The ROI of Being African American

 

moneyThere have been a lot of statistics thrown around this past week about race, violence, crime, and families.  But this one, from The Guardian, brought me up short:

One study shows that while a white family turns every $1 of income into $5 of wealth, for the typical African American family that $1 translates into a mere 69 cents of wealth

We know how progressive liberals interpret this.  Just read The Guardian article — it’s all about the “inequality” and “racist status quo” of American society.  

But as long as the average white family is building economic wealth (by saving, owning a home, and investing in education and the future) while the average African American family is not, the question is, why not?  And the secondary question is, if we go back fifty years — or even sixty, to a time before the Civil Rights Act of 1964, when a young black boy like Emmett Till could be brutally murdered by a bunch of white thugs in Money, Mississippi with impunity — would that statistic be as bleak, as hopeless?

I don’t know.  I imagine it would be hard to calculate, retroactively, what the return-on-investmtent was on one dollar of African American wealth in 1954.  Maybe it would be higher.  Maybe the same.  Maybe even a little bit less.

But it still suggests that the problems in the African American community — in the African American family — have less and less to do with racism.  It’s hard to argue that America is more racist now than it was in 1954.  It’s hard to argue that America is more racist now than 1984.  So if the economic opportunity and ROI available to the average African American is less than or equal to what it was decades ago, doesn’t that suggest that the programs, and laws, and set-asides, and bureaus, and systems, and administrations we’ve implemented — in good faith, with the best of intentions — have utterly and completely failed?

Just looking at the numbers, just going on ROI, maybe it’s time to try something else.

Image Credit: Flickr user 401(k) 2012.

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  1. user_340536 Member
    user_340536
    @ShaneMcGuire

    I have no clue whether this is relevant, but a couple observations:

    1. I suspect a disproportionate number of African Americans are recipients of welfare, SS disability, or other like gov’t programs. (that’s not a criticism, just a guess about the stats given the poverty rates, etc.)

    2. Welfare programs discourage saving because: (a) you’re not given enough to save, and (b) you don’t need to save because you’re assured another check next month.

    3. If someone were to try to save up enough money to assure him a check of, for example, a thousand dollars a month, you’d have to save over $200,000 to ensure that return.

    4. So what happens to the “wealth” figures if we take into account the right to be paid a certain sum, with COLA, until death? I’m not sure, but I bet it changes the figures.

    • #1
  2. user_529671 Member
    user_529671
    @

    It’s a relevant stat to implore black families to make better choices, but that’s as far as it goes I’m afraid. I suspect the average low income white is doing much worse than average as well.

    • #2
  3. liberal jim Inactive
    liberal jim
    @liberaljim

    Shane McGuire:

    I have no clue whether this is relevant, but a couple observations:

    1. I suspect a disproportionate number of African Americans are recipients of welfare, SS disability, or other like gov’t programs. (that’s not a criticism, just a guess about the stats given the poverty rates, etc.)

    2. Welfare programs discourage saving because: (a) you’re not given enough to save, and (b) you don’t need to save because you’re assured another check next month.

    3. If someone were to try to save up enough money to assure him a check of, for example, a thousand dollars a month, you’d have to save over $200,000 to ensure that return.

    4. So what happens to the “wealth” figures if we take into account the right to be paid a certain sum, with COLA, until death? I’m not sure, but I bet it changes the figures.

     You might want to consider that anyone who saves more than $2000 loses their eligibility  for many welfare programs.

    • #3
  4. PsychLynne Inactive
    PsychLynne
    @PsychLynne

    Thomas Sowell discusses this (or something close to it) in one his books, either Race and Culture or Black Rednecks and White Liberals.  I believe it’s in the context of housing loans and savings patterns – but the discussion focuses more on cultural differences than ROI (when applying for mortgages, white families with a similar income to a black family will have a higher amount of assets).  I’m not sure he looks at the “why.”  

    In my experience (which over-represents educated, middle to upper class black colleagues and friends), I see a couple of common choices:  less savings, comfort with high credit card debt, more frequent purchases of expensive cars, and a willingness to make unwise or less successful business decisions if it support a needy or troubled family member.  Given that the formula is assets minus debt, these type of decisions hurt both sides of the equation.  However, after looking at the original article and research, the high rate of unemployment seems like a  significant contributor that can’t be discounted.  

