Posted on May 19, 2009

Inequality in the Savings Race

Dorothy Robinson, Metro International (New York), May 17, 2009


But there is a great divide between the races in saving for retirement. According to a recent study by Ariel Capital and Charles Schwab, 62 percent of black households earning more than $50,000 a year own stocks and mutual funds, compared to 82 percent of white homes of equal economic status.

This disparity doesn’t have to continue, says financial planner Aaron W. Smith. As he points out in his new book “In the Black: Live Faithfully, Prosper Financially” (Amistad, $16), African-Americans do not need to feel like the underdog–by 2012, black buying power is expected to reach 1.1 trillion, according to the Nelson Company. They just need to become more informed about their financial options.

“I work with both white and black clients,” Smith tells us over the phone from his office in Virginia. “And let me tell you, both [races] are not financially literate. But the difference is that whites have a tendency to save more. And we traditionally tend to spend what we earn–not to mention the problems in the gap in income.”

In addition to that gap, there are many more obstacles when it comes to African-Americans and saving–more than 50 percent of black women are raising children in a household where a father is absent, meaning money is tighter. And as “In the Black” points out, there’s also a long-standing tradition of loaning extra money to family members instead of socking it away, and there’s a tendency to rely on Social Security or pensions as their primary retirement savings vehicle.