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February 05, 2004

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lks

there are some assumptions in here i'd like to address.

1. what is the rate of discretionary spending in black households?

2. how much of the wealth gap is due to discretionary spending?

3. what is the primary form of wealth among American families? is it in their house? in stocks? what?

Daniel Day

I hope you don’t mind if I tell a story, as succinctly as I can. I was training for a job several years ago under an extremely qualified and respected electronics technician, who happened to be black, and was probably earning well upwards of $60 k a year. He had come from an impovrished background. One day another technician on the construction site came to us around lunchtime and told us about his father, who had been a longshoreman in the Portland, OR docks, therefore earning well over $100 k a year, before he had recently died. The father had left his three sons an estate totaling $15,000, after debts were paid.

As my 28-year-old trainer and I were walking back to the trailer to have our lunches, I remarked on how foolish the father had been with his money, to leave such a small estate to his children. My trainer emphatically disagreed; his view was, what money he earned was his, and he hoped to enjoy all of it before he died. I asked how he ever expected his family (he was living out of wedlock with a nurse who had just borne him a second child) to get ahead. He replied that getting ahead was their problem.

Please note, I’m not saying and don’t believe that this is uniquely a problem for blacks; many whites, including the (IMNSHO) fool’s son telling us his story, think the same way. Schools should teach children how to handle money.

Michael R Hicks

1. As of yet, haven't found hard numbers by the percentage (ever the quantoid, heh) for what can be referred as "discretionary spending," but I do have this:

* According to the 2002 Arbitron Black Consumer Study, Black folk spent $340.8 billion in retail spending ($490B of global buying power). Of that, $24.7B were in apparel products and services, $31.3B came in new and used cars and trucks, and $8.6B were spent in gifts...those are some of the categories (less so for cars) that I would refer to as "discretionary."

2. At the end of the day, perhaps not much. The problem of predatory lending (particularly through these check cashing and two-week holding check loan places) and debt are the larger problems for Black folk.

3. For those that own them, their house. Black people own a much higher proportion of their new worth in durable goods such as housing and cars. Blacks tend to shy (more) away from stocks, mutual funds, and interest-earning assets at financial institution.

The typical white householder's home has about $56,834 of equity, for Blacks the figure stands at $6,334. Debt also eats ups about $11 of every $100 Blacks have in assets. For Whites, it's less than $3 for every $100.

The full Census report on this can be found here.

Michael R Hicks

Dave Ramsey, the talk radio host of "The Dave Ramsey Show," is a great teacher of debt elimination and wealth building. His show is increasingly popular in the South and Midwest, his "Financial Peace University" classes have full houses everywhere he travels around the country, and his latest book, "The Total Money Makeover," is now a best-seller, I believe.

If you want a no-nonsense approach on how to handle money, get out of debt, and build wealth, his group can show you how to do it.

The wife and I have wiped out about $11,000 worth of debt in nine months under his plan.

Lester Spence

I think blacks are moving more towards investing in the stock market, but as with their working class white peers this probably won't account for much. Discretionary spending is usually the culprit pointed to by self-help advocates and knee jerk nationalists....but I think you're right there too. Black discretionary spending SOUNDS like a lot, but it isn't responsible for the wealth gap. So why focus on it, unless as an example of how black people are deviant?

Finally the house. The deep thing here is that race diminishes black home values....because few non-blacks want to live in black neighborhoods it is difficult to make the same profit off of home sales as whites.

So perhaps the Dave Ramsey program is the move. I'm thinking even it is only an individual level solution. Can't deal with the gap as an aggregate reality.

Cobb

Operation Hope is often the locus of a lot of good work being done in Los Angeles. Our old broker (back in the days when we had some wealth) from Merrill would volnteer some of his time there.

Michael R Hicks

So perhaps the Dave Ramsey program is the move. I'm thinking even it is only an individual level solution. Can't deal with the gap as an aggregate reality.

Well, why not?

What is collective progress but each one, teach one...or teach a few...or a crew... writ large? What was the early clamor for education and literacy after the Civil War, but individual actions applied writ large?

Creating institutional structures that can teach various masses is not impossible...trained people that have gone through Financial Peace University have taken this program to high schools, and hundreds of Christian churches use FPU as their financial training throughout the South and Midwest (Ramsey is based in Nashville, TN).

