Any discussion of Black Americans and the lack of generational wealth must begin with the history of how we have repeatedly built wealth over the centuries only to have it stripped away or stolen – both legally and illegally.
It will take government action to fix those historical structural problems. But there are things Black parents can and should do now to ensure that we pass generational wealth to our children and grandchildren.
Here's how:
Draw up a will. AARP says more than half of Americans don't have a will. An estimated 70 percent of Black Americans don't have a will. Dying without a will, or intestate, is a good way to lose generational wealth. White families are twice as likely to receive a family inheritance that a Black family.
But dying without a will also means decisions on who will get what in the estate will be made by a probate court. You will not decide who gets what from your estate – a judge will. And it means that court fees, executor fees, attorney's fees and possibly other fees will be paid before your estate is distributed to your heirs.
See an estate attorney and get a will or trust drawn up. It won't cost as much as you think. They can cost $300 to $1,000, depending on the complexity and where you live. And if you have no money to do it, there are websites like LegalZoom, freewill.com and rocketlawyer.com that let you do it on your own for cheap.
Home ownership. Black homeownership stands at 44 percent, more than 30 percentage points lower than White home ownership.
White GIs returning from World War II were able to reap the benefits of the GI Bill, while Black GIs were robbed of their benefits by racist legislators and administrators. Using VA loans and other benefits that were not made accessible to Black GIs, White returning soldiers were able to buy homes in communities like Levittown, Pennsylvania while Black GIs were not only forbidden from buying cheap homes, but racist covenants were written into the deeds to keep Black veterans out.
That explains a huge part of the homeownership gap.
Homeowners are wealthier than renters at all income levels. For the lowest income Americans, the average household wealth was $102,000; for renters, it's $1,500, according to First American. The median homeowner has 40 times the wealth of a renter.
Life Insurance. Nick Abrams, a Black Certified Financial Planner™ based in Baltimore, Maryland, says Black people need to stop buying just enough life insurance to bury themselves. He's right! Term life insurance is an effective, tax-free way to pass on wealth to your children or grandchildren.
The average cost of a funeral with burial is $7,000 to $12,000, or $6,000 to $7,000 for cremation. Imagine if instead of that $5,000 or $10,000 life insurance policy, Mrs. Brown had a $100,000 term life insurance policy. That would leave $93,000 for distribution to her children or grandchildren, vs. nothing for a $5,000 or $10,000 policy.
That money could mean the difference between an heir buying a home or renting for the rest of their lives, or college tuition vs. thousands of dollars in student debt.
529 Educational Plans. Here's a way to ensure that your children don't graduate college with thousands of dollars in student debt. Open a 529 plan in their names. There are tax benefits, much like a 401(k), but you can use the money to pay college tuition or even private school tuition. And the account will have minimal impact on financial aid. And if you open an account for your child, his or her grandparents, uncles, aunts and friends can also donate to the account. You alone will control the account and how the money is dispersed.
There are two different types of 529 plan. The traditional 529 operates much like a traditional 401(k) or a Roth 401(k) allowing you to invest after tax contributions. The second option is the prepaid tuition plan, which pays all or part of the tuition of an in-state college.
Rodney A. Brooks is a Texas Metro News Columnist and Senior Fellow at Prosperity Now. The author of Fixing the Racial Wealth Gap: Racism and discrimination put us here, but this is how we can save future generations, he has written for USA TODAY, The Washington Post and National Geographic.
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