There’s a belief in the U.S. that’s infiltrated the personal finance industry — that if you work hard enough, then you’ll find financial success. The problem is, this “pull yourself up by your bootstraps” narrative is a longstanding fallacy.
Sure, this rhetoric is powerful, because in some ways it’s empowering to believe that you can get rich all on your own. But it obscures the important role of external factors in shaping our finances. Crucially, it fails to reckon with the country’s legacy of systematically marginalizing certain groups, making it difficult, or even illegal, for many to access opportunities and build wealth.
February is Black History Month and an important time to be reminded about this legacy and to learn about the centuries of financial oppression in the U.S. even after slavery was officially abolished. It’s a history that any of us were never taught in school, though it still impacts Americans in many ways today.
The U.S. Federal Reserve’s 2019 Survey of Consumer Finances, the most recent data available, found that the wealth gap between white and Black Americans grew considerably over the previous two decades. The median white family had seven to 10 times as much wealth as the median Black family. There are many factors behind this, from inequalities in pay to those in homeownership and investing.
But truly understanding the racial wealth disparity requires going further back into the long history of Black Americans suffering significant financial losses at the hands of white Americans and being directly excluded from many avenues for building wealth, from banking to housing.
In 1865, after emancipation, Freedman’s Savings and Trust Company was created to give formerly enslaved people and Black Civil War veterans the ability to save and access capital within the traditional financial system.
Despite being a bank specifically for Black customers, it was run by an all-white board of trustees. Funds were mismanaged, eventually causing a collapse that cost 60,000 depositors some $3 million, or more than $70 million in today’s dollars.
In 1921, Oklahoma was home to the Tulsa Race Massacre, in which a white mob looted, destroyed property and murdered residents of the affluent Black community in the Greenwood District. It’s estimated that more than $200 million worth of damage was done in today’s dollars.
Those are but two instances of wealth being stripped from Black families, leaving long-term consequences. A number of discriminatory policies over the last century have also had a significant impact on today’s racial and socioeconomic disparities.
For example, in the 1930s, amid the Great Depression, Black Americans were largely excluded from reaping the benefits of New Deal policies, programs and reforms, explains Dania Francis, an economist at the University of Massachusetts Boston. Even though the language itself didn’t explicitly exclude Black Americans, the consequences remained. “[The New Deal] originally did not apply to domestic workers and farm laborers,” explains Francis, “60-something percent of Black people at the time were domestic workers and farm laborers.”
It was during this era that redlining — the practice of denying financial services to residents of certain areas based on their race — was created. The newly formed Home Owners Loan Corporation created “residential security maps” and drew actual red lines around neighborhoods it deemed “hazardous.” Anyone who lived in these neighborhoods, which were often home to Black residents, would be denied a loan.
Francis points out that this not only hurt the building of Black wealth but also further enforced segregation. Not only were Black Americans unable to get the capital to buy their homes, but no one else could get a mortgage to buy in redlined neighborhoods either.
Redlining was outlawed in 1968 by the Fair Housing Act, but that doesn’t mean it went away. In 2012, Wells Fargo reached a settlement with the Department of Justice to the tune of more than $175 million for allegedly engaging in discriminatory lending practices against African American and Hispanic borrowers between 2004 and 2009. The bank was accused of pushing subprime mortgages or charging them higher fees or rates relative to white customers.
There was similar exclusion after World War II with the GI Bill, which gave veterans access to low-interest mortgages and education stipends. Because the bill was administered at a state level, instead of by the federal government, it resulted in many Black GIs — particularly those in the South where Jim Crow still held sway — being unable to access or fully utilize the education and housing benefits.
This is critical context for the personal finance industry. It makes clear that the bootstrap narrative in personal finance is a lie, according to Kevin L. Matthews II, a financial educator and author of “From Burning to Blueprint: Rebuilding Black Wall Street After a Century of Silence.”
“It ignores how the vast majority of wealth has been generated in this country,” says Matthews. “Specific groups were given land and capital and entire groups were left out. That’s not bootstraps, that’s law and policy that helped some groups and not others.”
To Kiersten Saunders, a co-author of Cashing Out and co-creator personal finance media company Rich & Regular, understanding the racial wealth gap and the fallacy of bootstrapping requires seeing two different time horizons: White people have had more time and opportunities to build wealth compared with Black people who have been shut out economically. “Time is needed to catch up,” Saunders says.
As are the right policies. “Trying to make up for previous generations of poverty is not just a matter of effort, particularly when a lack of effort isn’t what got you into that hole,” says Julien Saunders, a co-author of Cashing Out.
Too often, our narratives around financial and socioeconomic achievements are pegged to radical self-responsibility. That’s because, as Francis points out, it’s easier to tell individuals to change their behavior than to challenge the structures in our economy and society that enable some to succeed while limiting others. It’s time that the personal finance industry stopped taking the easy way out.
