One thing that the events of 2020 – the COVID-19 pandemic and accompanying economic recession – have made clear is how economic inequality contributes to a widening racial wealth gap. The wealth gap is not simply financial, but also tied to health system inequalities and geographic realities.
The New York Fed published research on this topic by studying heterogeneity in economic data, to describe how the recent economic impacts differ by race and gender. To study heterogeneity is to study variance. Economic analysis is often based on averages, but an “average” or “typical” person often doesn’t capture the experience of minority populations. So, we need a different approach to studying the numbers, and related, to providing financial services.
The Fed data tells a complex story. While the racial wealth gap narrowed between 2016 and 2019, economic insecurity among Black households remains, and is likely to worsen. Recessions historically, and today, have a larger impact on Black populations, and those communities recover more slowly. For instance, labor force data reveals divergence in Black and white labor force participation rates. While the situation during the pandemic has been bleak for all workers, there's divergence in the data: the unemployment rate rose significantly more for Black workers between the shutdowns of February to April 2020, and the recovery for white workers has occurred more quickly so far.
The data story continues. It’s been well documented by multiple sources that COVID-19 case counts are higher among communities of color. But why? The NY Fed analysis of data from the early months of the virus’ spread reveals several factors play a role, to differing degrees. These include higher rates of essential workers, indoor crowding on public transportation as well as in homes, and access to healthcare, including pre-existing comorbidities. The researchers determine that while some causes that contribute to disparate impacts, such as comorbidities, are more complex to mitigate, others, like access to health care and home crowding, are amenable to policy intervention.
Looking forward, how are we to address equality in economic recovery? And what's the role of business in the recovery? Several of my colleagues at The American College of Financial Services will offer ideas on these challenges in a multi-part insights series to be published over the coming weeks on The College’s Center for Economic Empowerment and Equality Resource Center.
What You Can Expect
- Steve Parrish, JD, RICP®, CLU®, ChFC®, RHU®,AEP® writes about the disparate impacts of tax policy and whether the time is ripe to consider tax reform. He reflects on hot topics in tax, such as carried interest and the earned income tax credit, and their interplay with economic inequality. Professors Sophia Duffy, JD, CPA and Dan Hiebert, PhD, CFP® will discuss the role of financial advisors in addressing inequality.
- On March 24, Duffy highlighted that financial planning is not just for the rich – in fact, low-income earners need strategies to protect their income and manage inter-generational wealth. She'll offer some guidance for such strategies.
- On April 7, Hiebert focused on the small business sector – which comprises over 90% of businesses – and how minority-owned firms have fared poorly during the pandemic. He'll advocate that small business advisory services can complement individual financial planning strategies, particularly as many entrepreneurs rely on personal resources in business formation and sustainability.
One conclusion to draw from these analyses is that those areas and people that are least able to withstand economic shocks, because of vulnerabilities prior to the pandemic, have felt the greatest impact and will likely experience the slowest recovery. Moreover, communities of color are also likely to trust the financial services sector, either because of past scandals which have disproportionately impacted them, or a dearth of products and services that are culturally relevant and addressing their needs.
The financial services sector has a predominant role to play in helping underserved communities by narrowing the wealth gap and promoting economic justice.