Misconceptions about Black and Latinx un/underbanked households make it hard for the financial sector to address the problem effectively.
Organizations often view inclusion, along with its cousins diversity and equity, as a goal. But what if they start viewing it as a practice, an active commitment, and a way of doing business? Kedra Newsom Reeves, colead of BCG’s North America Center for Inclusion and Equity, argues that organizations must deeply embed inclusivity into their business practices. Otherwise banks will not meaningfully play their part in closing the racial wealth gap. And other organizations will also fall short of whatever aspirations they set. Inclusion must be treated as an innovation—as a break from the past—because “for hundreds of years, we were not making decisions to be inclusive.”
Kedra Newsom Reeves
Kedra Newsom Reeves is a partner focused in the financial services and not-for-profit sectors. Her work is in asset management and education. Recent reports highlight how government and business can address inequality and DEI. She has explored how businesses and financial institutions can build a capital market that supports Chicago’s underinvested South and West Sides and how banks can reduce racial inequality by serving the underserved minority market. In her TED talk, she documents her family history to illustrate racial inequality in wealth acquisition. Prior to BCG, she worked in IT software development and has a degree in computer engineering. She is a board member for Chicago NPR radio station, WBEZ.
GEORGIE FROST: In 2020, the Black Lives Matter movement sent shock waves across the world. In response, grand pledges were made by governments and businesses to move much faster towards a more inclusive society and economy. Yet the financial wealth gap when it comes to race, gender, and disability is still huge. So how can we make sure that these promises translate to action and progress?
GEORGIE: I'm Georgie Frost, and this is the So What From BCG.
KEDRA NEWSOM REEVES: Being inclusive is an active commitment. It requires action because it is not our norm.
GEORGIE: Today I am talking to Kedra Newsom Reeves, a partner at BCG who focuses on financial services and social impact. She leads the Center for Inclusion and Equity and guides governments and businesses on how they can address inequality.
KEDRA: I think when we look at COVID, whether we're talking about the US or North America or globally, if you look at any ethnic minority, globally, COVID certainly had a greater impact in terms of infection rates and in terms of deaths for ethnic minorities. We think about that in terms of loss of livelihood, for those that were ill and may have long COVID. We think of that as loss of treasured family members and the emotional impact of that on people and in the families.
And then certainly as we look at, outside of those that were affected by the illness directly, those that were affected by the shutdown of industries, as we tried to stop the spread. Which, I think was necessary in terms of stopping the spread of COVID, but certainly had economic and financial impact for individuals in terms of the service industry shutting down. If we look at—whether it be food service or home health care aids, etc.—many of those industries have a much higher percentage of minorities in the US certainly, of women certainly. And so when we think about those spaces sitting down in the unemployment, that it caused, that certainly was another factor that again decreases the income and the ability to grow wealth for families. And so certainly COVID has exacerbated the gap if you will. That that gap was already incredibly large and quite challenging to begin with.
GEORGIE: How big is this task and closing the wealth gap, because as you said, it's been something that's been around for a very long time, and it crosses so many different demographics. How do we go about closing it and just explain to me what exactly do you mean by the wealth gap?
KEDRA: Certainly. So, I mean, I think firstly, we measure it simply by assets minus liabilities: your assets, your home, your cash, your retirement accounts, minus whatever debt you might have. When we look at that for Black Americans versus white Americans, it's a 10X gap. For Latinos versus White Americans, it's I think at 8X gap now, and it probably has been exacerbated. We don't know the results of COVID on the wealth gap today. I think that is yet to be seen.
GEORGIE: Why so large? Why so large in those groups?
KEDRA: I think consider what wealth is and how you attain it over time. Just think about your own personal journey. And I think we have to start with the fact that intergenerational wealth plays a huge part in the wealth gap. Did your family have wealth to pass down to you? And that's everything from a trust fund or a massive business or tons of equity in a public company or private company, global company. And that certainly is a big part of the total wealth gap. So that affects a small percentage of people. But in fact, in even larger percentage of the smaller things. Could your parents make the down payment on a home? Could they give you a home? Could they pay for your college? Do you have to take debt out for that?
And you think about wealth accumulation, growing assets versus wealth extraction or decumulation. Debt creates extraction and decumulation, so if you don't have intergenerational wealth, you are heavily reliant on debt to grow your potential in our economy, and to grow your wealth over time. And so I think that's one big factor, is that intergenerational wealth is our starting point.
