The Company You Keep

African American Wealth: Powerful Trends and New Opportunities

African Americans are steadily increasing their wealth, boosting their holdings in real estate, stocks, and savings vehicles, as they seek to fund college educations for their children and create a secure retirement for themselves. It's a process of becoming ever more keenly aware of the need to save, invest, and plan for the future. "The level of interest in financial independence, economic empowerment, and investing has just exploded," said Duane Davis, founder of the Coalition of Black Investors quoted in a 2003 article that appeared on Davis characterized this growth as "a real groundswell."

Davis' view was reinforced by results of the 2002 Ariel Schwab Black Investor Survey cosponsored by Ariel Mutual Funds and Charles Schwab. The Survey, published annually every year since 1998, publishes data on African American households earning $50,000 or more a year. According to findings from 2002, the percentage of African Americans investing in the stock market increased 30 percent between 1998 and 2002, from 57 to 74 percent.

Unfortunately, that number dipped to 61 percent according to the 2003 Survey, as many African Americans left the market, no doubt bruised by the poor returns that characterized the stock market for the second consecutive year. Equally unfortunate, many stayed on the sidelines this past year and missed the recent market rally. "The recent market upswing shows that you may have to go through the valleys to reach the peaks," said Charles Schwab vice president Carla A. Foster, in the Survey's analysis section.

Homeownership among African Americans, however, has shown a steady increase. The percent of African Americans who own their own homes increased from 42 percent in 1990 to 48 percent in 2003, according to data compiled by the Consumer Federation of America and, and cited in an October 2003 press release.

African Americans spent $645.9 billion in 2002, an increase of 104 percent from 1990, according to Target Market News, a black consumer market research and information company ( However, as noted African American author, speaker, and financial advisor Brooke Stephens points out in her book Talking Dollars and Making Sense, making money is important, but saving it is more important. Stephens cautions that while the African American community can be proud of contributing hundreds of billions to the nation's economy, it's essential not to lose sight of the importance of savings in creating economic empowerment and building personal wealth. "You're not building wealth if you use all your money for consumption," she writes. "Real wealth is being able to say, 'I have the freedom to do what I want with my life, and I don't have to stay in this job if I don't want to.'"

The 2002 Ariel Schwab Survey noted steady progress in the area of personal savings among African Americans, with the average monthly savings increasing from $200 per month in 2001 to $237 per month in 2002. (2003 figures aren't available yet.) Building a secure retirement ranked highest among the respondents (46 percent) as their primary reason for saving, with sending a child to college ranking second at 19 percent.

Raising Awareness
In the African American community, an array of wealth initiatives aim to enhance awareness and understanding of reaching wealth accumulation goals through disciplined savings and long–term investing.

The Black Entertainment Television (BET) and the Consumer Federation of America (CFA) have teamed up to provide knowledge and information about saving and investing to the African American community. BET offers free membership in Black America Saves, a service developed by CFA as part of their larger America Saves campaign.

In addition, the National Urban League (, the Coalition of Black Investors, and Investment Company Institute ( all sponsor wealth–building seminars across the United States.

Black Enterprise magazine has created the Circle of Wealth, a black wealth initiative that seeks economic empowerment for African Americans by changing attitudes toward money management. The Circle is an ongoing cycle comprised of 1.) Knowledge, 2.) Commitment, 3.) Investment, 4.) Portfolio Management, and 5.) Wealth, all enabling Reinvestment in Children, Businesses, and Community.

As part of this powerful initiative, the magazine developed the Declaration a Financial Empowerment, the following 10–point wealth–building pledge:

"I, from this day forward, declare my vigilant and life–long commitment to financial empowerment. I pledge the following:

  1. To save and invest 10 to 15 percent of my after–tax income.
  2. To be a proactive and informed investor.
  3. To be a disciplined and knowledgeable consumer.
  4. To measure my personal wealth by net worth not income.
  5. To engage in sound budget, credit, and tax management practices.
  6. To teach business and financial principles to my children.
  7. To use a portion of my personal wealth to strengthen my community.
  8. To support the creation and growth of profitable, black–owned enterprises.
  9. To ensure my wealth is passed onto others.
  10. To maximize my earning power through a commitment to career development, technological literacy and professional excellence."

