Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
- There’s a wealth gap between Black and white people that can be traced back generations to slavery. Today, systemic racism and discriminatory policy maintain that gap.
- The idea that “financial literacy” can solve Black people’s money woes is false — if you don’t have resources to save or invest, no amount of financial education can help you build wealth.
- As a Black woman living on a low income, I’ve learned three ways to save money that make sense for me.
- The first is to see saving as a habit — the dollar amount matters less than the act of saving.
- It’s also important to be strategic about paying off debt, and at some point you have to find ways to make more money.
- Sign up to get Personal Finance Insider’s newsletter in your inbox »
The term “racial wealth gap” refers to the large difference in net worth between races. At present, in the United States, the average white family’s wealth is estimated to be 10 times that of the average Black family’s. But it’s not because Black people are “bad with money.”
The racial wealth gap can be traced back to slavery, when white slave owners acquired wealth through slave labor. Even when slavery was abolished, Black people were not compensated for their labor or unspeakable losses. The newly-freed Black people were not only without money, but had no other resources to improve their condition.
While Black people struggled, white people had the ability to build more wealth using what they had already gained from slavery, and from political policies and discriminatory systems designed to preserve the racial wealth gap, such as redlining in the US.
Today, while white people continue to accumulate wealth through these systems, racism and discrimination continue to impede the efforts of Black people to build wealth. The problem is not that we are “bad with money,” but that history is ignored and our specific needs are not being addressed.
It’s wrong to assume financial literacy is the answer to Black people’s money woes
Many systems and programs are still designed based on the incorrect premise that Black people’s finances are a result of our own poor financial behavior. With such a decidedly skewed view of wealth distribution and its causes, it’s not surprising that financial literacy is repeatedly presented as the solution to the cyclical issue of poverty.
Financial literacy is the understanding of basic concepts combined with a set of skills that allow for effective decision making with regard to financial resources. Financially literate people understand the concepts of earning, spending, saving, borrowing, and protecting money and other financial assets. This, however, does not automatically translate to perfect practice.
Just as there is a wealth gap, there is a gap in ability to act based on financial literacy. We need to shift the conversation about financial literacy to address people’s financial capability. For Black people in particular, it is important to create and provide resources that do not suggest we are at fault for our circumstances, and instead acknowledge existing conditions and respond to them with appropriate tools.
Lessons I’ve learned about building wealth on a low income
I am financially literate, and my financial situation has not allowed me to practice much of the financial advice available. Financial experts typically do not consider the material conditions of Black people, so it is important for us to help ourselves and each other.
I am sharing a set of practices that have helped me to have a better relationship with money and to reject the idea that I am not better off because I have been “bad with money.” The truth is that unequal wealth distribution has not been good to me, and I have been forced to use what was accessible. As is the case for many Black people, that has meant acquiring debt, which has reduced my ability to save. I have, however, found a few keys to improve my situation that can work for others, so I am sharing them here.
1. Saving with a low income is about developing the habit of saving, not the amount you save
Black people know that it is important to save. This message has been passed down through generations, along with methods for saving developed when Black people were locked out of banking systems. Money has been saved in envelopes, jars, ice cream tubs, and plastic bags in freezers. Black people know how to store and stash money so that it is almost as inaccessible as money in the bank. Knowing the importance of saving is not…
Read More: 3 tricks that have helped me save money on a low income