Where do you start at day zero of your life or year 20, of your life, as you become an adult? And then everything after that. It is what's your education level? Did you graduate from high school? And did you graduate from college? What are therefore the employment opportunities that are available to you? What are the income bands that are therefore available to you? What are the benefits packages in terms of health care, health care savings plans, which allow you to, do some of that tax-free? All of these seemingly small things have a huge impact on our ability to grow wealth.
And as we get older and have more steady jobs and have benefits and have retirement accounts and invest in other businesses and perhaps start businesses, all of those things contribute, as well as home values. So we like to think of it as a loop.
If you think about it that way, you're going up this ladder, if you will, and then looping back as you get the intergenerational wealth.
The So What Podcast
This Boston Consulting Group podcast series looks around the corner of today’s big business and social issues. The goal—the so what—is to make sense of today and prepare busy leaders and executives for the day after tomorrow.
GEORGIE: Which is a big task. I mean, there's nothing we can do about intergenerational wealth. That's kind of done. So we're starting at a different point. Therefore what point are we starting at? What needs to be done? What needs to be changed? Where do you look across all areas of the economy? You said that things like education, that's just one part.
KEDRA: Right, that's a very small part. And I'll just say, an intergenerational wealth point, I think, yes, we are starting at different places. I do think you're seeing things that are really interesting where wealth is being given back to families. So you take, there's land in California that was taken by the city and now has been given back to that family. And the city is now paying for that land from that family. So that wealth that family had, a hundred years ago, has now been given back to the family that it belonged to. And now their wealth position is totally different, if you think of it that way.
I don't want to totally put that aside. I think at scale and mass, that will not be the solution for everyone, but there are opportunities for that to happen. There's some work going on in Evanston close to where I live here in Chicago, around reparations. And so there are some efforts to address intergenerational wealth gaps where feasible. Direct money, direct dollars.
GEORGIE: So direct money—direct dollars, direct money or dollars—could be one solution?
KEDRA: Could be part of the solution yes, yes. And I think that's a governmental solution. I think we are seeing pilots and experiments in that space and in various places.
GEORGIE: How else would you like to see that played out? I mean, could you have sort of parachute payments for certain groups?
KEDRA: I mean, there are really interesting ideas like baby bonds. How do we ensure that every child starts off with some level of wealth? I will say this, I think my only challenge, I would say when I talk to my clients in the public and private sector, is that it can't just be a government solution.
There are things that we can do in the private sector that are really, really critical. And I think education is certainly one of those. So we actually look at, for Black families, education is not a true wealth driver. Education is not a panacea. It doesn't solve all issues. I think the thing that we see employers doing, if we just talk about income for a minute, that I think is a big driver of equity is thinking about skills-based assessments of potential employees.
So rather than saying, “You have to have this college degree from this set of ten schools that we always recruit from,” employers can say, “We're looking for something very different. We're looking at an assessment of what makes someone successful in this organization.”
If you think about sales, think about the things that are important in a sales job. It is about being personable, being able to connect with people. There are a lot of different profiles of people that can do that role really well. So how do we find those individuals and ensure that they're getting equal opportunity to those types of roles that someone else might? And then you think about the benefits that come with that, the retirement account, etc., that I think is certainly a level that's really interesting.
GEORGIE: How do you find those people as a business? Because part of it is knowing where to look. And I guess the other part is giving young people or anyone the confidence to believe that they can go for those jobs.
KEDRA: Most, certainly all about exposure. I mean, how did I become a consultant? And how did you sit in the role that you're playing today as a journalist? You were exposed to something at some point in your life that said, "Huh, that looks like an interesting job. That looks like something that I could do."
I do a lot of community work and go into schools. And it's interesting to talk about consulting. To help students understand that everything you see and do and touch is someone's business. Anything that seems interesting to you, there's a role for you to get there. I think the question is what's the path.
"Similar to how digital has been an important innovation for us, similar to how data's been an important innovation, inclusion is an important innovation for us."
GEORGIE: And the role that businesses can play in that?
KEDRA: I mean, I think that a lot of that is about connecting back to your community. What is the community service that you do?
When we talk about diversity, equity, and inclusion at BCG, we really talk about it in three ways. It's what are you doing in your community? Which I think businesses often really do think about. I don't know that they really think about how that is a channel and a pipeline to talent for their organization and for the economy more broadly, they think of it as perhaps more of a charitable donation, a charitable activity. But really investment in our communities is critical to how our nation will thrive over the long-term. And so I hope people start to think of it that way, but certainly one is that philanthropic piece.
