As last recorded by the US Federal Government, the median wealth for a white family in the United States was 171,000 dollars and the median wealth for a Black family was just 17,000 dollars, a 10x different over 150 years after the end of slavery.
I think first we have to ask ourselves, what is wealth really? Well, wealth is all of your assets, all of the things that you own, minus all of your liabilities. Assets are things like your car, your house, your savings account, your checking account, your investments, if you own other properties, your business.
Well, that gap, that 10x gap, is partially because for many years, decades in fact, Black Americans were left off of that ladder and didn’t really have access to it. Well, why are we talking about this now? Well, in 2020, in the midst of a global pandemic and a looming recession, inequities are really laid bare across nearly every system in the United States: health care, education, criminal justice and finance, and people were moved to take action online, in streets, in meetings at work, in corporate boardrooms.
And I, as a consultant, started having conversations with clients that I thought I would never have. I guess the question that I’d been asking myself is, how do we make sure that in this moment, this results in action and progress that starts to close that wealth gap for Black versus white Americans? So who am I? My name is Kedra Newsom Reeves.
I am a consultant for banking institutions, hedge funds, asset managers. But before any of that, I am a Black American who is the descendant of slaves. And when we talk about the wealth gap, it’s really important to understand the history, so I thought I’d tell a little story about a family, my family, and how policy intersects with wealth.
So we’ll start with my great-great-grandfather. He was a man named Silas Newsom, and Silas was born a slave outside Nashville, Tennessee, on Newsom Station, where he and his family worked on a quarry.
He didn’t own anything. He didn’t own his home. He didn’t own property. He didn’t really even own his own body, his own labor, his children. Any of those things, all of those things, were here to create wealth for someone else.
So we believe that he was a servant during the Civil War for a Confederate general who was actually fighting to keep him enslaved, so he really had no wealth, he had no control over his life. Well, at the end of slavery, there was a policy opportunity.
There was a question: what do we do for the hundreds of years of slavery now that we are ending slavery and the country is coming together? And there was a choice. We could make a settlement with the slaves, or we could make a settlement with the slave owners.
Well, the slaves had no power to advocate for themselves in that moment, and the country had to be united, so the federal government decided to give that settlement to slave owners, essentially giving them money for the property that they had lost at the end of the war.
And not their physical property, not their homes, but people, the slaves that had provided free labor for years and decades. So Silas, at the end of the Civil War, had no wealth. He was free but had no wealth.
He became a sharecropper. My great-grandfather Silas was born a number of years after the end of slavery, and he was drafted to serve in World War I along with 350,000 other Black American soldiers in segregated units.
He served in the war. When he came back to the United States, at the end of the war, there was very anti-Black sentiment. The economy was compressing, there were a lot of stressors, and Black people could not get land, they could not get loans for homes, they really could not acquire any credit to build wealth over time, so he also became a farmer.
And he had a son, also named Silas — there are a lot of Silases in my family — my grandfather. My grandfather Silas was also a soldier and fought in World War II. After World War II, the US Federal Government passed the GI Bill, which provided support for veterans.
And the bill provided for building of hospitals, student loans and, most importantly for wealth-building, low-interest home mortgages for veterans. In the years following the war, the GI Bill accounted for four billion dollars of funding to nine million veterans.
But Black veterans largely did not benefit. So Silas, my grandfather, came back to Nashville, Tennessee, and he married my grandmother, whose name is Cinderella. Yes, my grandmother’s name was Cinderella.
And they had eight children. But they never bought a home. And the highlight of their housing journey was moving into a new public housing project with their children and paying rent for that housing project, which in terms of the quality of housing was fantastic for them and a step up, but did not allow them to build wealth.
My father, another soldier, a 20-year veteran of the United States Marines, bought his first home in his early 50s, but it took four generations for our family to move into homeownership and begin to build ownership and equity in a home.
That’s one family’s story, and I skipped a lot of things that happened between the end of slavery and today: redlining, housing discrimination before the Fair Housing Act in the 1970s, the really important role that Black-owned banks played in building Black communities, the Savings and Loan Crisis of the 1980s, which crushed a lot of Black banks, and the subprime crisis in 2008, which stripped a lot of Black and brown homeowners of their homes.
