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- Closing the racial wealth gap is a process that can span multiple generations.
- Dr. Pamela Jolly works with Black families to create a road map to wealth, and she says communication is key.
- Consider permanent life insurance to create an inheritance and find an expert you trust to develop a financial plan.
- Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »
Acknowledging the racial wealth gap is helpful in educating the public, but it does little to help Black and Hispanic communities that are already impacted by the disparity. Without actionable steps to empower communities, real change isn’t possible.
Dr. Pamela Jolly, founder of The Jolly Journey and Torch Enterprises, has researched the barriers to wealth generation in the Black community over her 20 years of experience in financial services (along with an MBA from Wharton, a master’s degree in theology and a doctorate in education). She works with clients to overcome these hurdles regardless of where they are in life.
“It takes three generations to build wealth, one generation to lose it, and four generations to connect it all together,” Dr. Jolly said. She typically sits with three generations of a family to help them unlearn myths about life insurance and finances to help them create a roadmap for wealth.
Barriers to building wealth in the Black community
When it comes to building wealth, the big issue most Black people have is summed up in the statement: “I don’t see how to get started.” Dr. Jolly said that anybody can build wealth; the problem is that underneath the lack of trust is also a lack of organization and understanding.
It’s important to acknowledge the inherited trauma that comes with money, wealth, and finances in the Black community. Black people were capital before they could create capital — assets on the auction block and finance books. And when there has been wealth in Black entrepreneurial centers like Black Wall Street and historic Beale Street, they were destroyed from racist attacks and replaced with white-owned businesses.
This history unsurprisingly created a lack of trust between the Black community and the finance industry. But without access to good financial advice, you will continue to repeat past mistakes.
Dr. Jolly said compassion is key in talking about money, wealth, and life insurance, as these are all heavy topics. In many Black households, no one talks about money because you don’t want people to know how much you have. Discussions about life insurance are typically shut down with “why are you trying to talk to me about death?” Many families have loved ones die and never know they had a life insurance policy.
She also notes the importance of representation. She mentioned the impact the Huxtables, a middle-class, college-educated Black family, had on the Black community. The spinoff “A Different World” caused an increase in first generation Black student college enrollment, not only at historically Black colleges (HBCUs), but also public universities nationwide.
The lack of Black financial advisors is another barrier to building wealth. As Insider previously reported, in 2019 only about 1.5% of Certified Financial Planners (CFPs) in the United States were Black.
Why life insurance is key to building wealth
When families do not discuss money and life insurance, inheritance can be lost to unclaimed life insurance policies. If families do not know a life insurance policy exists, they’ll pay for funeral expenses out of pocket and the life insurance company isn’t notified of the death so the money goes unclaimed — money that could have been used as an inheritance.
This can have drastic consequences. For example, one family decided to remove a loved one from life support. Days after removing the loved one from life support they found out that the life insurance policy was a guaranteed issue policy, a type of life insurance that doesn’t require a medical exam and guarantees approval. There’s typically a waiting period, meaning if the insured dies within two years of the policy, the insurance doesn’t pay out.
Unfortunately for this family, they removed their loved one from life support two days before the waiting period expired and did not receive the death benefits.
Not all life insurance is created equal
Dr. Jolly said are usually three types of attitudes people often take when it comes to life insurance: (1) I don’t want that; (2) I already bought that and they are always trying to sell me something; and (3) people whose grandparents explained to them it’s not a purchase but protection.
It’s important to understand the difference between term and permanent life insurance and the various products that fall under term and permanent life.
The difference between term life insurance and permanent life insurance is similar to the difference between renting an apartment and owning a home. When you rent, you have a lease for a certain term. When that lease is over, you can renew — but most likely with a rent increase. Likewise, term insurance lasts for a specified period, and when it’s up you can reapply for coverage, but the premiums most likely will go up as you age and your health deteriorates.
Permanent life insurance has a death benefit for your beneficiaries and a cash value that you can use during your lifetime. It’s like owning a home, where you gain equity that can be used as collateral — and your home can be left to your heirs leaving a legacy. Having a permanent life insurance policy helps build generational wealth due to the cash value.
From there, you start the four step “narrow road” process for generational wealth to create, build, grow, and expand your legacy.
Building wealth across generations
Dr. Jolly said her research showed that older generations of a family are often focused on avoiding poverty, so no one else suffered and the next generations didn’t have to do the same work. The older generation also often fears the younger generation will find out that they don’t know as much and lose credibility in the younger generation eyes.
The problem is when we decide not to talk about money, it creates a disconnect. In talking with three generations of one family, the youngest 15 and the oldest 80, Dr. Jolly said the general consensus was that wealth would cause the family to argue and fight, so they’d rather be broke than lose their tight bond.
In order to break this cycle, Dr. Jolly encourages stronger relationships across generations. She also stresses learning the vernacular of wealth, such as understanding net worth and the difference between “rich” and “wealthy.” Comedian Chris Rock joked, “Wealth can uplift communities from poverty and set us free, but rich is something you can lose on a crazy summer and a drug habit.”
The second generation builds wealth
Many second generations live a lifestyle that is not sustainable beyond retirement. This generation gets stuck using the leftover money for consumption and overspending.
Jolly said the goal of the second generation should be about the transfer and inheritance of wealth. They understand that life insurance is for the living and the benefits of a cash value permanent life insurance policy.
To assist in building wealth, it’s important to involve a financial advisor to develop a comprehensive plan that includes life insurance as part of the financial and estate planning process.
The third generation grows wealth
The third generation is growing wealth and utilizing a team — financial advisor, accountant, and estates attorney — to develop a business model to grow the inherited wealth.
Insider previously highlighted a mother who empowered her daughter to build generational wealth with a graduation gift of permanent life insurance. By the time her daughter graduated college, the cash value accumulated enabling her daughter to grow her wealth.
The fourth generation expands wealth
The fourth generation expands the wealth across multiple generations and starts to look at how their wealth can impact social changes within the Black community. They want their wealth to be invested with a purpose to uplift the Black community as a whole.
For example, a client considering how selling his business could facilitate generational wealth transfers for not only his kids, but also his nieces and nephews through trusts and the creation of private foundations and charitable trusts using life insurance as a source of funding.
The ‘narrow road’ to building wealth
Based on her research on how faith and finances work in the Black community, Dr. Jolly developed a “narrow road” philosophy to building wealth. The name is an allusion to biblical idea that the road to faith is a straight and narrow path.
Likewise, the narrow road methodology symbolizes the discipline required to build and grow wealth. Unlike a “get rich quick mentality,” building wealth requires developing a business plan to create, build, grow, and expand wealth.
Dr. Jolly said in the beginning it’s important to take the basics one step at a time. Financial literacy and wealth accumulation doesn’t happen overnight, but it’s a journey. Use these steps to get started:
- Define wealth for yourself. Is it having money or getting out of debt?
- Earn more than you spend. Have something left over and try investing through an automated app or robo-advisor.
- Understand that wealth is a journey that happens over time. It’s a relationship with you and money that builds, grows, and expands with others.
Ronda Lee is an associate editor for insurance at Personal Finance Insider covering life, auto, homeowners, and renters insurance for consumers. She is also a licensed attorney who practiced litigation and insurance defense.
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