Black Wealth revistited
Hot on the heels of the Pew Report on wealth in America which I commented on earlier. The Black Commentator posted an editorial on the subject. Unfortunatly it contained the following:
Tomfoolery in high places
“There were several members of the Congressional Black Caucus who took the position that the racial wealth disparity was due to the misbehavior of Black folks,” says Dr. William “Sandy” Darity, recalling events at the 2003 Black Caucus Week, in Washington. Several silly Black lawmakers theorized that wealth disparities could be eliminated if only African Americans would engage in less impulse buying and save more money, said Darity, a Professor of Public Policy Studies, African and African American Studies and Economics at Duke University. He continued: “In fact, if you control for income, the Black savings rate is at least as high as the white savings rate. There is some evidence to suggest that it might be higher.”
By Darity’s calculations, African Americans would have to go without food, shelter, clothing and all other expenses en masse “for well over a decade” to save enough to achieve wealth parity with whites. “So I would say, there is no way that you can catch up by systemic and careful savings. If African Americans saved all of their income – that is, if we didn’t eat, pay any bills, but saved every cent of income – we could not close the wealth gap,” said the professor, who also teaches economics at the University of North Carolina, Chapel Hill.
...African American households earn less than 60 percent of median white income. At the pace of catch-up since 1968, according to a report issued earlier this year by United for a Fair Economy (UFE), “it would take 581 years” to achieve income parity with whites. But wages are not wealth. For most Americans, home ownership is the major asset. Seventy-five percent of whites own their homes, while more than half of Blacks rent. At the rate of “progress” recorded since 1970, UFE estimates “it would take 1,664 years to close the ownership gap – 55 generations.”
Now let's get the following out the way quick. Garvey's Ghost is for Reparations, though not neccessarily for individuals, but this isn't the spot for that discussion. Let's look at what was said here: it would take 10 years of blacks not spending any money in order to acheive wealth p[arity with whites. That's it? Think about that for a minute only 10 years if blacks simply did not spend thier money. Let's ask this question: What say if instead of not spending the money they made, the money they earned was only spent with other blacks? So what if all food was bought from black owned supermarkets. Say blacks used mass transit run by blacks? Say clothes were bougth from black owned stores, who dealt with black owned distributors? This points to the largest problem that blacks have, one that was imposed from the outside but maintained from the inside. Carter G. Woodson pointed out that he observed that blacks refused to work with or under other blacks. In fact, a great many black business owners complain about the lack of support from other black businesses, customers, etc. So it is arguable that we play a part in sabotaging our own wealth accumulation efforts. When Marcus Garvey taught that blacks should own supermarkets, factories and build up industries, not only was he made fun of by "mainstream" black leadership, the NAACP aided and abbeted the US Government to frame Garvey in order to shut down a wholly black owned corporate entity: The Black Star Line, the only (as far as I know) black owned international corporation operating in the interests (political and economic) of black folks all over the world who owned stock in that company and therefore would benefit wealth-wise from it's potential growth. Where would black Americans been had the Black Star Line had the support of the "oldest and most respected civil rights organization?"
So letting bygones be bygones, we are faced with this problem of black wealth. So if it takes 10 years of spending no money then how long does it take if 25% of black income was saved? would it be 40 years? If so then that is a single generation. But hypotheticals aside the editorial had another fatal flaw; it discusses the rate of savings among blacks being equal to that of whites if not higher. See be carefull when you see the word "rate." saving 10% of 1 dollar is not equal to saving 10% of $100. It is the same rate but it is not equal. I must say that we must stop using the "we;re doing what whites are doing' argument to cover up our bad news. When you're in a ditch you have to climb out of it before you can begin traveling.
The article also discusses the rate of home ownership and how it would take 55 generations to reach housing parity with whites. I'm not sure why that point was made, Is it to say that it is impossible, improbable? what? If you read the book "The Millionaire Next Door" you'll find that the way the authors defined "millionaire" is by excluding the value of thier homes. This is important. Many people are under the impression that one must own a home in order to "buld wealth." This is simply not true. In fact in too many cases, a home can be the large impediment to wealth creation. Ask those people who have had their homes foreclosed on them in the Poconos.
But let's look at this issue of home ownership more closely:
Most people cannot afford to pay cash for thier homes, just as they cannot afford to pay cash for thier new cars. Most people go into debt to purchase thier homes. Many people have 30 year mortgages on these homes that suck up, on average, 50% of thier income. In the past 10 years banks have decided that mortgages are not enough, they started pushing "home finance loans" in which the homeowner could borrow upto 110% of the value of thier home to do whatever they wanted. As was discussed on this blog, the vast majority of people use those loans to get into consumer debt or purchase things that have depreciating value. (TV's, cars, vacations, etc) not only that but they now have to pay off this new 'loan." The only real way a home is an asset ( wealth builder or creator) is when it is sold or rented out. Therin lies the real problem with black homeownership, it's not that blacks should own more homes per se, it is that blacks need to own property that generates income for them, which a great many whites do. So what happens when the original mortgager dies before paying for their property? If the next of kin cannot make the payments (and property taxes) that house goes back on the market, at the benefit to the bank ( foreclosure). If you read "Rich Dad, Poor Dad" Guy Kawasaki tells you the game outright. You purchase a house, and sell it immediately, but because like your vehicle, the house really isn't yours until it's payed for, if the payor defaults on a payment the payee may force them off the property and start the sale all over again with another buyer. This is why so many people are
"flipping" property which is inflating property values to ridiculous highs. therefore unless some fundamental change is made to the real estate system, blacks will have to use other avenues to gain wealth.
While there is no instantaneous answer to building black wealth there are long term processes that must be adhered to in order for it to happen. First is that blacks must abstain from high cost consumer debt, the number one of which is the Car Note. I cannot stress this enough. Having $200 - $700 come out your pocket monthly for a vehicle that you'll not own or will "trade in" as soon as it's done because it's no longer the latest thing or an irrational fear of maintenance is the fastest way to a low net worth. The second thing (which is first for many people) is fashion worship. The purcahsing of trendy clothes that "need" to be replaced with the passing of the years is another way to reduce net worth for no good reason.
Lastly, it is wrong to suggest that black wealth will be created by savings alone. Blacks must become investors in various interest bearing vehicles in order to accumulate wealth. When I talk to black people, especially the young about wealth I tell them that they should, as soon as possible, start some type of investment plan. I talk about how when we play french dominoes, that often the winner is the person who "nickel and dimes" themselves each time their turn comes, While the loser is usually the one who only want's the "big points." I tell them that you'd be surprised what $10 a month can grow to in a year. I ask them if they have $10 at any time after they pay thier bills and the answer is always "yes." Therefore i let them know that if they invested that $10 each month they would have $120 at the end of the ear 1200 in 10 years and $3600 in 30. That may not sound like much, but most people do see increases in their income and the 'middle class" has far more than $10 worth of disposable income at the end of the month. if those with $400/month car notes, spent that $400 on an investment vehicle in 30 years they would have $144,000 before accounting for capital gains. if that 144,000
In fact if an account was started with $400 and was gaining at a rate of 8% over 20 years with regular investments of $400 the account would have $237,578.88. But this is not for the lazy. If you don't have discipline and a willingness to forgo "keeping up with jones" or "Showing off for jones" or trying to "one up jones." then you ain't gonna have any cash. Period.
So let's fight for our deserved reparation AND let's get serious about the money we do get. We are in a far better place than our ancestors were and far better than many other black people on the planet and there is simply no excuse for us to not have greater wealth..among other things.