Black Wealth Gap a Time for a Serious Rethink of a Financial Paradigm Shift

By: Charles S. Mombo

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Pew’s Black wealth gap shows that a serious and urgent action must be taken to address this problem.

In the wake of the alarming Pew Research Center’s recent publication, “Wealth Gaps Rise to Record Highs Between Whites, Blacks and Hispanics,” and the rapidly closing of black owned bricks and mortars, it is hard time that African-Americans seriously rethink a new financial paradigm shift including among other things – a declaration of a financial empowerment plan in conjunction with fostering a strategic marketing plan for competitive advantage while utilizing E-commerce, the Internet and open source applications with the nucleus of this financial empowerment shift starting with the Republic of Liberia and the selection of a few countries on the continent.

To paraphrase Dr. Norman Vincent Peale, despite slavery, our forefathers were geniuses and philosophical thinkers, whose strengths and talents were exploited in building this country on bounced checks. They were tough mentally and spiritually by putting up a strong resistance to hardship, to obstacles and to suffering. They realized that the purpose of the Creator is to make men, strong men, tall men who have what it takes to stand up to the vicissitudes of human existence, to the harsh facts of life on earth, and not to back away and instead to deal with all of it creatively and forthrightly. The transmission of the inherited characteristics of our forefathers still lives within us.

This is damn serious and the reality is that after reviewing some of the proposed Republican cuts; they can best be described as daggers already targeted and ready to be thrown directly into the hearts of the poor and struggling Blacks in America. A group of masterminds and myself are proposing a Black Wealth Circle. Currently, we are drafting a declaration of a financial empowerment plan; but that’s another topic of discussion.

According to the latest Pew Research Center’s publication:

The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009.

These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009.

The Pew Research Center analysis finds that, in percentage terms, the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.

As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009, the typical Hispanic household had $6,325 in wealth and the typical white household had $113,149.

Moreover, about a third of black (35%) and Hispanic (31%) households had zero or negative net worth in 2009, compared with 15% of white households. In 2005, the comparable shares had been 29% for blacks, 23% for Hispanics and 11% for whites.

These findings are based on the Pew Research Center's analysis of data from the Survey of Income and Program Participation (SIPP), an economic questionnaire distributed periodically to tens of thousands of households by the U.S. Census Bureau. It is considered the most comprehensive source of data about household wealth in the United States by race and ethnicity. The two most recent administrations of SIPP that focused on household wealth were in 2005 and 2009. Data from the 2009 survey were only recently made available to researchers.¹

Plummeting house values were the principal cause of the recent erosion in household wealth among all groups, with Hispanics hit hardest by the meltdown in the housing market.

From 2005 to 2009, the median level of home equity held by Hispanic homeowners declined by half — from $99,983 to $49,145 — while the homeownership rate among Hispanics was also falling, from 51% to 47%. A geographic analysis suggests the reason: A disproportionate share of Hispanics live in California, Florida, Nevada and Arizona, which were in the vanguard of the housing real estate market bubble of the 1990s and early 2000s but that have since been among the states experiencing the steepest declines in housing values.

White and black homeowners also saw the median value of their home equity decline during this period, but not by as much as Hispanics. Among white homeowners, the decline was from $115,364 in 2005 to $95,000 in 2009. Among black homeowners, it was from $76,910 in 2005 to $59,000 in 2009. There was little or no change during this period in the homeownership rate for whites and blacks; it fell from 47% to 46% among blacks and was unchanged at 74% among whites.

Household wealth is the accumulated sum of assets (houses, cars, savings and checking accounts, stocks and mutual funds, retirement accounts, etc.) minus the sum of debt (mortgages, auto loans, credit card debt, etc.). It is different from household income, which measures the annual inflow of wages, interest, profits and other sources of earning. Wealth gaps between whites, blacks and Hispanics have always been much greater than income gaps.

The 2005 to 2009 time frame allows for a before-and-after look at the impact of the Great Recession. However, those dates do not align perfectly with the downturn, which ran from December 2007 to June 2009, according to the National Bureau of Economic Research.

In 2005, both the stock and housing markets were still rising. Thus, had the base year for these measurements of wealth been closer to the top of these markets in 2006 or 2007, the recorded declines are likely to have been even steeper.

Moreover, since the official end of the recession in mid-2009, the housing market in the U.S. has remained in a slump while the stock market has recaptured much of the value it lost from 2007 to 2009. Given that a much higher share of whites than blacks or Hispanics own stocks — as well as mutual funds and 401(k) or individual retirement accounts (IRAs) — the stock market rebound since 2009 is likely to have benefited white households more than minority households.

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About the author:

Charles S. Mombo is originally from Monrovia, Liberia and has called Chicago home for the past 26 years. Prior to the founding of WWCLICK.COM, INC. Charles worked at Böwe Bell & Howell as a Software Quality Engineer for six and the half years. Before joining Böwe Bell & Howell, he worked with Computer Associates, Inc. for seven years as a Technical Support Analyst with the ACF2/MVS mainframe security product line.

Charles has an assorted background in LAMP (Linux, Apache, MySQL and PHP) and Operating Systems including UNIX, Linux, MVS, and Windows. He is an Adjunct Professor teaching Computer Science and Business at Malcolm X and Harold Washington Colleges in Chicago. He holds a Bachelor of Science degree in Computer Science, a Master of Science degree in Management Information Systems (MSMIS) with an E-commerce concentration, and a Master degree in Business Administration (MBA).

He is a social entrepreneur and offers workshops on topics such WordPress, Search Engine Optimization, Strategy Marketing and Branding, Social Media Networking (Social Networking, Social Bookmarking, Flash mob and Back Channeling). For schedule of his upcoming workshops, join at http://www.meetup.com/wwclick. Among his 150 websites is – http://www.chocolatecity.cc.