KEVIN F. KILEY
Minority hiring efforts

Despite some shrinkage of the longtime income gap between blacks and whites, a new study indicates the wealth gap between the two demographic groups is growing larger.

The Consumer Federation of America conducted a study based on the Federal Reserve Board’s 1998 Survey of Consumer Finances to examine and compare wealth in households. In the CFA report, wealth was determined by subtracting household debt from assets. The median black household wealth increased from $3,680 in 1989 to $15,500 in 1998. The net wealth of the typical American household, including blacks, was $71,700 in 1998.

In Massachusetts, the mean income of blacks in 2000 was $44,838, compared to the mean white household income of $68,996 in the 2000 Census.

The study attributed the gap in wealth to “behavioral” differences. According to self-reported behavior, black households are more likely than other households to have a shorter financial planning horizon, spend more rather than less of their incomes, not save regularly and be less willing to take financial risks when saving or investing.

But while attributing the difference to “behavior” may sound like a racial stereotyping, that term is code for a more elementary situation – lack of education about money, according to financial experts.

There is an ingrained fundamental mistrust of banks, which historically have been run by whites, according to Brooke Stephens, author of “Talking Dollars and Making Sense: A Wealth Building Guide for African-Americans.” Without sustained outreach efforts by financial institutions education, programs will fall flat, Stephens said.

Early in the 20th century, some banks wouldn’t allow blacks to become bank account holders. It takes a long time to build trust, especially in inner-city neighborhoods where banks have to overcome the stigma of past transgressions and more recent misdeeds such as the redlining of the 1990s abandonment of the inner cities for wealthier suburbs. To reach customers and build education programs on how to build wealth, banks must make a long-term commitment, said Stephens. “But a lot of institutions don’t want to take the time because, let’s face it, Merrill Lynch and all these guys out here want a big-ticket item,” said Stephens. “They don’t want the small investor who only has $100 a month to invest,” she said.

In addition to the mistrust, there is an inherent lack of education about basic banking functions among blacks. Personal financial education often is not addressed in the American school system, but among blacks, it’s even more of a problem, Stephens said.

In past years, a majority of blacks were concerned with paying the bills and didn’t have a great deal of disposable income, said Stephens. As a result, the topic of savings or investment became very stressful and many didn’t discuss it around the dinner table, she said.

“That’s beginning to change and slowly beginning to happen only with the upper middle-class families,” she said.

“The study also suggests that you don’t have the behavioral differences at the high end and at the low end [of the income spectrum], it’s really in the middle,” said Robert Patrick Cooper, an attorney with Boston Bank of Commerce, a nationwide black-owned bank with assets of $480 million.

“If you compare similarly situated wealthy blacks you don’t find those behavioral differences. Part of that is you have highly educated, upper-income, more knowledgeable blacks who are making those investment decisions earlier,” he said.

In fact, a recent study by New York-based Charles Schwab & Co. found that the percentage of high-income blacks who invest in the stock market is up 30 percent over the last five years. Among whites, the number of high-income investors rose 4 percent. “Every new investor represents another positive step toward wealth-building and offers the promise of greater financial security and opportunity for the entire African-American community,” David Pottruck, president of Charles Schwab, said in a statement. Comparatively, only 18 percent of blacks held over $100,000 in wealth vs. all American households at 42 percent, according to the CFA study.

But even as blacks’ income rises, the wealth gap persists. That is largely a reflection of homeownership, said Cooper, an area in which blacks lag significantly behind whites.

“As we decrease that gap in homeownership, you’ll certainly see a precipitous drop in the wealth gap,” said Cooper.

While executing a traditional banking model, the BBOC differs in that it has always been in the inner-city communities it wishes to serve. “We know our community, we know what they need,” said Cooper. “On the loan side there’s a trust and a bond and, while some banks may be reticent to lend under the particular criteria they have for lending, our focus is community-based.”

Overcoming Fear

Locally, banks have recognized the problem of underserved inner-city markets and are trying to make inroads by opening branches in urban neighborhoods, according to Kevin F. Kiley, executive vice president of the Massachusetts Bankers Association. “I don’t think there’s any question that banks have seen a growth in African-American customers over the years. There’s been a concerted effort through African-American hiring programs and minority loan programs, etc. to bring more and more minorities into these types of banking [relationships],” said Kiley.

In fact, specific programs have been designed in local banks to reach out to and educate blacks in the inner city about the financial services available to them.

Over the weekend, the BBOC held its third annual financial conference, which was expected to draw over 1,000 participants. “Money Means: A Financial Conference for Black Women” focuses on helping black women make better financial decisions from investing to banking and estate planning.

That’s only one tool the bank uses, said Cooper. But the everyday business of the BBOC is also an education process, said Cooper, who assists small businesses with plans and dispenses advice on how to grow businesses. “They’ll remain loyal customers and will grow into larger customers and will employ more people in the community,” he said.

“We’re the fastest growing urban bank in the country and we are in it for the long haul. Our mission is one of community development – that is what we’re about,” he said.

For $471 million-asset Wainwright Bank & Trust of Boston, reaching out to underserved markets is nothing new. It has traditionally acted in non-traditional ways, including granting domestic partner benefits and other firsts for a bank.

A few years ago, Wainwright’s community development officer approached the bank’s executives and proposed a financial literacy program for inner-city youth, said Steven F. Young, senior vice president of the retail banking division at Wainwright.

“It’s a little different than a few financial literacy programs out there, perhaps, because it’s a little more street smart. We get rave reviews for it,” said Young.

The presenter, who’s also a resident of the inner city, is dynamic and gets attention by speaking to high school kids at their own level, he said. And because the program facilitator is able to say he grew up and lives in the inner city, he’s able to speak with authenticity when he presents information on how to open a bank account and keep track of personal finances.

It’s important for a bank to present approachability in order to gain customers in the inner city, said Young.

“There’s a fear of institutions, the big pillars at the front of the bank, [the feeling that] ‘I’m going to walk in there and I’m going to feel stupid and I don’t know what my rights are’ … that’s part of our presentations,” said Young.

Young echoed Stephens’ position that a bank shouldn’t just hand out brochures. “You can’t get someone standing in front of a group of inner-city teenagers and just lecture,” he said.

But Stephens said while there’s a lot banks have to do to reach out to blacks, the responsibility doesn’t lie solely with them.

“African-Americans have to start taking responsibility themselves, but the institutions also have to support it and it’s going to be an educational issue on both sides that’s going to make a difference in the next decade,” she said.