Why couldn't this be introduced in Black churches and HBCUs? Those are the two institutions with the most standing and structural influence.

Sounds, at least, like the potential for aggregate reality to me.

tootsie

There are some salient points in the comment ledger,pull yourself up by your boot straps is one,I think reducing consumer debt is worth a try,me being old school i.e.walk a mile to school no money etc.I never had a problem saving $ but it has to start at a young age.You must change the culture ,the excessive spending on clothing,especially for the young,they grow out of them before they wear out.
Tootsie

lks

but this is my point. black america's problem is not "excessive spending" (anymore than it is america's problem that is). END ALL EXCESSIVE SPENDING AND THE WEALTH GAP WILL STILL BE LARGE AND SUBSTANTIAL.

Michael R Hicks

Okay, let's remove the words "excessive spending" from the discourse.

Now, we still have a wealth gap. What can we do about it? We've started to discuss individual solutions that can morph into institutional ones...

Now, what can be done on an institutional level to stimulate Black wealth? One method is by raising property values in Black neighborhoods across America by tearing down the tenements and high-rise concentrated poverty housing and replacing with mixed-use housing with various income levels.

• Gautreaux-like social relocation programs can contribute.
• Metropolitan mergers help poor Black neighborhoods receive a healthier share of the tax revenue pie
• Mortgage lenders such as Fannie Mae having programs that provide home loans to more African Americans help...

Black folk could use a few more community-based credit unions to replace the check cashing and pawn shop vultures....

A number of Louisville, KY's Black neighborhoods have been revitalized with combinations of these programs. Projects were torn down, mixed-use housing went up, and many working- and middle-class Black folk (and a few white folks) moved back into Black neighborhoods. It certainly looks a lot nicer, and you've got people who have a vested stake in the neighborhood contributing...

Our city gov't merged with the County last year...we've had merged gov't for about one year now.

Michael R Hicks

If you start at a young age, saving delivers nicer returns (O the joys of compound interest!), but it is never too late to get out of debt and save.

Even if you're closer to the point in your life of shutting it down and punching out, you owe your loved ones the service of not passing them debts and unpaid bills.

Is it too obvious that I'm passionate about this?

Lester Spence

oh yeah. and while you're playing, i've got to iterate...I'm in significant debt. a program like this could help out my own pocket. i'm just saying that we can't look at the wealth gap and say that black discretionary spending causes that. it doesn't.

Michael R Hicks

Fair enough.

I caught your feelings on the matter from your September joint, "Black Economics."

It works, cat. Check it out. Email me if you have any questions.

Lester Spence

i didn't see your 4:51 post. gautreaux is a good start, as well as the programs designed to put folks in houses. metropolitan mergers work in some ways, though i'm wondering whether there is research that shows that this change in munipality governance increases housing values. what city are you in now?

Michael R Hicks

Louisville, KY.

I'm not sure if it's been directly argued as such, but when you tear down eyesore properties, you build $70,000 to $250,000, you bring into a community more people who become homeowners, when Black small businesses (coffee shops, restaurants, cafeterias, etc.) start to build and gravitate back toward the community...the "broken window" problem dissipates, and the property values start to rise again....

Anecdotal example.

My mother was offered a rental property that she, myself, and my sister lived while I was in high school (20 years ago), for $42,000. This was a property that had three bedrooms, an large attic that could be converted to a fourth, a healthy sized basement and a two-car garage...and the price the landlord wanted was $7,000-$10,000 more than similarly prices houses in the area (and more than mom was willing to pay).

Fast forward. The wife and I are browsing the real estate section last fall, and a house similar in construct just two doors down from our old place sold for $101,000.

That's certainly higher than the rate of inflation, and that is one of the neighborhoods that haven't had projects that needed to be torn down.

Lester Spence

I didn't talk about that (yet)...but there's this nice program that Wayne County (Detroit) has. They loan community organizations enough money to rehab eyesores, then after they sell the finished house they pay the county back and get to keep the profit.

Cobb

NACA is the hottest program of this sort in the country. It may sound too good to be true, but it's for real.

