Advice From A Financial Adviser: 3 Traps Black Men Should Avoid While Building Wealth

Malik S. Lee writes about products, strategies, and tips to help you make smart decisions with your money.

  • As one of just 1,350 Black Certified Financial Planners — representing 1.5% of all CFPs — it's important to me to offer my community the right financial advice for their needs.
  • To begin to close the racial wealth gap, I believe there are three pitfalls African American wealth builders must avoid: keeping up with the Joneses, giving away too much of your cash, and not seeking professional help for your finances.
  • A financial planner can help you build your legacy — it's wise to seek help, not weak.

Can I be honest? The last few months as an African American living in the United States have been emotionally exhausting. When you see victims like Breonna Taylor, Ahmaud Arbery, and George Floyd suffer from police aggression and racism around the country, you have no choice but to stop and reflect.

As a minority and an expert in the financial industry, I think about how I am one of roughly 1,350 Black Certified Financial Planners practicing in the United States. African Americans represent only 1.5% of all Certified Financial Planners in the country, which means it can be difficult for my community to find representation among financial professionals.

That has a real impact on the racial wealth gap, because it means African Americans may be less likely to seek out professional financial advice if they struggle to find a trusted expert who understands their specific, unique situation and struggle.

So, as others do their part in the fight for social justice, I will do mine: I will show up for and educate my community on how we can fight economically and close the racial wealth gap. To do so successfully, there are three pitfalls that African American wealth-builders need to avoid.

Keeping up with the Joneses

In 2018, data showed the average Black household made around 60% of what the average white household earned.

So when an African American household gets a piece of the American dream and earns more money, I understand the urge to enjoy that increased income and financial success in the present moment. 

Unfortunately, unwise or uncontrolled spending is one of the main ways to hinder your wealth-building efforts — no matter how much you make or how successful you may be in your career. To build assets, you need to avoid the temptation to keep up with the Joneses.

The three areas where I see my clients overspending most often are cars, homes, and clothes. Keep these in check and remember that money spent here is money that you can't save or invest to grow wealth over time.

At my firm, we recommend that clients keep home payments to no more than 25% of their net income. We also recommend keeping the limit set at 10% for car payments (including insurance) and 2.5% on clothes and accessories.

Paying the first-generation wealth-builder tax

Many Black individuals and families poised for massive financial success struggle with this pitfall: paying the first-generation wealth-builder's tax.

Not to be confused with former presidential hopeful Elizabeth Warren's wealth tax, the wealth-builder's tax is the pressure felt or promises made by first-generation, financially independent minorities to family and friends to support them financially.

We have all heard stories about how entertainers and athletes go bankrupt not through irresponsible spending, but because of their efforts to support others in their lives. This phenomenon isn't limited to celebrities; regular people handicap their own ability to grow wealth because they feel the same pressure or obligation to help loved ones.

I know how hard it is to say "no" to family and friends who you feel helped you get to where you are today. Personally, my grandmother sacrificed the second half of her life, at the age of 55, to raise me — so I get it.

I understand the urge to give back to the people in your family or around you who could use financial support, but you must focus on securing your own wealth before financially contributing to others.

You cannot break the cycle and close the racial wealth gap if you give away your tools to build assets before you get a chance to actually build that wealth.

This doesn't mean you can never support family and friends, but while you're in the "asset-accumulation" phase of your life, prioritize building your own wealth first so that you have the means to help others in the future.

Not asking for help

As you embark on tackling the systemic issues that the Black community has faced for hundreds of years, remember that you are not in this alone.

Breaking down these barriers and eliminating the racial wealth gap will take time, technical knowledge, and emotional support. Putting that burden solely on your shoulders is not the most efficient way to overcome these challenges; it's wise, not weak, to seek out as much help as possible.

Ensure that you hire a licensed professional. Remember, Certified Financial Planner professionals are financial planners who have agreed to adhere to rigorous professional standards. They are also proficient in many areas of financial planning. If you are looking for an African American planner, you can find one at the Association of African American Financial Advisors.

Even with professional guidance, financial planning and wealth-building are a process. Be prepared for a marathon, not a sprint, and create consistency with the good money habits of building savings and keeping spending under control.

Most importantly, don't give up — no matter how tough the road gets. Your success at building generational wealth plays a critical role in moving the Black community one step closer to knocking down barriers that have been in place for hundreds of years. 


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