On June 19th, people across the country commemorate the end of slavery in the United States by celebrating Juneteenth. This important federal holiday is an opportunity to recognize humanitarian progress throughout history, while also considering how systemic inequalities continue to impede financial freedom today.
The racial disparity in household wealth in the United States has developed over decades and indeed centuries of systemic barriers. Discrimination in employment, housing, financial services and more has made it difficult for all people in the U.S. to build generational wealth at the same rate. As a result, there are significant wealth disparities in American households. People born into a household with more wealth have a built-in financial cushion: if their car breaks down, or they are suddenly fired, or they need help affording college tuition, it’s likely a family member can help. People born into a household without generational wealth, on the other hand, would need to rely on a loan or credit card.
While there’s nothing wrong with using credit wisely, people without access to generational wealth should be extra careful when it comes to taking on debt. That means choosing a low-interest credit card and paying statement balances on time, or working with a trusted loan officer who can explain all terms and conditions, and assist the borrower in developing a payment plan if needed. Try to avoid payday loans, which charge high financing fees intended to prey upon borrowers without a financial cushion.
The effects of housing segregation still effect household finances today. In the 1930s, federal housing programs explicitly pushed people of color out of suburban housing projects and the Federal Housing Administration refused to insure mortgages in majority non-white neighborhoods. These “red-lining” policies continued into the 1960s, and even as recently as 2020, banks have been found guilty of systemically failing to approve mortgages in majority Black and Latino areas.
Missing out on home ownership has meant missing out on key opportunities to build wealth through home equity. While it’s hard for one individual to fight against a network of discriminatory lending practices, there are steps prospective homeowners can take to achieve their dreams of buying a property. First, look for down payment assistance programs in your area. Sometimes there are specific programs earmarked for first-generation homebuyers. It’s also a good idea to learn as much as possible about the homebuying process: from credit scores, to pre-approval, to interest rates and lots more. Harvard FCU has free webinars and blogs if you’re ready to learn more.
According to data from AARP, the median value of Americans’ retirement accounts varies widely depending on their race. A number of factors present retirement savings difficulties: including lower average wages, higher unemployment, lower rates of home ownership and less inherited wealth. While
Social Security helps to ensure that lower-income workers receive more benefits, some policymakers have suggested raising the Social Security retirement age which could negatively impact low-income workers including workers of color.
Beyond Social Security and workplace pension schemes, individuals can grow their retirement savings independently by opening an Individual Retirement Account (IRA). Even contributing a small amount of money to an IRA can make a difference in retirement, especially if contributions are invested smartly. Financial experts often recommend a diversified target-date fund, which automatically adjusts risk to coincide with the account-holder’s planned retirement date—although keep in mind that all investing carries some level of risk. For more tips on saving for the future, visit the Harvard FCU blog.