New analysis by BlackRock’s Emergency Savings Initiative based on the U.S. Financial Health Pulse 2020 data adds to the ongoing and overdue dialogue about racial disparities in income and wealth, spotlighting the state of savings for Black individuals and its impact on their ability to weather financial emergencies such as coronavirus.
Historical structures have marginalized people identifying as Black or African American in America for centuries. Policies such as segregation, limited access to banking, and redlining have hindered Black individuals from accessing equal financial opportunity – a legacy that we see in our analysis of savings today.
Our data highlights that only 39% of Black individuals have enough savings to cover at least three months of living expenses without income, as compared with 60% of White individuals. The extent of the gap underscores the need for urgent work in both the public and private sectors – with a focus on savings – in order to equalize opportunity for improving financial health and future wealth-building.
Low and Volatile Incomes Hinder Savings for Black Individuals
The simplest indicator of an individual’s ability to save is whether one has income that exceeds expenses. This becomes a key barrier to Black households’ ability to save, as our analysis shows 78% of Black individuals have incomes of less than $60,000, as compared with 50% of White individuals.
Not only are the incomes of Black individuals lower, our analysis finds that Black individuals’ income tends to be less predictable than White individuals. Only 34% of Black individuals report that they could easily predict the next month’s income every month, compared with 52% of White individuals.
Low and volatile incomes can make it difficult to cover day-to-day expenses, let alone set aside savings. Only 46% of Black individuals are saving for an emergency, compared with 59% of White individuals. Even when Black individuals are able to save, the amount of savings may be very limited: The median savings account balance for a Black individual or member of their household is $600, as compared with $4,000 for the equivalent for White individuals. This means that they have to rely on other coping strategies, including taking on debt and help from friends and family, when faced with a crisis.
Survey respondents were asked how long they could live off their current savings with no income (without dipping into retirement); only 39% of Black individuals could cover three months or more of expenses, as compared with 60% of White individuals. Even more worrisome is that 14% of Black individuals said they could only cover expenses for less than a week if they lost income.
Lack of Savings Leave Black Households More Vulnerable to Debt
When faced with an emergency, this lack of savings can force people to turn to alternative sources of funds to cover expenses, including borrowing money. Our data showed that to cover a $400 emergency expense, 21% of Black individuals would use a credit card and pay it over a period of time, as compared with 16% of White individuals. Black individuals were five times more likely to use a payday loan, deposit advance, or overdraft as compared with White individuals.
Black Individuals Are Struggling More in the Coronavirus Crisis
Almost one-third of Black and White individuals reported decreased income as a result of coronavirus, but a significantly higher percentage (39%) of Black individuals reported a decrease in income because of job layoffs as compared with White individuals (24%).
Analysis of labor data from ProPublica showed that Black Americans, who have had higher unemployment levels historically, faced much steeper declines in unemployment as a result of coronavirus.
“Many workers of color, especially Black workers, didn’t come into the crisis on equal footing,” ProPublica reported. “At the beginning of 2020, when the U.S. was at what most would have considered peak economic prosperity, the unemployment rate for Black workers was more than double that of their White counterparts.”
This gross disparity in unemployment levels and benefits, also playing out against the backdrop of coronavirus, is another factor that further exacerbates the vulnerability of households in the face of a crisis. As The New York Times reported in August, “Black workers disproportionately live in states with the lowest benefit levels and the highest barriers to receiving them.”
Black individuals (37%) are also facing an increase in expenses at higher rates than White individuals (21%), with medical costs and childcare potentially among the factors driving up expenses. In trying to navigate the decrease in income, both Black and White individuals reported trying to reduce expenses. Black individuals are employing several other coping strategies at much higher rates than White individuals, as illustrated in the table below.
Table 1: Actions Taken for Coping with Reduced Income Due to COVID-19, by Black and White individuals
Source: BlackRock’s Emergency Savings Initiative analysis of 2020 data from the U.S. Financial Health Pulse
Policymakers, Employers Need to Take More Action
While there are solutions that private organizations can undertake to support Black individuals in improving savings and financial health, many of the challenges that Black individuals face require policy action, such as raising the minimum wage, using the tax code to provide additional or more extensive credits, and providing better job training. Policymakers should also address the creation or expansion of programs to improve benefit programs, education, housing security, healthcare, maternity benefits, and childcare, to name a few areas.
The Financial Health Network recently published an analysis examining how reform of the criminal justice system could also play a major role in improving the financial health of Black individuals, where fees and fines can be extreme setbacks for families who are already in financial peril.
In the private sector, there is much to be done as well. BlackRock’s Emergency Savings Initiative is working with providers, employer partners, and recordkeepers to test, research, and scale strategies to build emergency savings. Employers can ensure wages are sufficient for the cost of living and are predictable from month to month to reduce volatility. Other benefits that have shown promise include employer-sponsored financial planning and access to tools to help with budgeting, debt management, and healthcare expenditures. Providers can do much to create more inclusivity in savings and banking, both with product and user design.
Of course, there is no single solution to overcome the gross economic inequality we see in the data above, and our recommendations mirror many of those made in similar reports. Our mission as part of the Emergency Savings Initiative is to create access to savings, so that more people can save and a wider variety of organizations across public and private sectors work to solve this savings gap.
Methodology: Data analysis conducted by BlackRock’s Emergency Savings Initiative on data collected from the U.S. Financial Health Pulse, a research initiative funded by Flourish, MetLife Foundation, and AARP. The survey of 6,668 respondents was live April through May 2020, and asked questions which were point in time and/or “in the past 12 months.”
BlackRock’s Emergency Savings Initiative
BlackRock announced a $50 million commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step toward long-term financial well-being.