    • #4
  5. PsychLynne Inactive
    PsychLynne
    @PsychLynne

    I just had another thought (don’t all the good ones come after hitting Post?)

    Perhaps the same values and attitudes that foster decisions such as helping a family member in need to the detriment of one’s business or education and decrease ROI, lie behind the black communities high support of President Obama.  They’ve shown consistently high support of the president in spite of the terrible economics and higher unemployment the black community  experienced in the recession.

    • #5
  6. Mario the Gator Inactive
    Mario the Gator
    @Pelayo

    I wonder if too often, the only role models inner-city youth have are adults living off of Government welfare and criminals.  They are not surrounded by positive examples of success through education and work.  In fact, I have spoken with people who did manage to climb out of those circumstances and they tell me that sometimes people in the old neighborhood actually discount their achievements rather than celebrate them.  Why are Clarence Thomas and Dr. Ben Carson ostracized?  I don’t think there is any way African Americans (in general) will ever break the cycle of poverty unless they look at their culture and values.  They should emphasize the importance of education, two-parent families and financial discipline.  Those things seem to be working well for other minorities such as Asians and Hispanics.

    • #6
  7. genferei Member
    genferei
    @genferei

    The study referred to is here (pdf). Surprise! The number doesn’t mean what the Grauniad thinks it means.

    Indeed, it is hard to make any sense of what it might mean. Essentially, if I understand well from my quick skim, in a 25 year longitudinal study of households, a white household with one dollar of additional income in year one had $5.19 of additional wealth increase over the 25 years, and a black household only $0.91. (Of course, all this is done with regression estimates at the median household income, etc. etc.) The paper itself comments that:

    we already know that the average white family starts out with abundantly more wealth and significantly higher incomes than the average black family. When whites and blacks start off on an equal playing field with a similar wealth portfolio, their wealth returns from similar income gains narrow considerably. Black families under this scenario see a return of $4.03 for each dollar increase in income – a considerable closing of the wealth breach.

    (Yes, all this ‘wealth breach’ stuff runs through the whole, contentious, study.)

    • #7
  8. mwupton@gmail.com Inactive
    mwupton@gmail.com
    @MattUpton

    I’d like to see the study normalized to compare similar income black and white households. There was a lot of mixing of economic and social causes in the original study. When talking about home ownership as one of the prime causes, it asserted that blacks have a harder time obtaining loans because of “discrimination factors.” There is a little question begging here, but also a failure to say this is discrimination because of race, or discrimination because of income.

    I get the impression from the final section of the study that the authors doesn’t care about the distinction. This is relevant in a study that focuses on wealth disparity looked at solely through the lens of race, especially when it proposes solutions to problems it doesn’t fully articulate. (Spoiler: proposed solutions include greater enforcement of lending non-discrimination policies, raising the minimum wage, higher inheritance tax, and more public education spending).

    • #8
  9. genferei Member
    genferei
    @genferei

    The study (see #7 above) highlights the “widening racial wealth gap” by using absolute numbers. But using  their own figures, the median net worth of an African-American household in 1984 was 6.36% of the median net worth of a white household. By 2009 this had almost doubled to 10.75%.

    Since the problems identified by the study seem to stem from government schools, government welfare policies and government housing projects, it takes a special advanced education to conclude that the remedy is more government.

    • #9
  10. thelonious Member
    thelonious
    @thelonious

    I would assume inherited wealth has something to do with this as well.  Whites have a much longer history or collecting wealth and assets and passing them down to future generations.  I would assume much of this wealth is used to buy homes or make personal investments.  In my modest case this is what happened to me and the rest of my siblings when we received inheritance from my grandparents.

