giving back to its local community, volunteering and contributing financially to a number of worthy local charitable organizations that support the betterment of the diverse South Florida population.

Free financial literacy

Using blogs, free courses, and financial calculators, among other tools, Power Financial Credit Union makes learning about your financial needs and responsibility easier and more accessible. Informed members can make better make financial decisions and begin building their own sustainable wealth.