Hey Shingle People!
So last week, the Institute for Assets and Social Policy (IASP) at Brandies University released a myth-busting study, basically saying that White people are wealthy because they pass wealth down generation to generation. BOOM!
Let me back up a bit. I’m a Trusts and Estates attorney and adjunct professor of Wills, Trusts and Estates at American University Washington College of Law. I have been passionate about estate planning since the first day I sat in a Wills, Trusts and Estate class. It was like a Eureka! moment. I was amazed to learn how taking some simple steps could set two or three generations up. I figured, if there was anyway to grow wealth on the cheap, it was through effective Estate Planning.
I made it my mission to tell everybody I know about it, educating friends and family members. But, unfortunately, this topic usually falls on death ears (no pun intended, ha!) because let’s face it, no one wants to talk about death, how to divide your property when you’re gone, and who should raise your children. For the large part, most Americans completely neglect this type of planning, but ESPECIALLY people of color.
After this study, I have a feeling many people will view estate planning differently, at least I hope so. I myself am pretty excited that the IASP released this report. It dispels a lot of myths about the financial behavior of Blacks and Latinos and how that contributes to their inability to build wealth. Even still, this report goes further, it evaluates one by one each claim (i.e. single-parent household, college education, saving, etc.) and concludes, nope! That’s not it. In the end, the REAL reason Whites build more wealth than Blacks and Latinos is because they’ve had a head start that has allowed them to pass it down from one generation to another.
But here’s the thing, we can do that too! We can also pass down wealth from generation to generation: it’s called estate planning and it involves more than writing a will. There are some very simple steps each of us can take to protect our legacy and put the next generation in a better position. We’ll get into that later, but first, below are the details from the article.
Overall. The bottom line is that Whites have enjoyed a long history of public policies that have favored them and allowed them to accumulate more wealth over a long period of time. For example, the GI Bill, which was introduced in 1944, assisted many World War II veterans attend college and buy home with guaranteed mortgages, largely excluded people of color. Blacks and Latinos have been excluded from many wealth-building opportunities through discriminatory practices in housing, banking and education, to name a few. As a result of this head start, Whites have more access to gifts and inheritances, which they use to supplement income, use as down payment for homes, and allows them take out less loans to pay for college. It also gives them access to influential networks which helps them get jobs despite their education level, higher pay and greater mobility within the workplace.
Attending college does not close the racial wealth gap. While college is associated with higher salaries and earning potential, and the study showed that those with some college earned more than their counterparts who only earned a high school diploma, it did not close the racial wealth gap. According to the study, the median white adult who attended college has 7.2 times more wealth than the median Black adult who attended college and 3.9 times more wealth than the median Latino adult who attended college. Furthermore, even just going to college is a feat for many Black and Latinos. Because Whites generally come from wealthier families, Black students borrow at much higher rates and in higher amounts. Which means that when Black students graduate, more of their income goes to repaying college loans. On the other hand, with less student debt to pay off, the typical white college graduate has a head start on building their wealth – maybe saving for a down payment for a house – which in turns gives them an opportunity to build equity earlier.
Raising children in a two-parent household does not close the racial wealth gap. The reason this study is right on time is because it dispels many of the incorrect beliefs of why people of color can’t get ahead. How many times have we heard the statistic of the likelihood of a child raised by a single parent going to college? Which by the way, is still so skewed – but that’s for a different post. This study shows that NO, people of color aren’t poor because they lack two-parent homes. Again, when compared to their counterparts raising children in a single-parent home, the two-parent home fared better. But when it came to comparing Black and Latino two-parent homes to White two-parent homes, we’re still behind. But here’s the kicker, even White SINGLE parent homes have 2.2 times more wealth than the median black two-parent household and 1.9 times more wealth than the median Latino two-parent household. So, family structure does not drive racial inequity.
