Released: October 29, 2020

The enduring financial consequences of systemic racism

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FOR IMMEDIATE RELEASE—For generations, institutional racism has denied people of color access to the economic and educational systems that are the very building blocks of financial advancement in our nation.

In the Fall 2020 issue of Consumer Action News we look at the "Impact of race on personal finances," examining areas of individual and household finances affected by entrenched racism—from car and student loans to mortgages and auto insurance. In each area, we consider some proposals for dismantling the barriers to financial inclusion.

Redlining

Neighborhoods in or near many major American cities were off limits for Black homebuyers in the 1930s, ‘40s and ‘50s, and the residual effects of this policy are visible to this day in lagging homeownership rates, access to credit and wealth building among minority populations. Beginning in the '30s, the federal government's loan guarantor notoriously delineated some communities in red, designating them as “hazardous” areas in which to finance a mortgage, leaving Black Americans without access to credit in many neighborhoods and fostering racial segregation.

Education

Redlining affects access to education as well. Without family financial support, Black students often borrow up to twice as much as white students to go to college and are less likely to graduate. Without a degree, workers typically earn smaller salaries that result in meager savings, which limits the intergenerational transfer of wealth for Black families.

Car sales and loans

Black male secret shoppers were systematically quoted higher prices (more than twice the average car-dealer markup) than those offered to white male testers at car dealerships in Chicago in 1991. A similar undercover investigation, 27 years later, exposed discrimination in car sales and financing by auto dealerships favoring white customers. Owning reliable, affordable transportation can be a path to better paying jobs and financial opportunity.

Little access, few options

Without comparable access to homeownership, higher education and economic opportunities, many Black and other minority consumers have been denied the opportunity to build strong, secure financial futures. In 2019, the average Black family had less than 15% of the financial cushion that white families had. Black households accumulated $24,100 in wealth versus $188,200 for the average white household, according to the Federal Reserve.

Given these statistics, the impact of systemic racism is undeniable. Today, a majority of Americans are prepared to recognize and address at least some of the enduring consequences of this unequal and unjust system.

Proposals to help expand financial access and narrow the racial wealth gap include commitments by some of the nation’s biggest banks to invest in new mortgages and home refinancing, small business loans, personal lines of credit and affordable rental housing in communities of color. Others are proposing more expansive credit scoring models that reflect rent payments and bank transactions to help lower-income consumers build healthy credit scores.

For more on these evolving issues, see Consumer Action News: Impact of race on personal finances.

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Through multilingual consumer education materials, community outreach and issue-focused advocacy, Consumer Action empowers underrepresented consumers nationwide to assert their rights in the marketplace and financially prosper.