There’s a lot of history there, but that story tells you a bit about how we get to this 10x gap where we are today. Now, certainly, as we think about the size of that gap, it is critical for the Federal Government to take a number of actions.
That said, financial institutions play a really important role in providing access to credit, access to capital, to build communities and allow Black communities to thrive. We have to be clear; managing 17,000 dollars better does not get us there.
Better education does not get us there. Access to credit and capital are critical. So I want to talk about four solutions today that financial institutions can contribute to start to close the wealth gap.
Number one is getting more people on the ladder, getting more people banked. We know today that about half of Black Americans are un- or underbanked. Unbanked means that you don’t have a banking account.
Underbanked means that you have a bank account but you use alternative services for check-cashing or payday lending or paying bills. And that’s not just expensive from a transaction perspective in terms of the fees that you pay, it’s also expensive in terms of the time that you commit to paying a bill.
Think about how you pay your utility bill today. It probably comes out of your checking account. You don’t even think about it. You set it up in advance, and it’s automatic. Well, if you’re unbanked, you are probably going to get a money order somewhere, physically, a piece of paper.
You then travel to City Hall or your DMV to pay that bill. About 40 percent of people who are unbanked say they are unbanked because they think they don’t have the minimum amount to really maintain a checking account.
Well, that’s just not true. In the last several years, credit unions, community banks and major banking institutions have created low-cost, no-minimum checking and savings account products specifically made for this population.
So we have an issue with awareness. Banks, community partners and others have to work together to increase the awareness of these products in communities that need them, so that we can start to reduce the number of people who are un- and underbanked and get them on the ladder that we talked about earlier.
The challenge is about 28 percent of Black and Latinx families are credit-invisible, which means that you have a thin credit file or no credit file. And the way that credit works and creditworthiness assessments work is to say, if you can prove that you have paid credit back consistently previously, then I can lend you more credit.
It’s kind of a chicken or an egg situation. The interesting thing is that banks and financial technology companies have really innovated in recent years to use alternative data — cable bills, utility bills, rent payments, etc. — to show that you’re able to consistently make payments. The additional challenge on this one, unlike the last one, which was more about awareness, is that you need to have regulatory support to do these things.
You need to prove to regulators that you are able to fairly use alternative data to lend credit to marginalized groups. What we need to see is, from the Federal Government and the banking industry, to come together to create innovation sandboxes to start to use alternative data to expand to marginalized groups.
Well, what about communities? Without community wealth, individual wealth, in a way, is on an island. And if you go into most major cities in the United States to most communities of color, what you’ll find is underinvested communities.
For every economic crisis, these communities have suffered severely. For every economic boom, they have not benefited. And so what we’re seeing in a number of cities across the country, and I’ll use Chicago as an example, is the partnerships occurring between banking institutions, philanthropists, the city and community leaders to invest hundreds of millions of dollars to build community resources and communities that have historically been disinvested.
Lastly, we’ve got to talk about business, and not just small businesses. Now, when you have individual stability and a banking institution, and you have access to credit, and when you have community wealth, those are all fantastic things, but we need also job creation.
Take all of the new tech companies, and I say “new” because now they’re not so new, but take Facebook, Google, Amazon. At some point, all of those companies were sole proprietorships with one employee or a few employees that were building a technology that was not yet proven.
What those companies received early on was venture capital money. And when you look at venture capital today, only one percent of venture capital funds go to Black founders. So if Black entrepreneurs are largely shut out of those networks they’re not able to grow, and the only way for that to change is from within the industry itself.
In this generation, we must not only be talking about thriving businesses in Black communities. We must also be talking about seeing more Black-owned and founded businesses going public. Those are just four solutions.
There’s many other things that can and should be done to close the wealth gap. This gap is not new. It was born and perpetuated by federal policy, social constructs and business practice over time, and all of those things need to change to start to close the gap.
Financial institutions play a really critical role at the individual level, at the community level and at the business level. It’s important to our families, it’s important to our communities and it’s important to our economy.
Instead of talking about how the gap continues to grow, let’s begin to close the gap now.