The weather was unusually mild for an August day in 1963 when Dr. Martin Luther King took center stage on the steps of the Lincoln Memorial to deliver one of the most inspiring speeches in American History. A throng of over 250,000 people, some of them dangling their feet in the reflective pool that runs 2,028 feet East toward the Washington Monument, jammed the National Mall to hear Dr. King proclaim, “I have a dream”.
From that touchstone phrase, Dr. King, in the cadence of a Southern minister, unveiled a hopeful vision of the future. Perhaps the most remembered line from that speech is this one:
“I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.”
Dr. King spoke 100 years after the signing of the Emancipation Proclamation. Consequently, his assessment of where African Americans stood financially in 1963 did not live up to his dream.
“One hundred years later, the Negro lives on a lonely island of poverty in the midst of a vast ocean of material prosperity,” Dr. King said.
Where Are We Now
Although much of Dr. King’s hopes have been fulfilled, there are still inequities in America. None is so dramatic as those of economics and personal finance. As a result, the promise of Dr. King’s dream is still unfulfilled for many Black Americans today.
Even as the incomes of Black families and women are rising – the gap in wealth between women and men and between Black and white households is wide and growing.
During the pandemic years of 2019 through 2022, median household wealth increased by $51,800, according to the Federal Reserve (FED). At the same time, the wealth gap between white and Black households increased by $49,950. As a result, the total difference in wealth between white and Black households rose to $240,120.
The Economic Cost of Racism
Racial inequity hurts more than individual families or even one racial group. It hurts the economy of the entire country.
The United States economy lost $51 trillion in output as a result of racial and ethnic inequalities from 1990 to 2021, according to a study by San Francisco Fed President Mary Daly and three co-authors.
Daly pointed to gaps in employment, education, and earnings between racial groups as the cause of the loss.
“The imperative for equity, for closing some of these gaps, is not only a moral one, but it’s also an economic one,” Daly said.
Citigroup determined that $21.3 trillion has been lost to the economy since 2000. That 2024 report is an update of its 2020 study.
Income Inequality
One reason for the widening wealth gap is the disparity in income, according to Bureau of Labor Statistics (BLS) numbers. Black men earned $987 a week, 76.4 percent of the median income for white men ($1,184) in the third quarter of 2023. During the same time period, Black women earned a median weekly income of $935. That was 87.5 percent of white women who made $1,069 a week.
Even with a college degree, Blacks earn less than whites. According to the National Center for Education Statistics (NCES), the median annual incomes break out like this:
Whites
Associate degree Bachelor’s degree Master’s degree
$50,930 $70,250 $78,700
African-Americans
Associate degree Bachelor’s degree Master’s degree
$46,950 $56,030 $68,970
Credit Inequality
Your credit score is the cornerstone of your access to lending. A good score will lead to more money at a better rate. A poor score will lead to rejection of your credit application – or approval at user rates.
The determination of your credit card, auto loan, or mortgage application is dependent on the information compiled to determine your credit score. Consequently, that information can be skewered.
“We’re working with data that’s flawed for all sorts of historical reasons,” says Laura Blattner, an assistant professor of finance at Stanford University. She co-authored a study on credit with Scott Nelson of the University of Chicago. “If you have only one credit card and never had a mortgage, there’s much less information to predict whether you’re going to default. If you defaulted one time several years ago, that may not tell much about the future.”
Black people had few options for obtaining credit at a fair rate until recently. A generation ago, banks did not build branches in Black neighborhoods and they kept hours (usually (9 a.m. o to 2 p.m.) that limited access.
The Civil Rights Act of 1964 prohibited racial discrimination in many businesses. However, banking was not one of them. In addition, it was not until the Fair Housing Act of 1968 that discrimination in home financing was banned.
Mortgage Bright Spot
An area of improvement in credit equity has been mortgage rates.
A study by the Federal Housing Finance Agency (FHFA) determined that after decades of Black and Hispanic families being charged higher mortgage rates – that trend ended in 2023.
Covering data from 2000 to 2024, the study noted:
“Two periods stand out: the height of the subprime boom, from 2004-2007, when disparities were especially high; and the most recent year of data, 2023, when disparities fell sharply, breaking their longstanding pattern.”
Cycle of Poverty
The wealth gap between white and Black Americans began with slavery. Unfortunately, the end of slavery did not end the financial captivity of African Americans.
Institutional racism kept most Blacks from getting the education and financial opportunities they needed to fully realize the American and Dr. King’s dream. As a result, a cycle of poverty is often handed down from one generation to the next.
Breaking the Cycle – Living the Dream
The keys to realizing Dr. King’s dream are to fight racism, invest in education, and promote financial literacy. At a time when institutions are turning away from Diversity, Equity, and Inclusion (DEI) standards – those challenges are greater. That means if we support the dream of Dr. King and our nation’s founders we must work harder.
Part of America’s success has been its wealth of natural resources. However, even greater than that, our national wealth has been the American people and the opportunities this nation has offered for success. To deny or restrict any of our citizens their right to a fair chance is also to diminish the wealth of the nation.
As Dr. King said in his speech:
“When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men — yes, Black men as well as white men — would be guaranteed the unalienable rights of life, liberty and the pursuit of happiness.
“It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked as insufficient funds.
“But we refuse to believe that the bank of justice is bankrupt.
”We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. And so we’ve come to cash this check, a check that will give us upon demand the riches of freedom and the security of justice.”
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