Mae Watson Grote | Founder and CEO | The Financial Clinic
This past August — 400 years after slaves first arrived to North America in the English colony of Virginia — The New York Times Magazine published a 96-page special edition centered on the history and continuing legacy of American slavery. Today, the enduring impact of of slavery is perhaps nowhere clearer than in the financial security field, evidenced by the persistent racial gap in income and wealth.
At The Financial Clinic, our vision is to leverage the experience and knowledge we’ve gained from working with people individually into poverty-alleviating solutions that not only measurably improve individual lives but also address systemic barriers, like the persistent racial wealth gap. As Trymaine Lee writes in the magazine, “Today’s racial wealth gap is perhaps the most glaring legacy of American slavery and the violent economic dispossession that followed.” And the gap is widening — in the past 50 years it’s more than tripled.
Interweaving social and economic history, the 1619 Project successfully demonstrates the central role that race has played in the development of American capitalism, and specifically, as Matthew Desmond writes, “a racist capitalism that ignores the fact that slavery didn’t just deny Black freedom but built white fortunes, originating the Black-white wealth gap that annually grows wider.” In his piece on the racial wealth gap, Trymaine Lee notes that even “though black people make up nearly 13 percent of the United States population, they hold less than 3 percent of the nation’s total wealth.”
From speculative banking practices that decimated the savings of Black Americans to exclusionary social programs, the 1619 Project excavates the origins of the widening racial wealth gap. The Civil War, Lee writes, was followed by a period of “economic terror and wealth-stripping,” in response to the North’s victory, during which freed slaves were denied the opportunity to build wealth through policy, law, and violence. During the New Deal, Black Americans were excluded from or discriminated against by many social programs. Created in 1934, the Federal Housing Administration, for instance, enacted a policy of redlining that furthered segregation and refused mortgages in Black neighborhoods. The long-term effects of these policies — including redlining, segregation, and discrimination — are still with us. During the recent subprime mortgage crisis, Black Americans were more likely to be “steered toward subprime loans.”
Here at the Clinic, the racial wealth gap is a stark reminder of slavery’s legacy, a reality that is apparent in our own financial coaching data. According to our Change Machine data — collected through the Clinic’s online platform delivery model for financial coaching — Black customers have a median asset balance of $400, which is 55 percent lower than the median asset balance of white customers ($900). Moreover, fewer Black customers own wealth-building assets; they’re 8 percent less likely to have savings accounts, 4 percent less likely to have employer retirement accounts, and 5 percent less likely to have IRAs. Our own Change Machine data show that racial wealth inequality plays a critical role in perpetuating generational disparities.
The 1619 Project is as powerful a reminder as any of the structural barriers to wealth-building faced by the people we serve. We couldn’t be more proud of the accomplishments of our work — $90 million back in our customers’ pockets is laudable — but the 1619 Project makes it clear that only by appreciating the deep-seated nature of systemic racism can we begin to close the wealth gap and create transformative change. We’re aiming to build on our early successes, from the material impact of our financial coaching services, validated by a rigorous study, to public policy victories like New York’s Refund529 law. Because the barriers are systemic, the solutions we propose must transcend the individual.
Drawing on the lessons we’ve learned and the values we’ve formed from successfully serving individuals, the Clinic advances field-wide practices and advocates for social policies that pursue racial equity:
First, can we please put financial “literacy” to rest? Any conversation about poverty that distinguishes between “needs” and “wants” in a household budget fails to appreciate the legacy of slavery. At the Clinic, we’ve been on the forefront of differentiating financial coaching — with its emphasis on people’s lived experiences and actual circumstances — from financial education. Just as the authors of “Credit Where It’s Due: Rethinking Financial Citizenship” point out, literacy tests have played a perverse role in excluding Black Americans from full political participation, so we should not let literacy tests do the same for financial participation.”
In practice, the Clinic’s work fully appreciates that the barriers people face to wealth-building are not typically about rote knowledge, but structural. In the wake of the recession, more and more have come to appreciate that the crisis on Wall Street, the housing bubble, and the Great Recession were not just a chain of events that occurred because some Americans couldn’t identify a compound interest formula. In fact, structural crises only exacerbated existing inequalities.
Second, we need to recognize and hold paramount that the people we serve are experts in their own lives. The Clinic actively promotes this idea by ensuring that our customers’ own financial goals are the driver on their path to greater financial security, not programmatic dictates on what a budget should look like, or the organization’s targets for lowering debt or increasing credit score. Moreover, the Clinic’s social enterprise, Change Machine’s life blood is a community of practice in which the experts are served by a community of experts.
The fact that the communities we serve have been able to consistently and continually make-ends-meet, despite poverty wages and gig jobs, is because they’ve earned an MBA in tough choices, trade-offs and hard decisions. Their expertise is the well from which solutions must be drawn for them to be effective.
Third, the pervasiveness of racism and discrimination makes it incumbent on our field to collaborate with other disciplines in addressing the roots of this issue. As Nikole Hannah-Jones — the investigative reporter who spearheaded the 1619 Project — told Ezra Klein in a recent interview, addressing poverty alone won’t bridge the racial wealth gap. The idea that class, income or assets-based policies alone can bridge the gap is a fallacy because it assumes that “the primary disadvantage that Black people face is income,” which, she says, “it is not.” Census data, she points out, show that poor white Americans have more wealth than middle-income Black Americans.
Indeed, our own Change Machine data bear this out too. Regardless of income, Black customers disproportionately lack wealth and assets. This is a lesson that we as financial coaching practitioners must acknowledge, and as such, it is incumbent on us to partner with our colleagues working in education, healthcare, and housing. The customers we serve face a myriad of challenges. Some may have chronic health problems; others face legal and immigration challenges. Others confront daily discrimination. Knowing this — and knowing that racism spans many aspects of life — the solutions we seek must be both ambitious and holistic.
The wealth gap evident in our own data and whose origins are described in the 1619 Project, is a grave indicator of the work to be done. The 1619 project is a reminder of the historical and economic legacy that leads to racial disparities in assets, income, and debt. As financial coaching practitioners, we recognize the barriers that continue to exist across racial lines, and see our work as part and parcel of a larger commitment to social justice — in the hopes of living up to our founding ideals.