What We've Learned About Debt in Black Communities
Americans are carrying a lot of debt. NerdWallet finds that by the end of 2018, the collective total debt owed by Americans—including mortgages, credit cards, student and auto loans—stood at more than $13.5 trillion dollars. That’s an almost 10 percent increase from just three years ago. Putting this astronomical total into greater context, NerdWallet estimates that if our cumulative debt was split evenly between the 126 million households in the country, each one would owe $135,000 on average.
While this assessment is mind-boggling, studies like these that focus on collective sums and average figures tend to overlook important dynamics that occur beneath the headlines. For example, not all debt is negative. Many people take on debt for good reasons, such as buying a home and pursuing higher education—two key building blocks for economic mobility.
Even when macro-level studies elevate important details like these, they often fail to distinguish how economic issues such as debt play out differently across different communities, especially in the context of race. We know “bad debt” such as a predatory loan can be devastating, but for communities of color, even “good debt” is often a double-edged sword. While it can certainly open several doors to greater economic mobility, that mobility often runs up against the unfortunate reality that communities of color often take on greater debt and see a lower return on their investments.
In response, Prosperity Now has worked to not only better grasp how much debt is owed by communities of color—specifically Black communities—but also develop a deeper understanding of how debt is a both a cause and a consequence of the racial wealth divide. We have also been working with services in Baltimore, New York City and Ft. Lauderdale to better understand how their clients manage debt and how that debt impacts their day-to-day lives.
So far, what we’ve found is alarming.
At the national level, more than 27 percent of Black households are late on paying their debts, compared to 15 percent of White households, even though Black median debt ($30,800) is about half of White median debt ($73,800). We also found that just 40 percent of Black households reported having good or very good credit, compared to 65 percent of White households. That leaves Black communities with fewer good options for acquiring credit, such as payday loans.
From interviews conducted in Baltimore, New York City and Ft. Lauderdale, we found that community members are struggling with debt, even though nearly all are employed. Among the 46 community members we spoke to, median debt held ($32,981) was more than $5,600 above the median income ($27,378), with credit cards and student loans ranking as top two common debts/past-due bill types. Just as alarming, we found that respondents had very little to fall back on in times of financial need, with their median value of savings and their assets totaling just over $2,000
We also found that debt problems facing these communities are not solely due to personal financial choices or a lack of responsibility—community members we interviewed took multiple actions to address their debt. Instead, debt troubles have been compounded over generations of discriminatory financial practices sanctioned through an endless series of public policy choices. Those choices have boosted the economic potential of White households while diminishing or outright blocking economic mobility for communities of color. For the median African American household, those choices can be directly attributed to them owning a fraction of the wealth ($17,600) owned by their White peers ($171,000).
Perhaps the most important lesson we’ve learned from this work is that the overwhelming, stressful and debilitating feeling that can accompany debt is often compounded by both visible barriers (knowledge, behavior and structure) and barriers that are harder to detect, such the racial wealth divide and the history of discrimination in the financial system that created it.
Going forward, these insights inform the development of services and products that meet households of color where they are so they can better manage their credit and debt. Over the next year, we invite you to go beyond the numbers to consider how debt affects you and your clients and stay tuned for updates on our debt work!