Before the pandemic hit, Dee*, a 23-year-old hourly worker in Georgia, had some cash stashed away for emergencies. Then COVID-19 changed everything. Her small savings vanished but her expenses did not. Rent, utilities, phone, cable, car insurance — all these bills have made it hard to replenish her emergency fund.
“COVID made me dip into my savings so much that I couldn’t have any more savings…but I am hopeful by the end of the year I will,” she told Financial Health Network in a recent interview conducted as part of the efforts to understand the financial lives of young adults.
Dee, who is Black, is not a unique case. A new report from the Financial Health Network, conducted in partnership with the GenForward Survey, looked at the financial lives of young adults (ages 18-36), finding large disparities between different racial and ethnic populations around savings. The data showed young Black and Latinx individuals most likely to have low to no savings.
This analysis adds more detail to a recent report from BlackRock’s Emergency Savings Initiative that showed that Black individuals of all ages lag in savings as compared to their White counterparts. These findings underscore just how early-life finances — and the systemic issues that face people of color — are a strong determinant of lifelong financial health.
“A legacy of systemic racism has taken a toll on the financial lives of Black and Latinx young adults,” said Thea Garon, senior director, Financial Health Network. “Today, the financial lives of Black and Latinx adults are characterized by a higher degree of financial precarity than those of White and Asian American young adults.”
At a time when the racial wealth gap is widening for a multitude of reasons — accelerated by COVID-19 — these findings underscore the ongoing need for employers, policymakers and providers to focus on ensuring opportunity to build adequate emergency savings.
Key Findings on Savings
On average, Black and Latinx young adults have less liquid savings than their White and Asian American peers, which leaves them with a smaller financial cushion to turn to in an emergency or unexpected event.
- More than half of Black (56%) and Latinx (59%) young adults say they do not have enough savings to cover at least three months of living expenses, compared with 48% of White and 32% of Asian American young adults.
- A quarter of Black young adults (25%) say they have no personal savings, compared with 14% of Latinx and White young adults, and 6% of Asian American young adults.
- A majority of Black (54%) and Latinx (45%) young adults say they would be unable to cover a $400 emergency expense without borrowing or selling something, compared with 34% of White and 29% of Asian American young adults.
Chart: Amount of Personal Savings Balance in personal savings account, by race and ethnicity
The Long Tail of Low Savings
The lack of savings has implications on all parts of life for Black and Latinx young people, hurting everything from their capacity to handle a financial emergency to paying for necessary healthcare, housing or other basic needs. It also adds to the risk of having to turn to credit, often in the form of expensive debt, to cover an emergency. The result is a financial cycle that is very hard to break free from and leaves little room for the opportunity to build wealth.
The pandemic has worsened the situation for savings in communities of color. Many young Black and Latinx individuals work in industries that pay hourly wages and/or are in the service industry, which have been disproportionately affected by the pandemic in the past year.
The early-life savings gap also reinforces and perpetuates the stratification of wealth in the United States along racial lines, placing even the youngest people of color well behind the starting line. Without savings, the ability to pursue longer-term goals like education or homebuying becomes limited. And while the savings gap hurts individuals’ ability to advance financially, it is also a signal to the broader economy that the racial divides and legacy of systemic racism in the country — which have been a major part of the national conversation in 2020 — will continue to widen unless action is taken.
System Change is Necessary
While systemic change is necessary to truly address the inequities we see in savings along racial lines — and create a livable safety net in the event of job loss — there are steps the marketplace can consider when making savings more accessible in the near term.
A recent webinar on savings sponsored by ESI highlighted a few ways providers are thinking about inclusivity in product design. Another report from the Aspen Institute, The Cycle of Savings, highlighted the ways in which providers can build more access into their products including more cash-flow smoothing tools and better mechanisms to help people capture portions of one-time or ongoing cash infusions, such as at tax time. Our initiative, ESI, is actively working with partners to test and refine tactics that would help employers and providers address the savings gap.
Today’s Savings May Shape Tomorrow’s Policies
The differences in savings today will potentially shape the national conversation in new ways in the future. It’s estimated that by 2050 the majority of the American population will identify as Black, Latinx, Asian American, or multiracial—and a portion of that new majority will have experienced the financial precariousness that we see in our data above. It remains to be seen how that lived experience translates into policy and private sector innovation.
That said, if the material differences among young people of different backgrounds are distinct, the attitudinal differences are less so. As the new report highlighted, the majority of young people are in agreement supporting policies such as Universal Basic Income and free tuition at public universities, to name a few areas.
*Name has been changed to protect privacy.
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.