I think the second way to think about is team and culture. And I think what we're talking about right now is the connection of that community work to that team and culture and the path into those roles over time.
And then the third piece that we think about is, from a business perspective, what are the products and services that you're putting out there? Are you being equitable in that piece? And certainly in financial services that plays a huge part in the wealth gap and the opportunity for families to accumulate wealth over time.
GEORGIE: What should leaders be doing? How do you get investors and consumers on board with this? Why does this matter so much from a business perspective?
KEDRA: I think from a business perspective, from a sustainability perspective as a business, and we often talk about sustainability as it comes to climate, but we also have to talk about it when it comes to people and communities.
When we are excluding large portions of our society, we are not setting ourselves up for success, quite frankly. One of the things we're really trying to do at the Center is to really think about how do you deliver services equitably, and what does that mean for people?
So take health care as an example, if we have truly equitable health care in the US, we don't have a public system in the same way that we see in other parts of the world. If we're not taking care of our people, we see outcomes like COVID, right?
And that comes back to wealth. Health is wealth. If you aren't healthy, you can't work. If a family member passes away, that is a livelihood that has gone, that has disappeared. And if that person passes away at an early age, think of the kids that no longer have those parents that can provide for them. And so health certainly is a contributor to this.
And we think about the health care organizations that are out there, that are shooting to do some of this work that is incredibly important to the wealth gap. I think on the financial services side, we talk a lot about how do you deliver services equitably?
How do you ensure that people are not experiencing wealth extraction by using really unfair, high-interest predatory lending products just to get by on a week-to-week basis? It's really difficult to be at a low-income status. It's hard, it's hard to make a budget meet. It's actually not hard at all to be wealthy. [LAUGHS] There are many things that you can do with that wealth, and you can make it quite difficult for yourself depending on your goals, but it's actually not that difficult. What's really difficult is living on a very tight income. And when our products and services don't meet the needs of those families and those individuals, there is no choice but to use products that are really quite predatory. And I think we talk a lot about wealth accumulation but we don't talk a lot about wealth extraction, and high-interest products are doing just that, they're extracting wealth every day, every week, from families that don't really have wealth to really grow at this point.
And so I think what we talk a lot about in our practice in financial services is what can banks do? What would equitable products looks like? What would equitable reach look like? And in all ways, from very traditional banking services, just like your checking and savings accounts to your mortgage accounts, to investments. How do we make that access more equitable for people? And how will that have an impact on those higher parts of the wealth loop, if you will, than the intergenerational wealth piece that we started with?
I think, the question is, are we reaching the folks that need the product and are we building the trust in the community that that relationship can be held? And how do we look at that product suite, on the investments we make there versus everything else we're trying to do as an organization? That's where the real challenge comes in. Are we making the investment necessary to make those products successful, to have the reach that's necessary to reach the communities that need them the most?
GEORGIE: How do you make the investment? How much is the right investment? Where does it come from? How do you direct it? What resources you need to achieve this?
KEDRA: First, let me just start with people.
I think the thing that's going to change that, I think one is, being a CEO-level priority and seeing that investment can be made—that it's not fundamentally dilutive to your margin. I think that's part of it. Do you have the leadership commitment?
I think the other question is what will investors do? And this gets back to the thing that you asked earlier: what about investors and consumers? A majority of the assets in the world are controlled by a relatively small number of pensions, sovereign wealth funds, etc., foundations, endowments. And I think when we start to see investors taking a different tack, demanding to be part of the goal set for companies, that's when you'll see change, really I think more fundamentally. And I think we're starting to see it. I think we see most of the major banks in the US have made those big pledges. I think all of them are working to deploy them. I think they're running into the investment challenges that we talked about. How do you prioritize this versus other things? But I think we are seeing a lot of those pledges come forth.
GEORGIE: Is there only so much the organizations can do? And by that, I mean, do you think the system, the economic system, governmental system, is rigged against Black Americans, Hispanic Americans, maybe to a large degree women too?
KEDRA: I don't think our economic system was set up to be inclusive of women, minorities, LGBTQ, to some extent, people with disabilities, it's just as simply the case that our economy was not set up to be inclusive.
GEORGIE: What was it set up for? How was it set up?
KEDRA: I think historically it's been set up for white men. You think about our government leaders. You think about our business leaders over time, and you think about the laws that are in place in terms of employment of women and minorities over time. These were not things that happened by happenstance. There's some work we recently released around climate that just says, you know, systems are not organic things. There are people, individuals making decisions.