    • #10
  11. liberal jim Inactive
    liberal jim
    @liberaljim

    I would guess the study is a bunch of bull.    That aside, “in good faith, best intentioned” – another big government type spreading the bull.  Pls. explain to me the education systems in most large cities.   They have been controlled by liberal Democrats for decades and are a major  reason countless  poor kids have been devastated.  All this time the Dems have fought and defeated any meaningful reform.  I am sure they have done this “in good faith with the best of intentions”,  only being concerned with the best interested of the kids.  Maintaining power and lining their friends pockets has nothing to do with it.  Most of social welfare programs were instituted because politicians thought doing so would cast them in a favorable light.  I am not saying they were aware of the total amount of damage they were doing, but that is a far cry from “in good faith and well intentioned.”  When LBJ began this farce most ordinary people knew it would cause more harm than good.  Most politicians went along because they believed it would make it look like they were concerned and compassionate.  BG types have been spreading the, “good faith best of intentions ” myth since.

    • #11
  12. virgil15marlow@yahoo.com Member
    virgil15marlow@yahoo.com
    @Manny

    $1 of income becomes $5 wealth?  How do they figure that? 

    Anyway the difference I suspect is in family unity versus dysfuntionality.

    • #12
  13. user_75648 Thatcher
    user_75648
    @JohnHendrix

    Somebody needs to calculate a person’s average ROI with respect to the kind of family they grew up in. Proposed family categories:

      1. grew up in a single, stable nuclear family (Married)
      2. grew up in a nuclear family that was broken by divorce and reconstituted into another  nuclear family via remarriage
      3. grew up in a nuclear family that was broken by divorce when the child was age five and never reconstituted via remarriage
      4. grew up in a “female-headed household “
      5. and so on

      Since all positive social outcomes are is associated with growing up in a stable nuclear family I expect that the max average family ROI is tightly coupled with item 1.  Put another way, the effect of growing up in a nuclear will completely swamp the effect of not being white. 

      • #13
    1. genferei Member
      genferei
      @genferei

      John Hendrix:

      Somebody needs to calculate …

      That person could be you! Follow the link to the Brandeis report in my or  Thess’ comment and thence to the original panel data…

      • #14
    2. MarciN Member
      MarciN
      @MarciN

      Any statistics cited in a left-wing British publication article that starts off with this subhead are highly suspect:

      “African Americans, in Ferguson and across the country, face pervasive inequality and its consequences in a country that would prefer to think itself past its sins”

      • #15
    3. user_82762 Inactive
      user_82762
      @JamesGawron

      Rob,

      With all due respect, until the American news media and American intelligentsia start dealing with reality again, there is no hope whatsoever that anything can be done for the African American community.

      Today’s news and every day’s news.

      9-year-old fatally shot after running off because he couldn’t have a cupcake, mom says

      Breitbart covered this.

      Would you like to bet on the rest of the MSM covering this story.  Unless this changes how can we possibly help.  The propaganda leads everyone to chase the wrong solution for non-existent problems while the real nightmares go unnoticed.

      Regards,

      Jim

      • #16
    4. Goldgeller Member
      Goldgeller
      @Goldgeller

      Poster Shane McGuire made some good points. I think welfare is a big part of it– given that going off welfare is basically a major tax increase and stifles work.

      Also, Kevin Williamson at NRO has suggested multiple times that the black community is simply risk averse– they don’t prefer to make some of the risky business investments that whites and others make. This makes sense to me– if you are taught to believe that “the system” is rigged against you, why invest your money in it? 

      The other thing is also that the black community is younger than the white community by about a decade. That’s the difference between highschool and a few years into working after you have say your master’s degree. 

      • #17
    5. user_358258 Member
      user_358258
      @RandyWebster

      Manny:

      $1 of income becomes $5 wealth? How do they figure that?

      I can’t even figure out what it means.

      • #18
    6. MarciN Member
      MarciN
      @MarciN

      Randy Webster:

      Manny:

      $1 of income becomes $5 wealth? How do they figure that?

      I can’t even figure out what it means.

       That was my reaction too.  

      • #19
    7. Johnny Dubya Inactive
      Johnny Dubya
      @JohnnyDubya

      MarciN:

      Randy Webster:

      Manny:

      $1 of income becomes $5 wealth? How do they figure that?

      I can’t even figure out what it means.

      That was my reaction too.

