5 Things Keeping African Americans From Attaining The American Dream

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For many Americans, the American Dream has been identified as home ownership. However, times have changed, as well as Americans’ definition of what they consider to be the “American Dream.” The American Dream now includes not living paycheck to paycheck, being able to travel, etc.

Today, the American Dream for African American families is financial wellness and financial freedom, with 69% being confident that it is still attainable.

Although African Americans believe that the American Dream is possible, here are 5 things keeping us from it and what we can do to get it!

Lack of an Emergency Fund

The car breaks down, someone has a medical emergency, the HVAC system goes out in the middle of summer or winter, etc. Life Happens! Whatever the emergency, having an emergency savings fund helps to protect the family’s financial foundation from these emergency bombs.

Unfortunately …

African American Families are least likely to be prepared for financial emergencies with 33% having less than 1 month of expenses saved and just 1 in 5 setting aside enough money to cover more than 6 months of expenses.

– Massachusetts Mutual Life Insurance Company (MassMutual) Survey of American Families (2018)

Set an amount or percentage of the paycheck to be direct deposited into the savings account. Establishing a savings account in a different financial institution from your checking account will help to eliminate the temptation of transferring cash from the savings account. Also, establish a savings goal for a specific period (for example $1,000 in 12 months) and build from there targeting 3 to 6 months of salary for your emergency fund.

Not having both Short-Term and Long-Term Financial Goals

While 75% of African American believe that saving as much as possible and getting more educated about finances are important, 40% rely on family members for information.

This may be a challenge if the family members have limited or no financial education.

Seeking advice from family members may seem like the right thing to do, but when it comes to financial advice, it is often best to consult with a financial professional. The financial professional has a fiduciary duty (legal responsibility to take care of the client) and can guide you through the right options for your financial situation and income while making the process less intimidating and overwhelming.

Excessive Debt

Living life without using credit is ideal but not always realistic. Sometimes using credit is a useful financial tool, like buying a car or a new home.

Even though 79% of African American families say that paying down debt is a high priority, almost 70% have credit card debt, with almost half being student loans. 

This excessive debt is limiting the ability to save more for emergencies and opportunities, as well as invest more for retirement.

Focus on paying down debt using the snowball method, paying off credit cards and loans with the smallest balances or highest interest rates first. Once those debts are paid, apply the amounts of those payments towards the next debts to be paid.

Not prepared for the Unexpected

The unexpected can’t be controlled and is not something people want to think about. However, being prepared for the unexpected will help protect the family’s financial stability. The unexpected not only includes “death;” it also includes illness and accidents that result in a disability. What if a relied upon income suddenly stops? How will the family maintain household expenses, like rent/mortgage, utilities, food, etc.?

For most people, their single most valuable asset is their ability to earn an income.

Although 84% of African American families prioritize having a stable source of income for their family in case of the unexpected, most people solely rely on disability income and life insurance provided by their employer or do not own disability income or life insurance at all.

Consult with a financial professional to determine the “appropriate amounts of disability income and life insurance to protect your family’s financial stability should the unthinkable happen.”

Living Paycheck to Paycheck

For 75% of African Americans, not living paycheck to paycheck is part of the American dream. Having more month than money adds more stress to what family life may already create and living paycheck to paycheck also makes it hard to save and invest as well.

REALITY CHECK:

African American families have one of the lowest average household incomes among all ethnic groups surveyed and hold nearly the highest average credit card debt and student loan debt.

Create a budget or spending plan to determine required and unnecessary expenses, income gaps and ways to save more money and pay down debt. A budget will give you the power to make informed decisions to reach your financial goals.

By focusing on the simple strategies states above, attaining the American Dream can be attained faster towards building generational wealth.

Click here for more information regarding the Massachusetts Mutual Life Insurance Company Survey of American Families (2018).