Black Americans Report Changing Financial Habits Due to COVID-19

The racial wealth gap underscores a need for financial education and access to advice—something retirement plan sponsors can provide.

Black Americans have been disproportionately impacted by COVID-19—and that’s also affected their spending and savings habits.

While the coronavirus pandemic produced financial challenges for many American workers, Black consumers were impacted at more severe rates, a new study from Lincoln Financial Group has found. According to the company’s October 2020 Consumer Sentiment Tracker, which was released this week, Black consumers (32%) were most likely to have experienced job loss due to the pandemic and, thus, lack appropriate emergency savings (42%) and funds to cover everyday expenses (41%).

As a result, the study finds, 74% of Black American workers are planning to make lasting changes to the way they spend and save, while 75% are planning for their financial future differently and, therefore, searching for financial planning resources. Sixty-seven percent said they are reading and learning about financial markets and investing, as well as considering whether they have the right insurance (61%).

The financial changes expressed by Black consumers underline their desire for financial planning resources and advice, especially on long-term finances and retirement. Thirty-nine percent said they prefer to learn about financial products by meeting with a financial professional, while others would rather seek advice from financial services companies (28%).

Eric D. Bailey, founder of Bailey Wealth Advisors and a registered representative of Lincoln Financial Advisors, says he believes offering tangible education during the early stages of a career increases financial literacy.

“Plan sponsors can make a real positive impact by supporting their Black employees and entire workforce by ensuring they are focusing on education—helping their employees understand and make the most of the benefits available to them and providing actionable financial wellness tools and resources,” he said in an interview with PLANSPONSOR. “With this, we have a real opportunity to address the income discrepancies we saw among race and ethnic groups in the data.”

The research also underscores a problem that Black workers faced long before the COVID-19 pandemic: the racial wealth gap in the United States. Data from the 2019 Survey of Consumer Finances (SCF) found significant wealth disparities for families of diverse racial and ethnic backgrounds were little changed since 2016—and that the typical white family has eight times the wealth of a typical Black family.

And Black families are less likely to have employer-sponsored retirement accounts than white families. The SCF study found that in all age groups, Black families were far less likely to own a defined contribution (DC) or individual retirement account (IRA) than white families. Among working-age families, white families were also found to have more widespread access to employer-sponsored retirement plans than Black families.

Acknowledging the existence of the racial wealth gap and constructing benefit packages to combat this disparity are steps employers can take to support Black employees, says Dennis Wall, vice president and leader of group education strategy and development at Goldman Sachs Ayco Personal Financial Management.

“Plan sponsors can assist by providing financial wellness group education that is emotionally intelligent, can spell out the issues that are specific to the Black community, and can inspire people to take tangible, positive financial actions,” Wall tells PLANSPONSOR. Employers may also consider a group legal benefit which could allow Black employees to seamlessly set up an estate plan at an affordable rate, he adds.