When it comes to racial inequity, a recent report from the Brookings Institution highlights some good news along with a concerning trend: Black wealth is increasing, but so is the racial wealth gap.
The report analyzed data from the Federal Reserve’s October 2023 Survey for Consumer Finances , a comprehensive survey on household wealth in the U.S. that is updated every three years. Household wealth measures the total value of assets a family owns (such as housing and business equity) minus their debts (such as student loans and credit card bills). Let’s take a closer look at the numbers.
Between 2019 and 2022, total wealth increased for all racial and ethnic groups, including Blacks. Median Black wealth increased from $27,970 to $44,890 but continued to lag behind other racial groups. In 2022, median wealth was approximately $62,000 for non-white Latino or Hispanic households and $285,000 for white households.
This means that in 2022, for every $100 in wealth held by white households, Black households held only $15.
Even more concerning: The nation’s racial wealth gap increased between 2019 and 2022. During that time, median wealth increased by $51,800, but the racial wealth gap increased by $49,950, resulting in a total difference of $240,120 in wealth between the median white household and the median Black household.
This gap has existed for a long time. Since 2010, the wealth disparity between Black and white families has continually expanded, the Brookings Institution notes, peaking in 2022. The divide largely stems from decades of systemic biases and structural barriers that have adversely impacted Blacks. Racial inequality in the housing, investment, debt, and credit markets has disadvantaged Black Americans’ ability to build, maintain, and pass on wealth. This has held true even as a healthy job market and rising home values have helped to boost Black wealth in recent years.
What Employers Can Do
While there is no magic bullet to end the racial wealth disparity, employers can use financial wellness programs to effectively narrow the gap. Offering the right tools and perks can give Black employees the opportunity to get a foothold in the housing market, accumulate savings, reduce their student debt, and build wealth over time.
Here’s a look at four programs that can help make your employees of color (along with all your employees) more financially resilient.
Promote Black Home Ownership
Owning versus renting a home contributes to wealth creation, but decades of discrimination in housing and credit markets have limited Black families’ access to homeownership. Only 44% of Black individuals own a home, according to the Brookings report, compared to nearly 73% of white individuals.
Offering benefits that promote employee home ownership can help bridge this gap and contribute to Black employee’s overall financial well-being.
Many employers are offering direct down payment assistance, such as paying a percentage of an employee’s down payment up to a maximum, or offering a loan that may be forgiven over a period of employment. This type of benefit is ever more appreciated in today’s inflated housing market, where mortgage rate hikes and limited inventory have caused down payment costs to swell.
Another way to help first-time Black home buyers is to offer counseling on accessing government-sponsored grants and low-interest loans designed to help first-time buyers cover down payments and closing costs. You might consider teaming up with local mortgage experts, financial counselors, and real estate pros (ideally from the Black community). They may offer free seminars and reduced fees and commissions for their services in return for a large pool of potential clients.
Provide Emergency Savings Support
On balance, Black households have a fraction of the wealth of white households, leaving them in a much more precarious financial situation when a crisis strikes. Wealth allows households to weather a financial emergency such as a loss of income or a family member’s illness.
A growing number of employers now offer ways to help employees bolster their backup savings so they’re able to meet unexpected expenses without racking up high-interest debt. This can provide all employees, and especially workers of color, increased financial stability and a foundation from which they can build long-term wealth. Having an emergency savings account can help employees feel more comfortable saving for retirement since they have funds set aside in case of emergency.
To encourage employees to prioritize emergency savings, consider offering an automated emergency savings program that allows them to make paycheck contributions to a dedicated account — possibly with a company match. You may also want to explore the new workplace emergency savings program linked to retirement accounts called PLESA (pension-linked emergency savings accounts) that went into effect on January 1 as part of the SECURE 2.0 Act.
PLESAs are designed to help employees increase their emergency savings while simultaneously saving for retirement. How it works: Employers can now offer non-highly compensated employees an option to link their retirement plan to an emergency savings account. Employees may make Roth (after-tax) contributions until the account maxes out at $2,500 (or a lesser limit established by the employer). After that, additional contributions can be directed to the employee’s defined contribution plan or put on hold until the balance falls below the limit, at which point the employee can start contributing again.
Balances in an emergency savings account are eligible for distribution at least once per month and the first four distributions in a year must be free from any distribution fees.
Help Close the Investment Gap
Investing in the financial markets, and especially the stock market, has historically been a major way to build wealth, and many Americans today invest this way through defined contribution retirement savings plans such as 401(k)s. However, stock equity was the area with the largest disparity in wealth growth among races, according to the Brookings report. Indeed, stock equity makes up nearly 30% of white wealth but only 4% of Black wealth.
Targeted and effective financial planning and investing counseling can help Black employees more easily access the equity markets. To incentivize Black (as well as all) employees to start investing sooner rather than later, consider offering a 401(k) match — that free money can prompt workers to enroll and boost their contributions. You might also use a default opt-out feature, which automatically enrolls workers in your retirement plan unless they choose not to participate by actively opting out. Additionally, think about offering retirement benefits to more employees (including new and part-time employees). Not imposing a lengthy qualifying work period encourages more workers to save for retirement and consider their financial futures.
Recommended: How to Support Your Low-Wage Workforce
Offer Student Loan Repayment Benefits
A college degree can be critically important to building a financially successful career, but student loan debt can delay the lifelong process of building wealth just as people are starting out in their careers. This is particularly true for Black college graduates, who owe an average of $25,000 more in student loan debt than white college graduates. Indeed, four years after graduation, black students owe an average of 188% more on their student loans than white students.
Racial disparities in student loan debt are a big part of the Black-white wealth gap. The student debt burden impedes the ability of Black graduates to build wealth in the same way as their white counterparts.
Employer-sponsored student loan repayment benefits can help bridge this gap, especially when they are targeted to employees who need them most. Two important benefits to consider:
• Student Loan Repayment Assistance Under the CARES Act, employers can now contribute $5,250 annually per employee toward tuition reimbursement or student loan payments on a tax-exempt basis through 2025. Employers can make the payments directly to their employees’ student loan servicers or lenders, or they can provide them to the employees themselves, who can then put them toward their student debt.
• Matching 401(k) Loan Payment Contributions Starting in 2024, the Secure Act 2.0 formally authorizes matching contributions for student loan repayment. This allows companies to match employees’ qualified student loan payments with contributions to their qualified retirement accounts. Employees can pay down student debt while still participating in retirement savings, including 401(k)s, 403(b)s, SIMPLE IRAs, and government 457(b) plans. This program can be a particular boon for Black employees, allowing them to pay down student debt while still participating in retirement savings, hopefully starting at an early age.
Employers can do their share to help bridge the racial wealth gap by offering the benefits and services that help Black employees in becoming investors as well as homeowners and reduce their student debt. This makes employers part of the solution to one of our nation’s most pressing and persistent challenges. SoFi at Work can help. We provide the benefit platforms and education resources that can enhance financial wellness throughout your workforce.
Photo credit: iStock/kate_sept2004
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