Michael R Hicks

I've got to give this one a serious look-see (it's my Southern roots, so sue me), Cobb...this looks like it's sweet...

Isome

Though it's already been said, it bears repeating: frivolous discretionary spending is not the cause of the wealth gap. Besides the unexplained WAGE gap, you can add predatory lending (also previously mentioned) to the myriad of factors that create the wealth gap. I read an AP investigative story about land stolen from families of African descent, and how that contributes greatly to the absence of wealth among Blacks.

As an ethnicity (descendants of Africans living in America) we must stop trying to "own" negative behaviors, like living in debt. The fact is Americans across the board live in debt, though the premise of the commentary implies that it's a social ill exlusive to us.

Although eliminating debt would undoubtedly be a postive proactive step for the collective, it isn't the source of the problem.

Michael R Hicks

You're right, it isn't the source of the problem, but for now, that is the less important issue, in my opinion.

Let's move away from worrying about the "should be"s and let's deal with the "is".

Eliminating debt, stopping the use of credit cards, and avoiding credit altogether (except for one's mortgage), is the sure way for Black folk to go from very little to a modest war chest that can be passed down as inheritance in one to two generations.

Black folk, on a macro basis, are not beset with the same type of crimes that were committed against them, particularly in the era of Jim Crow post-Plessy v. Ferguson (mainly, the outright theft of African American-owned land).

Excessive spending has been removed from the discourse. Let us not linger on the things that are less important...

Isome

We may have a similar, if not the same, goal -- greater economic self-sufficiency. Though reducing personal debt is a good thing, it will not lead to economic empowerment. Cooperative economics must be figured into the equation for that to happen.

What you and others may view as a "less important" issue, is considered to be of the utmost importance to the the rest of us, myself, and those far more learned than I, included. As the maxim goes, the past is prologue.

Contrary to your assertion land theft continues today, albeit through complex partitioning that is encouraged by cunning con men. The wealth it creates for the thieves is relevant to today because that wealth reproduces from one generation to the next.

The "economic inequalities that have accumulated over the course of American history" canNOT be fixed by ignoring them, as if they have no bearing on the here and now.

Property ownership determines one's net worth, and 'our' lack of it is a direct consequence of a legacy of economic oppression. Generational assets lead to other advantages for caucasions (education, employment opportunities, etc.), which helps to widen that damn gap. Further, American society's built-in disparities have solidified, and though the language and form they take become more sophisticated, it has the same effect of economic suppression on all non-whites.

Every individual could reduce their debt to zero, but it will not close the wealth gap as long as systemic disparities, fueled by attitudes that cannot be legislated away, remain in place. IMVSO, our plans of action must always be multi-pronged, multi-layered and mindful of the barriers we still face, and how they got there.

lks

see thomas shapiro's new book. i've been meaning to check it out, if only to see how different it is from his co-authored work BLACK WEALTH WHITE WEALTH.

Michael R Hicks

Every individual could reduce their debt to zero, but it will not close the wealth gap as long as systemic disparities, fueled by attitudes that cannot be legislated away, remain in place. IMVSO, our plans of action must always be multi-pronged, multi-layered and mindful of the barriers we still face, and how they got there.

I don't disagree with this statement.

That said, debt elimination is only one element of the financial plan. The next are to acquire homes on 15-year (rather than 30) mortgage plans, and to invest 15% of your earnings in IRAs and/or Roths through mutual funds, funds that have had a 10-year or better track record of success and steady earnings over time.

It is that that will build wealth for Black folk and help them narrow gaps.

Kujichagulia does not have to be mutually exclusive from these goals, it can be "both/and".

I'll make a mental note to check out (likely literally) the Shapiro book.

Michael R Hicks

When you aren't burdened with credit card debt, when you use and save your own money for emergency needs, rather than using credit cards (or worse, the check cashing "EZ loan" places) as fallback money, when you aren't making monthly car payments that steal away ANY person's long-term wealth, you can better save your own money, and one can better have available resources to invest a percentage of their income...whether the family makes $25,000 per year or $525,000 per year.

Lester Spence

even as structural factors impact our lives in the aggregate, we live and make choices as individuals. to this degree we HAVE to do both--recognize, rail against, and repair structual problems....and employ fiscal discipline as individuals.

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