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The Racial Wealth Gap and Redlining

Part of Our Black History Month Money Minute Series


Author: Jean Cyprien, Coordinator, Student Money Management Center

After defining, “The Racial Wealth Gap” in a previous Money Minute, let’s dive into how history has played a role in Race & Wealth in America with respect to redlining.

Emancipation and Juneteenth

Growing up in Galveston, Texas, Juneteenth was celebrated on June 19th every year. As noted in juneteenth.com, “Juneteenth is the oldest nationally celebrated commemoration of the ending of slavery in the United States”.  Dating back to 1865, it was on June 19th that the Union soldiers, led by Major General Gordon Granger, landed at Galveston, Texas with news that the war had ended and that the enslaved were now free.  This was, of course, two and a half years after President Lincoln’s Emancipation Proclamation - which had become official January 1, 1863.”

Juneteenth — Emancipation Day 1865 — was supposed to start a new era of black wealth creation. After 12 generations, four million African Americans were now free to earn incomes and degrees, hold property, weather hard times and pass down wealth to the next generation.

Redlining Defined

This new freedom was made even more difficult during the 1930s when Blacks seeking home loans found themselves redlined — ineligible for credit because the government would not guarantee the loans. The term redlining originated during this time frame and is the practice of color coding maps of cities based upon different neighborhoods’ eligibility to receive a loan or mortgage. The lowest ranked neighborhoods were often literally lined in red and were almost always a community of color or other people of marginalized identity.

Watch: Redlining Video

Transcript

Frame 1 - Hello, Jean Cyprien in here with the Student Money Management Center to discuss how the effects of redlining further divided the racial wealth gap.

Frame 2 - The term redlining originated during the nineteen thirties, and it is the practice of color coding maps of cities.

Frame 3 - The lowest ranked neighborhoods were often literally lined in red, and we're almost always a community of color.

Frame 4 - Or other people of marginalized identity.

Frame 5 - Blacks historically were excluded from establishing equity during a time of unprecedented rises in home values, and this exasperated wealth disparities.

Frame 6 - The Student Money Management Center can help you understand the proper use of credit.

Frame 7 – Housing equity makes up about two thirds of the median household wealth, so good credit is very important.

Frame 8 - The improper use of credit can cause debt and thereby thwart your goal of achieving financial freedom.

Frame 9 - Having a good credit score is important in today's world, but having healthy spending habits is more important. So take intentional steps towards establishing your personal financial history.

Frame 10 - Your financial freedom is just ahead, and we're waiting for you at the Student Money Management Center.

Frame 11 - So make an appointment today.

Frame 12 - Thank you

As noted in a 2019 washingtonpost.com article, “Housing costs rose without giving Black residents a stake in the value of their homes, while neighborhoods decayed from lack of investment. Low-quality schools and services in poor neighborhoods were a drag on upward mobility. Since housing equity makes up about two-thirds of median household wealth, excluding Blacks from establishing equity during a time of unprecedented rises in home values locked in and exacerbated wealth disparities.”

Understanding the Proper Use of Credit

Impeding the growth of wealth in communities of color is the abuse of credit. Understanding how to use credit responsibly can go a long way towards understanding the benefits and negative implications of using credit. Proper use of credit can diminish the wealth gap, starting with you. For example, the use of credit cards can make it easy to accumulate debt if you do not know how to use them responsibly. Yes, having a credit card can help in building credit but a key point to keep in mind when trying to build credit is that it is better to have no credit than bad credit.

Some individuals get a credit card to build credit, only to end up building a bad credit history because they don’t use credit wisely. Using credit cards can result in you spending more than you earn which can negatively affect your credit score. Using a budget to align your spending with your income helps provide a better understanding of what and what not to use credit cards for. This will allow you to have the funds to pay your balance off in full each and every statement cycle.

Paying off your balance in full is one way to increase your credit score. Credit reports reflect all of your credit activity, a credit scores represents a snapshot of that activity. Credit Scores are calculated based upon payment history, amounts owed, new credit, types of credit used and length of credit history. Credit scores help lenders determine your creditworthiness, and can range from 300 to 850.  While having a good credit score is important in preventing a lender from charging a higher interest rate on a loan you are seeking, practicing good spending habits is crucial for an overall healthy credit use.

Here’s the Key

Create healthy habits. Start slow by using the credit card for one spending category, like fuel for your car, and paying it off in full every month.  Whatever category you choose, it should be something that you already spend money on each month.  It should not be used as a personal loan you issue to yourself.  That’s how people build up large balances and get trapped in debt. 

Your payment history factor is the largest portion of a credit score (35%) - Making on-time, regular payments on all debts. The next largest portion of a credit score relates to reducing account balances (30%). These two factors account for 65% of a person’s credit score.  Paying your bill in full, every month, is the fastest way to build credit and stay out of debt. 

Connect with the SMMC

Make an appointment with the Student Money Management Center (SMMC). We can first help you in establishing healthy spending habits to prevent the negative impact of the improper use of credit. Improper use of credit can cause debt and thereby thwart your goal of achieving financial freedom. Having a good credit score is important in today’s world but having healthy spending habits is more important. A habit is an acquired behavior pattern that is followed so regularly it's almost involuntary.

Allow us to partner with you to help you establish those healthy habits which will lead to a positive credit history … one which will place you on the road to financial freedom!

Take intentional steps towards establishing your personal financial history! Make an appointment today! Email us at smmc@ung.edu.

Get Help with Your Money

UNG's SMMC is here to help you with all things money management. Schedule a personal consultation today to get started on your path toward finacial success!

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