       I haven’t read the article or the study, but the most logical interpretation is that one takes $1 of income and invests it for 25 years at an average rate of return of approximately 6.8%.  Presto: $5!

      • #20
    8. Johnny Dubya Inactive
      Johnny Dubya
      @JohnnyDubya

      The mysterious racist forces preventing African-American wealth creation apparently failed in the early 20th century when Madam C.J. Walker became the first black millionairess.

      And why do these mysterious forces single out African-Americans?  A racist believes his race is superior to all others, and he is willing to take extraordinary means to subjugate all other races.  A racist society would make these practices widespread.  How is it that there are successful Vietnamese shop owners, Cuban restaurateurs, Indian doctors?

      How is it that Asians are particularly successful, to such an extent that colleges fret about their overrepresentation in student bodies?  (In fact, if there are any mysterious racist forces in our society, one might find an excellent example in the college admissions office.  What could be more racist than the statement, “There are too many ______ succeeding in gaining acceptance to our school, so we have to take measures to limit their numbers.”)

      • #21
    9. mwupton@gmail.com Inactive
      mwupton@gmail.com
      @MattUpton

      John Hendrix: Somebody needs to calculate a person’s average ROI with respect to the kind of family they grew up in.

       The study touched on this, but only whether the household was married or unmarried. They concluded white households increased ROI with marriage, but the average lower-income black households did not see a significant difference to their ROI. They implied this was purely economic–combining two incomes that allow for savings allow for greater savings.

      I found this to be a little bit of a red herring, because it leaves the impression that marriage has no effect on wealth overall with blacks. It was viewed in isolation without addressing multi-generational impact of fatherless upbringings on crime rates, education, income, and inheritance/family support.

      • #22
    10. mwupton@gmail.com Inactive
      mwupton@gmail.com
      @MattUpton

      thelonious: I would assume inherited wealth has something to do with this as well.

      Good assumption. The original study claimed access to an inheritance or simply family financial support for things like down payments accounted for 5% of the wealth gap between blacks and whites. I couldn’t figure out how they weighted the different factors, but inheritance/family support was mentioned throughout the paper. 

      Predictably, part of their proposed solutions to closing the gap was to raise the inheritance tax. They really didn’t like the “unearned advantage” that inheritance provides, claiming that it was both unfair and “diverted resources” from schools, homes, infrastructure, etc.

      So I hope you feel good about your inheritance depriving homeless children of a hot breakfast before school. They can’t even live under a bridge that’s properly maintained.

      • #23
    11. liberal jim Inactive
      liberal jim
      @liberaljim

      Most studies are constructed and conducted to prove a point and are next to meaningless.
      Does the racism of 3,4,5 generations ago have absolutely no effect on this generation?  no
      Does current racism have some minor effect on this generation? Yes
      Is it difficult, if not impossible to say which has the most effect? Yes
      Does big government favor the well connect, rich and influential?  Yes 
      Does big government disadvantage those who are not? Yes
      1. Racism has a negative effect on both whites and blacks.  The effect it has on blacks is more obvious.
      2. Connecting anti-poverty programs with a given race is a mistake.  Unless your objective is to alienate people.
      3. Big government anti-poverty programs had a negative, sometimes devastating effect on the lower socioeconomic  class.  Many were black, many more were white.
      4.  Big government  anti-poverty programs made and continue to make well connected, influential  people rich.  Many white, many black.
      5.   This “misguided well intentioned ” bull is a myth spread mainly by so-call conservatives.

      • #24
    12. user_138562 Moderator
      user_138562
      @RandyWeivoda

      Thess:

      Predictably, part of their proposed solutions to closing the gap was to raise the inheritance tax. They really didn’t like the “unearned advantage” that inheritance provides, claiming that it was both unfair and “diverted resources” from schools, homes, infrastructure, etc.

      So I hope you feel good about your inheritance depriving homeless children of a hot breakfast before school. They can’t even live under a bridge that’s properly maintained.

      Good thinking, comrades.  If parent A lives a thrifty lifestyle and leaves behind some assets for their children and parent B spends all their money while they’re alive, that’s just unfair.  The government should confiscate all property upon death and then everything is fair.  If we can’t fix the B families, we can at least hobble the A families.

