A newly released study from Elevate’s Center for the New Middle Class (CNMC) found that even when African Americans had prime credit scores – or scores of 700 or above – their financial wellness resembles the broader non-prime community. For example, compared to the general non-prime population, prime African Americans are:
• 80 per cent more likely to say that they live paycheck-to-paycheck
• 2.5x more likely to overdraft on a bank account
• 28 per cent less likely to have $1,200 for a financial emergency
• 50 per cent more likely to say they have “too much debt right now”
• Less confident they can meet long term financial goals
“Unfortunately, our research indicates that both prime and non-prime African Americans continue to see greater financial strains as compared to their peers,” said Jonathan Walker, executive director of the CNMC. “From discrimination in the hiring process, earnings gaps, wealth gaps – even a health gap we have observed several ways in which African Americans are often failed by the broader financial industry.
“On the bright side, we also found several areas where African Americans out perform their peers.”
For example, non-prime African Americans are better at predicting their income. Compared to their non-prime peers, they are 29 per cent less likely to report difficulty predicting their income. Non-prime African Americans are also more likely to say they can reach their short term financial goals. Additionally, they are more likely say that they have the skills to manage their finances well, although they are less likely to have learned financial management from their parents.
That said, there are many facets of the broader financial ecosystem that may be failing this population – regardless of their prime or non-prime status.
They are more financially fragile and community-focused. Prime African Americans are much more likely to have experienced a drop in pay or work hours in the past five years, compared to their prime peers. They are also 53 per cent more likely to say family or friends rely on them.
“The community aspect can mean that one small hurdle can have a more lasting or ripple effect,” Mr. Walker said.
They view loans and revolving credit differently. Across the board, African Americans are less likely to use a credit card and more likely to use cash for everyday purchases. Non-prime African Americans are more likely to use payday loans and paycheck advances and much less likely to have bank loans, mortgages, and credit card balances than general non-prime households.
They are seeking new products and services. African Americans are much more likely to say they are looking for new financial services or products. Prime African Americans are 15 per cent less likely to say they are “satisfied” with their present financial situation than wider prime, and 38 per cent more likely to say they use technology to manage finances more than the people around them.
Non-prime African Americans in particular are planners. Non-prime African Americans are 22 per cent more likely than the general non-prime population to feel that they have the skills and knowledge necessary to manage their finances well. Non-prime African Americans are more likely than the rest of the non-prime population to regularly plan for major expenses.
“There’s ample opportunity for fintechs and traditional institutions to meet these needs and better serve the African American community,” Mr. Walker said.