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Redlining was a racially discriminatory practice that allowed lenders to deny mortgage services to applicants in predominantly Black and immigrant neighborhoods. It got its name from the red lines that marked restricted areas on a map that were deemed too risky. When the Fair Housing Act of 1968 was passed, redlining was outlawed, but its repercussions last to this day — and some studies find it may still exist. The restriction to homeownership, or the allowance of homeownership in only certain, lower-valued neighborhoods, has affected the ability of people of color to bolster their retirement security and accumulate generational wealth.
Homeownership is a critical component of retirement security, and barriers to homeownership have helped widen the racial retirement gap for Black Americans, public policy experts said. It leaves many older Black Americans unable to tap into a key retirement asset, either from the sale of a home or home equity loans. Although inflated home prices are a burden for those looking to purchase property, it’s through gradually rising home prices that many people see personal net worth jump.
“Homeownership is still the biggest asset the typical American will hold in their lifetime,” said William Rodgers III, vice president and director of the Institute for Economic Equity at the Federal Reserve Bank of St. Louis. But there are discrepancies between the races when it comes to homeownership, and the home values of Black Americans lag behind those of white Americans, he said.
Black Americans saw a slower growth rate for homeownership during the pandemic, the Center for American Progress found — 44.1% at the end of 2020, just 0.1 percentage point higher than at the end of 2019. Comparatively, homeownership among white Americans rose from 73.7% to 74.5%. More Black homeowners than white homeowners also struggled to pay their mortgages during the pandemic — 17.6% versus 6.9%, between August 2020 and March 2021.
During the pandemic, homeownership among Black households was also more volatile than white households. Black homeownership rose 3 percentage points in early 2020, then fell 2.9 percentage points. At the same time, white homeownership grew 2.3 percentage points in early 2020 and then dipped 1.5 percentage points, the Center for American Progress found.
An improvement in homeownership for people of color would not only narrow the homeownership gap among racial groups, but also the racial wealth gap in retirement savings overall — something that could have lasting effects for future retirees and the generations that follow them.
“It’s a generational linkage,” Tongue said. “People can’t pass on that generational wealth. It limits opportunities.”
Medical debt
Medical debt is a deterrent to retirement security, as is lack of quality healthcare and insurance, which could cause the medical debt in the first place. Families with damaged credit or less money to spend on medical services and prescriptions may forgo necessary medical attention, potentially diminishing their current or future health. “It is a vicious cycle,” said Signe-Mary McKernan, vice president for labor, human services and population at the Urban Institute.
Medical debt, issues with paying for healthcare and medical debt collections all declined during the pandemic, according to the Urban Institute, but the inequities among races persisted. Among all racial and ethnic groups, Black adults reported the highest rate of medical debt in April 2021, followed by Hispanic adults and then white adults. Black Americans also reported the highest rate of medical debt in collections, followed by majority-American Indian individuals, Hispanic adults and then white adults.
The reality of medical debt is multilayered, said Berneta Haynes, an attorney with the National Consumer Law Center. Those who have defaulted on their loans or unable to pay their credit cards have the constant stress of debt collectors contacting them, or they may see their wages garnished and a lien placed on their homes. Some individuals may be pushed into risky alternatives, such as using a payday loan. “Medical debt is special in one particular way — it’s unpredictable. You can’t plan for it,” she said. “It is not necessarily anyone’s fault. You can’t necessarily determine when you’re going to get sick or injured. It’s not like taking out a mortgage or an auto loan.”
The true impact of the pandemic on medical debt is yet to be seen, Haynes said, but there is likely to be some sort of negative effect given expired benefits and COVID-specific legislations, as well as persisting chronic health conditions older Americans are more likely to have.
Americans of all ages were worried about contracting COVID at the height of the pandemic, but some had higher risks of medical issues than others. Older Americans were one such group. People with chronic health issues were another.
Black and Hispanic adults tend to confront more health challenges than some of their counterparts, said Tricia Neuman, executive director of the Kaiser Family Foundation’s Program on Medicare Policy, and a larger share of these Americans on Medicare tend to be in poor health. “The pandemic took a harder hit on older Americans generally, and people of color specifically,” she said.
Financial advice
When attending large national financial planning conferences with thousands of participants, Saundra Davis was usually one of maybe 100 Black women advisers, she said. If those conferences were on the local level, she was often the only one.
As a professor of financial planning at Golden Gate University, she regularly sees the same trend reflected among her students, with fewer people of color in her classrooms. This can eventually trickle down to affect how retirement savers get their financial advice — or if they get it at all, she said.
It comes down to empathy, Davis said. “Judging people’s choices without understanding the nuance of their lives can do harm, and I think that’s the thing that gets overlooked in work like this,” she said. Davis is also the founder and executive director of Sage Financial Solutions, a nonprofit focused on providing financial education to underserved communities.
Having someone to turn to is important — especially in an economic environment where the market is volatile and inflation and interest rates are ticking upward — and prospective clients often need to feel that the professional they’re working with can empathize with why a person may view or use their money the way they do, she said.
Of the 535,000 personal financial advisers in the U.S. in 2021, 7.3% were Black, 7.5% were Asian and 7.7% were Hispanic or Latino, compared to 82.2% who were white, according to the Bureau of Labor Statistics.
Of course, not all clients and financial advisers have to come from the same background to work well together. Davis’s financial planner is a white woman, one of the first professionals who welcomed her into the industry, and they have open conversations about Davis’s money management and styles, she said. “If she says something about changing a behavior for me and it is cultural, I can say that to her and she gets it,” Davis said. “She doesn’t try to change my mind.”
One positive out of the pandemic
To be sure, the pandemic was an unprecedented time in modern life. While the pandemic brought with it many setbacks for retirement savers, it also created circumstances for some Black Americans to create their own wealth through entrepreneurship, said Kiersten Saunders, a personal financial writer and co-author of “Cashing Out: Win the Wealth Game by Walking Away.”
Workers were able to spend more time — many while stuck at home — capitalizing on a passion project, or taking in extra income through freelance and gig work. During the day they could work the jobs that gave them a regular paycheck and health insurance, and at night they could build their own businesses. “That wasn’t an option before the pandemic,” Saunders said.
Business owners suffered because of the pandemic — many shops and restaurants had to shutter their doors or scale back operations — but new businesses also flourished. Black owners of online microbusinesses made up 26% of all new microbusinesses after the start of the pandemic, compared to 15% before March 2020, according to a Brookings Institution report. Comparatively, 60% of microbusinesses were owned by white individuals after the pandemic began, versus 71% prior to it. The boom in Black businesses could be partially attributed to stimulus checks, Andre Perry, a senior fellow at Brookings Metro said during a Brookings virtual event about black businesses last year.
“This was an opportunity for the rising star, the new entrepreneur, to get a foot in the door and really, really prove themselves,” Segun Babalola, president of the St. Louis African Chamber of Commerce, said during the same Brookings event. “This pandemic actually was a blessing in disguise for some businesses.”
-Alessandra Malito
(END) Dow Jones Newswires
02-02-23 0935ET
Copyright (c) 2023 Dow Jones & Company, Inc.
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