African Americans Experience Highest Levels of Credit Card Debt and Student Debt, According to New Report
The wealth gap that already exists between racial groups appears to have opened even wider with the Great Recession.
A recent study by Prudential on the African American Financial Experience shows that the typical African American family has more debt and fewer savings than the general population.
According to the report, 94 percent of African Americans report having debt, compared with 82 percent of the general population. The median black household had $18,000 in non-mortgage debt - in other words, credit card debt, student debt and personal loans. That's twice as much as the general public.
While credit card debt is currently the biggest source of debt, school loans are quickly catching up. The Prudential report indicated that college-educated African American consumers were twice as likely as their white peers to be burdened with education debt.
These results coincide with a U.S. News & World Report released earlier this month, which shows that the nation's ballooning $1 trillion student loan debt is especially damaging to two groups - minorities and women.
As more and more money goes toward paying down debt, inevitably less money is left over for savings.
Perhaps not surprisingly considering the report's findings, African American consumers had roughly half the savings rate as the overall population. They are also less likely to hold long-term investments like stocks and bonds and more likely to be financially supporting a family member.
All this debt doesn't just impact pocketbooks - it impacts lives. Of those surveyed, 25 percent admitted to experiencing anxiety or depression as a result of their debt problems.
There may be a silver lining, however. Compared with one-third of the general population, half of African Americans surveyed said they are doing better financially today than a year ago.
As jobs improve and more Americans seek ways to manage or eliminate debt - such as filing for Chapter 7 or Chapter 13 bankruptcy - we are beginning to see fewer delinquent payments and foreclosures. According to Total Bankruptcy, African American women are filing for bankruptcy - and breaking free from their debts - in greater numbers than almost any other group.
As individuals lower their debt burdens, credit scores begin to increase and options for affordable loans and credit cards begin to surely and steadily improve.
The cause of debt can be varied and complex, but the solution is simple: income must exceed expenses. Bankruptcy boosts budgets by putting money that would have gone to creditors back into the consumer's pocket.
In summary, Prudential recommended that financial institutions such as financial advisors strive to better meet the needs of the average African American consumer, whom they have traditionally underserved.
But financial firms can only do so much - and it's always for a fee. Closing the wage gap, improving jobs and finding affordable solutions for college students are more realistic - albeit long-term - solutions.
In the meantime, getting out of debt remains the fastest most, effective way to improve financial standing and achieve financial independence - no financial advisor necessary. For many folks, bankruptcy can make it possible.