Helping Black Americans build generational wealth

Black Americans comprise the population segment in the U.S. most impacted by the financial challenges created by the COVID-19 pandemic: facing problems with job loss, competing financial priorities and debt.

According to Lincoln Financial Group’s 2021 Retirement Power Study, 93% of Black Americans reported having two or more competing financial priorities, one of which is repaying debt. And that is a particular challenge for those families facing job loss, which was prevalent during the pandemic. In fact, in a Pew Research survey 33% of Black Americans said they or someone in their family had been laid off or lost their job as a result of the pandemic. When there is a layoff, a financial priority such as repaying debt tends to take a back seat. This is an issue, especially for Black Americans, as research shows they are more likely than the general public (85% versus 73%) to view debt as a problem.

Despite their competing financial priorities, Black Americans are the most focused of any demographic on setting financial goals, which is a key first step toward financial security and building generational wealth. As Black Americans look toward these goals, they are setting a budget for expenses and putting an emphasis on goal setting in their top two areas of concern: debt repayment and retirement savings.

Financial professionals work with thousands of Americans every year who are interested in making their finances a priority and building generational wealth. And of all those individuals, no two clients are the same. They are in all demographics, they come from different backgrounds and frequently they have different financial goals.

Before any meeting with a new client, financial professionals should consider some key questions. What does their financial education look like? What are their goals? Is this an opportunity to educate the client? Is their current income sufficient to achieve their goals over time? And depending on their employment, what do their financial workplace benefits look like?

This is the first step in any financial planning conversation and, quite frankly, one of the most important. If a client has low financial literacy, this typically makes decision-making more difficult. If they have a low income, this typically makes wealth accumulation harder.

As individuals take steps to focus on improving their finances, it’s important for advisors to consider a holistic approach, which involves creating a financial plan designed to create financial security for clients and their families. The plan could include prioritizing contributions to retirement accounts or buying a life insurance policy to protect loved ones. Life insurance, long-term care and supplemental income in retirement years are often priorities for Black Americans looking to build wealth.

Clients looking to better secure their financial futures should start with three things.

1. Create a budget. They should review their current income and expenses, while seeking ways to reduce discretionary spending on items like dining, traveling, clothing and entertainment. Suggest they create a simple budget so they can prioritize increased savings and retirement contributions to strengthen their financial future. They can take advantage of any online budgeting tools and worksheets to help.

2. Lower interest rates. Part of a holistic financial plan is to identify ways to reduce interest rates on vehicle loans, home mortgages and credit cards. This can have a direct impact on clients’ ability to contribute more toward their long-term financial security.

3. Make a plan. Financial planning revolves around your client and their family’s financial philosophy and vision. As part of the process, you as a financial professional can help identify clients’ needs and objectives as well as evaluate clients’ current situation. For example, seeking additional income sources might be one recommendation to help strengthen finances. Trusted advice can help inform financial decisions and create a legacy for the future.

Although these tips seem simple, using them isn’t always easy. There is low representation of Black Americans in the financial planning profession, and that limited representation creates “advice deserts.”

This is a challenge because advice correlates with positive financial outcomes, retirement confidence and formal financial plans for retirement. According to Employee Benefits Research Institute & Greenwald Research’s 2021 Retirement Confidence Survey, only 17% of retired Black Americans use financial advisors — a lower percentage than that of retired white and Hispanic Americans.

Additionally, only 47% of Black Americans trust financial advisors, compared to 57% of all U.S. adults who say they trust them. Improving financial wellness program content to ensure that it is culturally relevant and speaks to the motivations and unique needs of Black Americans is an important first step to rebuilding and establishing that trust.

It is also important to consider the current economic landscape. Market volatility and inflation are consistently in the news. As clients save and invest in this volatile environment, they should remember that these fluctuations are not unusual and it’s important to stay invested during periods of uncertainty. By staying in the markets for the long term, portfolios have greater growth potential to outpace inflation and keep financial goals on course.

Clients should also establish a systematic savings account for emergencies and unexpected events, setting aside at least six months’ of expenses to have a financial cushion in the event of a situation like job loss.

If there is one silver lining of the pandemic, it is that Black Americans are more focused on their overall finances. This shift will help create more positive long-term financial opportunities for the Black community to build generational wealth