      • #25
    13. Petty Boozswha Inactive
      Petty Boozswha
      @PettyBoozswha

      Watch daytime TV shows like Maury Povich or Jerry Springer and you will see The Guardian is mistaken; we’ve made so much “progress” since the Great Society that deleterious lifestyles that used to be associated with minorities are now rampant in the trailer parks and suburbs. I’m sure if this high fallutin economic evaluation was  conducted on nonracial lines, comparing apples to apples – say nuclear families vs professional parasites -as Thess  and John Hendrix recommended above you would see even greater correlation.

      • #26
    14. Stad Coolidge
      Stad
      @Stad

      Rob Long: One study shows that while a white family turns every $1 of income into $5 of wealth, for the typical African American family that $1 translates into a mere 69 cents of wealth.

      My guess is that the typical black family has less disposable income (on average) than the typical white family.  Sure, physical assests like homes gain value, but probably not 5X.  Wealth generation typically requires investments, which can be as a simple as an IRA or 401K.  When I was a poor college student, I had zero money for investing, so I know what it’s like to live month to month, barely scraping by.

      One other thing might be the availability of information on investing.  I work with several black engineers, and they are all smart enough to know about investing, and have money tucked away for retirement, kids’ college, etc.  While the average low-income family (of any color) doesn’t have much left over at the end of the month, even a minimal amount going into a retirement account builds up over 40+ years.  If they don’t know it can be done, they won’t bother setting even a small amount aside . . .

      • #27
    15. Rob Long Editor
      Rob Long
      @RobLong

      Thess:

      thelonious: I would assume inherited wealth has something to do with this as well.

      Good assumption. The original study claimed access to an inheritance or simply family financial support for things like down payments accounted for 5% of the wealth gap between blacks and whites. I couldn’t figure out how they weighted the different factors, but inheritance/family support was mentioned throughout the paper.

      Predictably, part of their proposed solutions to closing the gap was to raise the inheritance tax. They really didn’t like the “unearned advantage” that inheritance provides, claiming that it was both unfair and “diverted resources” from schools, homes, infrastructure, etc.

      So I hope you feel good about your inheritance depriving homeless children of a hot breakfast before school. They can’t even live under a bridge that’s properly maintained.

       There’s probably also something to the experience shared by a lot of immigrant groups, where collections of families “pool” their resources and create lending clubs, making small loans to each other — and policing the payback schedule — to start businesses.  We see that in the Asian and South Asian communities.  Why not elsewhere?

      • #28
    16. virgil15marlow@yahoo.com Member
      virgil15marlow@yahoo.com
      @Manny

      Johnny Dubya:

      MarciN:

      Randy Webster:

      Manny:

      $1 of income becomes $5 wealth? How do they figure that?

      I can’t even figure out what it means.

      That was my reaction too.

      I haven’t read the article or the study, but the most logical interpretation is that one takes $1 of income and invests it for 25 years at an average rate of return of approximately 6.8%. Presto: $5!

       Not all my income is invested.  Most of it is spent or taken in taxes.  If I now had $5 for every $1 of income I would be very wealthy.

      • #29
    17. Howellis Inactive
      Howellis
      @ManWiththeAxe

      The study doesn’t make much sense to me, but we don’t need studies to determine, just by looking, that on average, black families don’t have nearly as much wealth as white ones. 

      But that doesn’t bother me. What concerns me is whether the conditions exist for a black family to obtain as much wealth as the average white family, if they engage in the same behaviors. 

      I believe that these conditions do exist. As so many commentators have written in recent years: 

      • finish school
      • get a job
      • get married
      • only then have children
      • stay out of jail

      Do those things, and save some money, and a black family should do as well as a similarly competent white family. 

      I don’t think inherited wealth has that much to do with it. Although this is anecdotal, virtually everyone I knew growing up inherited nothing except middle-class values and work ethic, and they are all reasonably successful today as they head to retirement. Those few who adopted grasshopper (as opposed to ant) values are struggling or dead.

      • #30

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