And I think for hundreds of years, we were not making decisions to be inclusive. That's just not how our economy— and the global economy—not even just the US, but our global economy, was really set up. And so being inclusive is an active commitment. It requires action because it is not our norm. And I think you see that certainly for ethnic and racial minorities. And you also see that for women.
You know, I do a lot of work in wealth management. We did a study a couple of years ago, just looking at women in wealth management, looking at women that are actually high-net-worth, ultra-high-net-worth—very desirable to serve for banks and really being completely underserved.
And still a lot of conversations that you would have expected to be happening in the 1960s and 1970s of a woman sitting at the table with her husband: the woman is the CEO, the husband's a stay-at-home dad, and the husband is the one who's getting spoken to. And the husband's the one that's getting the advice and getting the packet that comes after the meeting. And so there's a lot of work to do. It requires focused and intentional activity because it has not been our historical norm. You could have a perfect credit score outside the traditional lending system and still be turned down for credit in the traditional lending system.
And so these are the types of really ingrained, I think, business practices that we have to attack and really look at very closely if we're going to build a more inclusive economy. And I think that intentionality around that focus of time and investment and study is the thing where you need those business leaders who are truly committed and are going to say, "You know, [inclusion] is an important innovation for us. Similar to how digital has been an important innovation for us, similar to how data's been an important innovation, inclusion is an important innovation for us.
We recognize that it is something new that we have to do differently, and we're going to put dollars against it, and we want to see progress and we're going to set goals." That's what we have to see from business leaders, if we're going to see real impact and real change.
GEORGIE: What did the Black Lives Matter movement last year—well not just last year because it's continuing—but what did that moment mean to you in your life, in your work? Are you optimistic that this could be a real point for change, permanent lasting change? We've had so many false storms along the way. Could this be the final one or is it just the way that progress happens?
KEDRA: It's a great question. I think, I think for me personally, one, the Black Lives Matter movement has been around for a long time, there's a great quote. I'll just speak very personally for a moment. There's a great quote by an activist. Actually I think on the West Coast in a press conference, and she said something like we've tried every way of protesting, we've rioted, but we've also made music and drawn pictures and made movies and tried to excel professionally to be in places of power as a way of, our presence being a protest, if you will.
And so I think the racial reckoning, which I wouldn't say is just Black Lives Matter, I think I would say the racial reckoning that occurred last year, Black Lives Matter has been, as a movement, has been happening for a very long time under that kind of name, if you will. But I think the reckoning of last year, which drew in people outside the Black community. I think that was an important moment. To me the impact of that moment, launching people outside the Black community on their own personal journeys of realization and reckoning, and then asking themselves the question: what should I do at this moment?
Unfortunately, in a way it took all of that to get to where we are today. And had we not seen so many protests by people in the streets, had we not all been confined to our homes and really unable to look at anything else, I don't know that we would be where we are now. And so I think for me, what's been really meaningful about, the last year is this: I've been in financial services for a couple of decades at this point. I've been at BCG for 13 years and been doing equity work outside my job for years. And in some ways doing it inside BCG for a number of years as well. But as we said earlier, systems are not organic, systems are driven by actors that are in places of power—and having actors that are in places of power care about these topics is what is making the difference.
And I think how we all choose to remain committed to this work and make it a core part of our businesses and our organizations is again what will determine whether or not this movement will be, you know, "Three years in the late, you know, early 2020s, something happened, and no change was...no progress was made." That could be the line in the history books. I think there are a lot of people who don't want that to be the line. I'm certainly one of those people.
And for me, it's a very personal journey. I want my kids to have a very different experience over the long term. I've been incredibly privileged, but I can look to my left and look to my right and my family and see a very different outcome. It's really heartening. I think it's really exciting to see where we are now versus where we were even 18 months ago. And it is heartbreaking, I think, that it took a global pandemic and a televised murder of a man for that to happen. But I think, I think that is what it took. And so now what do we do with all of that is the question.
GEORGIE: What do we do with all of that?
KEDRA: I think we stay committed, we stay committed to doing the work.
GEORGIE: Thank you very much Kedra. And to you for listening, we'd love to know your thoughts to get in contact, leave us a message at, email@example.com and if you liked this podcast, why not hit subscribe and leave a rating wherever you found us? It helps other people find us too.
Misconceptions about Black and Latinx un/underbanked households make it hard for the financial sector to address the problem effectively.
Inequality is a complex challenge. To tackle it, governments should not only provide safety nets for citizens but also create trampolines that help them advance.