In this moment in time, we see our nation at an inflection point. The crushing social and economic burden of the COVID-19 pandemic has fallen disproportionately on Black American communities. At the same time, the killing of George Floyd and the resulting civil unrest have heightened awareness, unleashed outrage, and mobilized a shared national imperative to address and eradicate racial disparity.
There’s long been a need for action. The time for that action is now. And we see financial institutions as uniquely well positioned to act—and to catalyze further action in corporate America.
By innovating radical new ways to invest in Black customers, institutions can transform the financial realities of these individuals, their businesses, and communities—as well as the local, state, and US economies.
As lenders, they can provide greater access to capital. As shareholders, they can hold businesses accountable. As influencers and stakeholders, they can elevate policy. As employers, they can advance diversity and inclusion as well as pay equity in their own workplaces.
In US society, income inequality and financial insecurity are foundational to structural racism: while family median net worth is nearly $171,000 among white families in the US, for Black families it is just $17,600, according to the Federal Reserve’s 2016 Survey of Consumer Finances.
Across more than 10 million Black families, this wealth gap translates into several trillion dollars and massive underinvestment in communities of color.
Consequently, many Black families lack the means, illustrated in Exhibit 1, to move themselves into safer housing, better jobs, higher pay and standards of living, and greater stability.
This disparity perpetuates and amplifies across generations.
We highlight some of the most pronounced inequities in Exhibit 2.
Yet even in the face of these systemic barriers and pressures, Black Americans have been able to accelerate their rates of education attainment, entrepreneurship, and stock market participation. That is, although the overall numbers of degrees and businesses among Blacks remain below levels attained by other groups, Blacks are making strides in these areas at rates that outpace whites. (See Exhibit 3.)
It is critical that this promising trajectory does not collapse under the burdensome weight of the COVID-19 pandemic and the latest eruption of racial tensions. But this is not a public- or social-sector issue alone.
We see the private sector as well positioned to forge the novel solutions needed to resolve longstanding problems. In particular, financial institutions are poised to lead the charge, advantaged by:
Closing the wealth gap demands radical disruption in how financial institutions prioritize, target, and invest in Black consumers. We see four primary ways these organizations can change the game for Black customers and their businesses.
Innovate to Provide Investment and Advisory Solutions That Boost Wealth and Equality
Financial institutions can put their core businesses to work to:
Develop Strategies to Better Attract and Serve the Next Generation of Black Investors
Drawing on consumer insights and industry connections, organizations can:
Increase Investment in Black-Owned Businesses, Black Neighborhoods, and Companies Leading in Racial Inclusion
Taking the lead as a conduit to investment, financial institutions can:
Leverage Influence as a Shareholder, Lender, and Stakeholder
In their diverse roles at the fore of the industry, these institutions can:
Racial disparity is an intractable problem that has plagued our nation since its inception nearly 250 years ago. Yet we incur a huge risk if we wait to act on this front until after the COVID-19 pandemic is resolved or the next election is decided.
Fortunately, some of the approaches we’ve outlined here are already taking shape at a few institutions—and we will be sharing more insights in the months ahead on how to embrace these steps.
First and foremost, the current public focus on racial tensions should be channeled to drive engagement and innovation on this problem. And any ground lost to delays now will not easily be regained.
In addition, if we drop the focus on advancing the upward trajectory in Black education and entrepreneurship, we risk the possibility that these gains could lose momentum or even backslide.
Finally, systemic change and cultural transformation are long and nonlinear processes. But they only advance with sustained and intense investments and relentless pressure. This is our moment.
The authors are grateful to those who graciously shared their time and insights with us. They include BCG senior advisor Jim Lowry; BCG managing partners and directors Simon Bartletta, Joseph Carrubba, and Steven Thogmartin; and our colleagues Kevval Hanna and Dan Vogel at BCG’s Centre for Public Impact, a not-for-profit founded by Boston Consulting Group that focuses on reimagining government, and turning ideas into action, to bring about better outcomes for everyone.
In addition, the authors thank the following BCG colleagues for their considerable contributions: Olivia Anglade, Joe Clancy, Esmé O’Neill-Dean, Ayanna Fowlkes, and Wallrick Williams.