“Our Financial Insecurity” is the second of BlackAmericaWeb’s seven-part State of Black America series. Coming Monday: “Education Matters.” On its final day, State of Black America will focus on solutions.
Click here to read Part One, “Whither Black People?”
Last year, black America saw its wealth decline as others began to prosper again. We watched rising home prices benefit many, but put the American dream further out of others’ reach. And we were disappointed by white collar scandals that tarnished the reputations one-time black Wall Street heroes.
Coming off such a tumultuous year, experts on black wealth and financial prosperity say how well we fare in 2005 will largely be determined by how much of a can-do attitude and bootstrap mentality we foster.
“For better or for worse, we’re going to be held more personally responsible for our finances in 2005,” said Alfred Edmond Jr., editor-in-chief of Black Enterprise, the 35-year-old publication whose Black Wealth Initiative is focused on educating blacks about personal finance issues.
Edmond and others interviewed for BlackAmericaWeb.com said several factors, including hostile economic policies and painfully slow job gains helped deflate black wealth in the last several years.
As a group, blacks lost one quarter of their household wealth -- which is measured by the assets a family owns, minus the value of its debts – during the recession years of 2001 and 2002, according to a report released last year by the Pew Hispanic Center. Overall household wealth declined during the same period, but the losses were steeper for blacks, who had fewer assets to begin with.
By the end of 2002, median wealth for black households was $5,988, a paltry amount considering that homes, retirement and investment portfolio values are all counted in the measure. By comparison, white household’s median wealth was $88,651.
The Pew center did not study what has happened to black wealth since 2002, but experts said the economic recovery of the last two years might not have done much to reverse the losses.
Blacks are still more reliant on income from jobs than income from investments or other assets to build their wealth, said Edmond.
“If the recovery was jobless, and your wealth is dependent on income from jobs, then you didn’t have a chance to recover anything,” he told BlackAmericaWeb.com.
Still, others see hope ahead.
John J. Havens, a professor at Boston College’s Center on Wealth and Philanthropy, published a study last October which found that 28 percent of all black households have incomes of at least $50,000 annually, or net worth of at least $500,000.
Those ranks of wealthy and high-earning blacks should grow quickly because younger blacks are more likely to go to college and earn higher salaries than previous generations, he said.
But others are pessimistic about how quickly we can repair the financial damage done in the first half of this decade.
Blacks’ incomes will rise as long as the economy stays on track, but the wealth gap between them and whites will still persist, argues Thomas Shapiro, a professor at Brandeis University and author of The Hidden Cost of Being African-American.
Shapiro said research shows that blacks’ tenuous wealth is mostly concentrated in the value of their houses, which are increasingly being borrowed against to pay for mounting living expenses and credit card debt.
American households stripped $333 billion worth of equity from their homes between 2001 and 2003, taking the money out in the form of home equity loans that mostly went to pay for other bills, Shapiro said.
There is no evidence that blacks were more likely than whites to take equity out of their homes for bills, he said, but other evidence suggests that that might sap more black wealth than wealth in other communities.
“On average, homes in ethnically white neighborhoods increase in value 28 percent more than homes in black neighborhoods over the course of a 30 year mortgage,” Shapiro told BlackAmericaWeb.com. “Black homeowners don’t have as much to play with.”
Either way, Edmond said, blacks have little choice but to become better educated and more disciplined with their personal finances if they want to close the wealth gap.
“Wealth is increasingly being determined not by how much you have, but how much you know how to do with how much you have,” he said. “A fool and his money are soon parted.”
Last year, corporate scandals forced some previously high-profile black executives to part with their jobs, or even their freedom.
Last July saw the conviction of Nathan A. Chapman, Jr. on mail fraud charges related to a scandal in which he was accused of bilking the Maryland State Pension System out of millions and of stealing from his own company to finance personal expenses and extramarital affairs.
Once a star on Wall Street, Chapman’s Baltimore-based company was the first black-controlled investment banking firm to be publicly-traded. By the time he was sentenced to seven and a half years in prison last summer, the company’s shares were worthless.
The end of 2004 saw another scandal befall Franklin Raines, the former chief executive officer at quasi-public mortgage giant Fannie Mae. Raines has not been charged with any crimes, but lost his spot as one of the country’s top black executives over accounting irregularities that allegedly resulted in billions of losses not being tallied in the company’s financial reports.
Edmond said the scandals reflect an ugly truth that blacks are not immune to lapses in ethics or judgement.
“The more areas African-Americans advance into, the more chance there will be negative news,” he said. “African-Americans are no less vulnerable to temptations than anybody else. On the other hand, our ethical standards are sometimes higher because it reflects on all of us as a group when one does wrong.”
Other black corporate titans distinguished themselves by taking part in major deals last year. Radio One, the black-controlled broadcasting giant, partnered with Comcast to start TV One, a nascent cable network that some analysts believe might challenge BET for supremacy in reaching black TV audiences.
The company didn’t stop there. In November, it completed its transition from radio station chain to full-blown media company when it bought a controlling stake in Reach Media Inc., the parent company of BlackAmericaWeb.com, for $56.1 million. The move positioned Radio One for expansive growth by moving the company beyond distribution of content with its radio stations and into development of television programming and an Internet presence.
Not to be outdone, BET founder Robert L. Johnson made his own waves, with his newly-formed Charlotte Bobcats basketball team taking the court for the first season last year. Spreading the wealth, Johnson allowed St. Louis-based rapper Nelly to buy a minority stake in the team for an undisclosed amount.
Johnson also struck a deal to build an estimated $200 million Hilton convention headquarters hotel on prime land in Baltimore’s Inner Harbor last year. This year will see critical tests of whether Johnson and his partners in the deal can secure the public financing from the city of Baltimore that they say is needed to get the project off the ground.
Nelly wasn’t the only rapper to buy into the NBA, as Jay-Z also landed in the owners’ box of the New Jersey Nets. The rapper, whose real name is Shawn Carter, partnered in the $300 million deal with New York developer Bruce C. Ratner and New York Mercantile Exchange chairman Vincent Viola. Now the consortium is working to build an arena in Brooklyn to which they want to move the team.
Carter and partner Damon Dash sold their 50 percent stake in Roc-A-Fella Records to Island/Def Jam Music Group for a reported $10 million, a deal that also saw Carter take the helm as president of Def Jam Recordings.
The dealmaking didn‘t stop with the coming of 2005. Already, Essence Communications Inc., which publishes Essence and Suede magazines, was bought out by media conglomerate Time Warner for an undisclosed sum. Time Warner had owned a 49 percent stake in Essence since 2000.
That deal brought praise from some, including Johnson, who heralded it as the realization of the value of a company started by blacks. Others, like Black Enterprise publisher Earl G. Graves Sr., criticized the deal because no blacks were given the chance to bid for Essence.
