By financially empowering underserved communities, advisors can play a crucial part in tackling inequality.
We can all agree that most people could benefit from more financial knowledge and resources. However, for certain populations in the United States there are growing gaps in access to wealth building tools and financial literacy in general. For Black and Hispanic communities this gap is especially noticeable.
The lack of financial resources contributes significantly to the wealth gap in the United States and as it widens, financial education becomes increasingly crucial for economic stability and growth within underserved communities—solving this issue why the FARE was founded.
Understanding the wealth gap
The wealth gap represents a disparity in financial resources that adversely affects economic mobility among people of color. This issue is long-standing and permeates various aspects of life. For underserved communities, the wealth gap means less access to financial resources for housing, education, employment, healthcare, retirement, entrepreneurship and other forms of wealth-building like investing.
Closing the wealth gap is about ensuring that each person has as much access to the pursuits of happiness and fruits their labor as anyone else. This isn’t about getting competitive edge amongst segments of society, but rather equity and a better chance at sustainable equality.
Enhancing financial knowledge is essential, as it empowers individuals to navigate economic systems, leverage opportunities for wealth accumulation and ultimately helps bridge the stark disparities in financial well-being—everyone should play the game of life with access to good cards.
By addressing educational gaps with increased financial literacy tools, communities can generate greater economic inclusion and equity, laying a foundation for sustained financial health and improved quality of life for all Americans.
The reality of economic disparity
Recent PEW research indicates significant issues for millions of Americans. Interestingly, wealth inequality remains much higher among different groups than income inequality, largely due to differences in homeownership, stock investments and other wealth-accumulating assets. Here’s what the data says:
- Retirement savings: Research predicts the gap will expand into a $1.3 trillion economic burden by 2040, a concerning sign for many elderly households. This issue is even more pronounced among underrepresented groups like African Americans and Latinos, who often lack access to workplace retirement plans, leading to lower savings and retirement woes.
- Homeownership: As of 2020, about 72% of white households owned homes compared to only 43% of Black households. Homeownership is a cornerstone of generational wealth, and attaining this wealth building asset is key to narrowing the wealth gap.
Impact of education and income levels: Educational attainment and income levels significantly influence homeownership rates across racial groups. However, disparities persist even among higher-income and more educated groups, with Black and Hispanic college grads less likely to own homes than other groups with the same education level. The mounting student loan crisis exacerbates this gap by adding academic debt.
- Stock market investment gaps: Investments in the stock market can significantly enhance household wealth but also show racial disparities. Nearly two-thirds of white families own stocks directly or indirectly, compared to significantly lower percentages among Black and Hispanic families, contributing to ongoing wealth inequality.
- Business: Entrepreneurs of color face significant barriers, highlighting the broader economic disparities for underserved communities. For example, while the number of Black-owned businesses increased in recent years, Black-owned firms account for only about 3% of all U.S. firms with just 1% of gross revenue, despite representing approximately 14% of the U.S. population.
There is a necessity for increased financial education to assist burgeoning companies—and even more established firms—with acquiring the necessary access to capital and help foster equality in entrepreneurship opportunities. and how underserved communities gain access to capital.
The value of financial education
Financial literacy is a critical tool in addressing wealth disparities. Educating individuals on financial principles, savings strategies and investment options can dramatically improve long-term economic outcomes. Understanding how to effectively manage money allows individuals in underserved communities to make informed decisions that enhance their financial stability and foster wealth accumulation.
How organizations can help
Organizations that make DEIB efforts part of their ethos play a crucial role in expanding financial literacy and tightening the wealth gap for underserved Americans. These organizations can advocate for policies that ensure greater access to financial services and, as employers, they can promote financial education tailored to the needs of diverse communities, supporting individual financial growth, and enriching the broader financial ecosystem.
At NFP, we are committed to finding strategic ways to reduce racial disparities and create a more inclusive and equitable future for all people. Our organization is aligned with FARE’s objective of increasing racial diversity and driving more equity within the financial services industry.
Moreover, our DEIB initiatives and partnership with FARE also include collaborations with Historically Black Colleges and Universities (HBCUs) and organizations. We are honored to be a part of the FARE Coalition as a founding sponsor, furthering our commitments to diversity, equity, and inclusion.
Community-based strategies
Effective financial education must be community-oriented and inclusive, delivered through local organizations, schools, and community centers to reach the widest possible audience with programs relevant to real-life issues like homeownership, savings, retirement funds, investing and education.
Partnerships between financial institutions, nonprofits and community groups can amplify the reach and impact of financial education, providing the resources and expertise needed for transformative large-scale programs.
Looking ahead
By supporting the financial empowerment of more communities, narrowing the wealth gap can be attainable. As we move forward, maintaining a focus on financial literacy will ensure that all individuals can secure their financial future. What communities need is long-term economic resilience.
Kizmet T. Moore is AVP Diversity & Inclusion at National Financial Partners Corporation (NFP), a provider of benefits, insurance and wealth management services.
Article Source: Investment News