Working full time does not close the racial wealth gap. Here’s another stereotype: people of color just don’t work hard enough. Nope! That’s not it either. This study explains that the median white household that includes a full-time worker has 7.6 times more wealth than the median black household and 5.9 times more wealth than the median Latino household with a full-time worker. Based on the figures from the study, Blacks and Latinos with households with full-time workers have basically the same level of pay as a White household with part-time workers. The main culprit of these statistic is the lack of equal pay; White workers make more than Black and Latino workers and Black and Latina women make 68 and 59 percent, respectively, of what White males make. But even if Whites, Blacks, and Latinos earned the same amount, the wage gap would only close by 11% between Whites and Blacks and 9% between Latinos and Whites.
Spending less does not close the racial wealth gap. And here’s the big one, Blacks spend all their money one weaves, fancy clothes, and fancy cars. But, according to this report, the average white household spends 1.3 times more than the aver black household of the same income group. As a matter of fact, Whites spend twice as much on entertainment and more on cars. The only category where Blacks spent more were utilities, such as electricity, heating fuel. Water, sewer and telephone services – which could be tied to required security deposits and additional payments for customer with lower credit scores.
So there you have it, right there in Black and White (and Latino). Personal behavior does not close the gap and cannot trump structural racism. Wealth building compounds with every generation, but it has to start somewhere. And based on my own personal knowledge, this is one aspect of planning that people of color almost never take advantage of. This happens for a couple of reasons (1) many people think because they don’t have much (maybe they don’t’ have a retirement account or own a house), they don’t have anything to give and (2) we just hate talking about death (God forbid!). But you really don’t need to have much in the bank to pass down a substantial amount of money to your children (it’s called life insurance and it’s a tax free inheritance) and we’re all going to die, whether we want to or not, it will happen, so let’s prepare for it, let’s go out with a bang!
Getting people of color to see the value in estate planning has been one of the toughest parts of being a Trusts and Estates lawyer. When people ask me about the clientele in my practice, I always tell them: I’m not a criminal lawyer, so nobody’s paying me to get out of jail. When you’re trying to get out of jail or get your loved-one out of jail, you’ll do whatever you can to find the money. Nobody’s doing that to pay me to draft a will. I provide a service to people that they believe THEY will never benefit from and won’t even take effect until they die.
But that mentality is further increasing the wealth gap. I used to be one of those people who said I wouldn’t leave anything to my kids. My immigrant-parents struggled, I’m struggling, adversity and learning to overcome it builds character; it built mine. I want my kids to struggle so that it can build their character. I had that mentality until I landed an awesome job out of law school making a six-figure salary. It took me 8 months to save enough money for a 3% down payment on a FHA loan to buy a house, while some of my white counterparts were purchasing homes right off the bat. It was the first time I experienced first-hand the effects of wealth-building over generations. Here we both were, went to law school, graduated, landed a job, making the same amount, but I had to save money for almost a year before buying a house and they didn’t. From that moment forward, my idea and definition of success changed. To me, now, success means being able to pay my child(ren)’s college or graduate school tuition or being able to give them a down payment to buy a home.
The reason I took the time to go through every element of this report is because I wanted to illustrate how the lack of estate planning can permeate into every aspect of our lives. Estate planning is so critical to wealth building that almost NOTHING can overcome it; no amount of education, no amount of hard work, and no amount of savings. Can you imagine how different your child’s life would be if they inherited $100,000 (tax free!!!) at your death? (think about what even $50,000 could do for you). That’s enough to pay for four years at almost any university in this country; that’s enough to make a 20% down payment on a house that costs $500,000; that’s enough to finance a graduate degree, work at that internship in New York City that will land you that awesome job. Passing down wealth from one generation to the next is like Dr. Martin Luther King’s Mountain Top speech, where he said: “I’ve seen the Promise land. I may not get there with you . . .” So yes, estate planning may not benefit you, but it will benefit your next generation and more importantly, it will build and protect your legacy. And it’s probably the only behavior that could come close to making a sizable dent in racial wealth gap.