Closing the Racial Wealth Gap

A smart approach to finances can narrow the economic disparities between black and white women.

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The disparities are vast, and the center outlines a variety of reasons for these circumstances. Women of color are disproportionately saddled with the burdens of child rearing and extended family care. In addition, they lack access to what researchers term "the wealth escalator," the combination of fringe benefits (like paid time off and employer fund matching to 401K plans), tax breaks and government benefit programs that reward those already in the process of creating an upper-middle-class life. With all the issues stemming from unpaid sick days, jobs that do not offer health insurance and reduced pension benefits, the shifting nature of how we do business has become a disastrous premise for black women who are scrambling to regain lost ground.

The Insight Center points to a variety of policy-based solutions that can be used to correct these financial injustices. After revealing that "as in 1896, job training, wage equity and quality, affordable child care are still needed to increase employment opportunities for women of color," the report recommends a four-pronged plan involving lawmakers. Women of color need to be included in jobs-outreach programs, particularly in growing industries like transportation and green jobs.

The center stresses that jobs created with federal funds should make an effort to include perks like flexible hours, paid sick days and family leave to increase the likelihood that black women will participate in these industries. They also recommend supporting the pro-labor Employee Free Choice Act, noting that "unionization is a proven strategy for improving wages and benefits for women and people of color." Universal early childhood education initiatives (like Headstart and all-day kindergarten) are also touted as a double benefit: The programs strengthen school-related skills in children while providing an alternative form of child care. The center also recommends taking a hard look at how we support self-employed and low-income women, advocating for remedies that give more space to those transitioning into a different financial life.

Policy-based initiatives will go a long way toward rectifying these inequalities--but the current climate in Congress is hostile to progressive reforms, and so it may be years before any of these proposals actually makes it to the floor for consideration. In the meantime, most experts and researchers point to three reforms that can be undertaken by anyone, regardless of their financial station.

Jacquette M. Timmons, author of Financial Intimacy and president and CEO of Sterling Investment Management, explains that many people are so unaware of their financial situation that they cannot make prudent choices. In that respect, Timmons offers three steps women can take to build wealth.

Take Control

One task that every person can take on, regardless of financial station or level of financial literacy, is to track expenses. It can be as simple as a spiral-bound notebook updated at the end of each day, or as technologically savvy as signing into an expense-tracking Web site like Mint. However, in order to get a grip on household finances, it is vital to understand where your money is going each month. "People are not in touch with what they have, what they are doing with what they have, and why," Timmons explains. "As a result, they lack information to make more prudent choices."

Pursue Self-Employment

In 2008, the Women's Initiative published a report called "Closing The Wealth Gap Through Self-Employment: Women of Color Achieving the American Dream," noting: "There is a positive relationship between a client's business development and their household's financial well-being. For every dollar of business equity owned, Women's Initiative clients have nearly two dollars of overall household wealth."

This also supports the conclusions drawn by the Insight Center, which calls on the federal Small Business Administration to provide more assistance to "micro-enterprises"--small business and side endeavors that contribute to wealth building. Timmons concurs, saying "If you are only trading your time for money, you will never be wealthy." Self-employment--even if it is a side business run after work hours--is a much-needed step toward independence from a paycheck, and can help fund other investments like property or assets that can provide a passive stream of income.