A Strong Foundation
Economic empowerment requires different strategies at different life stages. Experts agree there's a time to accumulate wealth, a time to build it, and a time to protect it. While an enormous array of products and services are available to support economic empowerment, achieving this goal begins with a strong foundation of insurance protection, retirement savings, and education funding.

Insurance Protection
There are three basic types of life insurance: term, whole life (or permanent insurance), and variable life. Each policy can provide a variety of benefits, depending on your individual financial needs and goals. When properly constructed, your life insurance plan should grow and change as your lifestyle and needs change.

Many people start with a term life policy, then convert to whole life insurance when they have a family and would like the benefits of cash value build up. In addition to providing life insurance protection, the cash value in a permanent policy may be borrowed through policy loans to fund a child's college education or for other needs*. As your estate grows, you may consider a Survivorship Whole Life policy which insures two people under one policy and pays benefits after the second insured dies, proceeds that are often used to help settle estate taxes. (* Loans accrue interest and ultimately lower the death benefit if not paid back.)

Retirement Savings
Despite all the concerns about 401(k) plans in the last couple of years, they remain among the best ways to accumulate retirement savings. Through your employer, you defer part of your salary and select investments that match your investment goals and risk tolerance. In the wake of the Enron and WorldCom scandals, most people now realize putting the majority of their contributions in company stock is not always advisable and opt to spread it around a variety of options based on their personal time horizon and risk profile.

According to the financial Web site Motley Fool (, the reasons to participate in a 401(k) plan make overwhelming sense:

  1. There is an immediate tax savings on contributions.
  2. Earnings grow tax–deferred.
  3. Loans and withdrawals are often available.
  4. Employers often match employee contributions up to a certain percentage.

This last is where current participants can make the biggest improvement. If you aren't contributing the maximum amount allowed by the plan and receiving the maximum match from your company, think about beefing up your contribution as soon as possible.

Individual Retirement Accounts (IRAs) are another retirement funding option. You can open an IRA even if you participate in an employer–sponsored retirement plan, provided you have an adjusted gross income below $50,000 if you're single and below $70,000 if you're married and either you or your spouse or both of you participate in a qualified retirement plan at work. Annual contributions can be as high as $3,500, depending upon your age, and may or may not be tax deductible, depending on our adjusted gross income. Consult your tax advisor for full details on IRAs.

Taxpayers with adjusted gross incomes below $160,000, if filing jointly, or $110,000, if filing as single or head of household are eligible to contribute to a Roth IRA. Contributions to Roth IRAs are not tax deductible. However, your withdrawals, including the earnings, are not subject to taxation, assuming the account has been open for five tax years, and you are older than age 59 1/2.

Education Funding
Coverdell Education Savings Accounts, formerly known as Education IRAs, are a tax–advantaged way to save for a child's education. Anyone with an adjusted gross income of $110,000 ($220,000 if filing jointly) can contribute to a Coverdell Account. The non–deductible contributions in these accounts generally grow tax–free and distributions for qualified higher–education expenses are not generally subject to income tax. In some cases, the tax advantages of a Coverdell Account may result in higher after–tax returns than a taxable investment. The maximum annual contribution is $2,000. Consult your tax advisor for more information.

Another major educational funding vehicle is a Section 529 Plan*. These are savings programs designed specifically to help families meet higher education expenses. Earnings enjoy the benefits of tax–deferred compounding. Annual contributions can be up to $11,000 ($22,000 for joint filers), with no gift tax consequences provided no other gifts are made during the year to the same recipient. Total allowable contributions to 529 plans vary by state, but often exceed $250,000. Consult your investment/insurance professional for more information.(*All assets, including earnings, under all 529 plan accounts established for the benefit of a particular beneficiary must be aggregated when applying the limit. New contributions will not be allowed once the limit is reached. Earnings, however, will continue to accrue. Maximum contribution limits are adjusted periodically. Potential investors of 529 plans may get more favorable tax benefits from 529 plan sponsored by their state. Consult your tax advisor for how 529 tax treatment would apply to your particular situation.)

The tax legislation exempting earning on qualified withdrawals from federal income tax expires on 12/31/10, unless extended by congress.

If the account owner takes advantage of the five–year gift tax election and dies within five years of the funding date, the account owner's estate will receive only part of the exclusion, pro–rated based on the number of years survived.

529 plan are offered by properly registered representatives of NYLIFE Securities Inc. Member FINRA/SIPC, an affiliate of New York Life.

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African American Wealth: Powerful Trends and New Opportunities

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