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- 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.
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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 the issue; there has to be enough money to save.
It is ideal to save at least 20% of your income, but for those of us whose incomes barely meet our needs, that’s not possible. For that reason, the goal needs to be altered to make it more attainable.
With a low income, it is most important to develop the habit of saving money. The amount is not as important until there is enough money to meet all needs. More manageable, habit-focused savings goals might be:
- Setting aside a specific amount of money from every paycheck. The amount could be $5. Every pay period, $5 should go into a separate bank account.
- Saving the coins received as change from transactions. It could be $0.67 change for $2 to make a $1.33 purchase. At the end of each day, put the coins in a jar and set a time to roll them or take them to a coin machine. When exchanged for bills, deposit to a savings account.
- Turning unexpected savings into real savings. If you always buy an item that costs $10 and it is on sale for $8, put the remaining $2 in your savings account.
2. Paying off debt requires strategy
Many Black people have debt because it has been necessary for survival. Loans and credit cards are often the only way to stay afloat in the short-term when income is not enough to cover expenses. These products cost money, however, and it can take years to pay them off.
It is important to be strategic in paying off loans and credit cards, recognizing that less debt translates to higher savings. If you have multiple debts to pay off, use this method, as outlined by The Budgetnista:
- Make the minimum payment on all of your debts except for the one with the smallest balance. Let’s say it’s a $1,000 credit card bill.
- On the smallest debt, pay the minimum payment and then some. Decide on an amount that you can consistently pay, even if it is $10.
- Whenever you are able to increase your payment on the smallest debt, do it. You can use an excess of tips, birthday money, money found in a pants pocket, or any other unexpected money that doesn’t go into your savings.
- Continue paying your debts in this manner until your smallest debt — the $1,000 credit card bill — is completely paid off.
- Add the payment amount you were making on your smallest debt — the $1,000 credit card bill — to the minimum payment you were making on your second-smallest debt (which is your new smallest debt), increasing the payment made.
- Whenever you are able to pay a bit more on this debt, do it.
- Continue paying your debts in this manner until you pay off the next-smallest debt.
- Repeat this process.
3. There’s no getting around the need to make more money
At some point, income needs to be increased. A higher income results in a reduced need to borrow and increased ability to pay off existing debt and save money.
The job hunt is tough, and the decision-making is out of our hands, but we can find ways to make money on our own terms. Whether you clean out your closet and have a yard sale or sell homemade cookies, every little bit counts.
As you think about ways to increase your income, here are a few things to keep in mind:
- Side hustles require investment. It is OK to ask for help from family members and friends who have the money to help you get started. Remember that you need to remain committed to your savings practice and pay off your debt, so if someone else can give you the $25 you need to get the ingredients for that first batch of cookies, ask for and accept it.
- Every dollar you make from your side hustle is not yours to spend. You will need to reinvest in the business. You have to buy more flour, set money aside for cooking gas, and print labels for your cookie packages.
- Value-added products sell better and at higher markups. You can sell the peppers growing in your backyard, but what if you used them to make pepper sauce? People will pay more for a product you transformed to make their lives easier.
- Standout features excite consumers. Let them know your pepper sauce is made with homegrown peppers. Tell them you got the recipe from your great-grandmother. If it gets better with time, let your customers know.
- Passive income demands more work upfront, but requires less of your time and energy in the long run. Think about what you can create and distribute that would be of value to others. Do you have the best chocolate chip cookie recipe in the world? Did you learn plumbing from your father and have tips for people building new homes? Maybe you taught yourself to make scarves with built-in face masks. You can create PDFs, videos, or podcasts and make them available for immediate download. Create the resource, make it available online, set the price, and promote it.
There is only so much we can do when we are experiencing poverty, so we have to make every little bit count. Don’t let expert advice get you down, and know that your circumstances are not often reflected in the advice being shared.
Poverty is a systemic issue that needs to be addressed beyond the individual level. Your financial struggle is not your fault, so get rid of the idea that you did something wrong or you are stuck forever. Make small changes, be consistent, and celebrate even the smallest financial successes. Call for systemic change and wealth redistribution, but let’s keep building and sharing our systems and practices, too.