Economists have long lamented the shrinking of the American middle class. In Detroit, the economic crises of the Great Recession, the COVID-19 pandemic and the persistent instability of an accessible real estate market has exacerbated the strain on the growing socio-economic divide between the top one percent and struggling majority.
In an economic climate that is steadily growing stronger, residents need to think about ways to build generational wealth to sustain themselves and the future of their family’s financial health.
Generational wealth is the privilege of passing down anything of monetary value from one generation to the next, whether it be cash, credit, real estate or other material commodities.
When families are caught in a cycle of poverty and living just to get by, it can be difficult to plan investing in the future when your needs need to be met in the present, with no excess to build on.
Dr. Ranjan D’Mello, professor of finance at Wayne State University, spoke to the Michigan Chronicle on how Detroiters can begin securing their future.
“The idea is that you have to begin saving early,” said D’Mello. “For those that spend on things they don’t really need, there must be restraint and a long-term goal in mind.
“What the benefit of finance will show you is that the earlier you’re saving your wealth, it becomes easier to retire early and create wealth for your kids. You take X percent out of your money and keep it aside, invest it, and then let this money grow over time. Having saving knowledge means taking time to learn about investing in stocks, bonds, mutual funds, real estate. It’s important to also understand the tax implications of all of these things. We need to start educating ourselves at a much younger age.”
For Detroiters, this advice may not seem all that accessible on the surface as many are struggling to break from below the poverty line to make ends meet.
In 2021, Detroit Future City (DFC) released The State of Economic Equity in Detroit report as an analysis of the deep inequities that Detroit continues to endure and recommendations on how to stabilize an evenhanded economic approach that meets residents’ specific needs.
One of the report’s components is assessing income and wealth building capacity of residents engaging in economic opportunities.
Several factors were found to impact income and wealth creation, including access to a quality education and gainful employment.
However, closing the racial wealth gap is more of a complex process needed to reconcile systemic barriers in policy that have negatively affected Black and Brown communities over generations.
Economic policy analysts have identified several indicators to track the city’s current reality and potential for growth, including median household income.
The report shows the median household income has witnessed steady gains since a decline caused by the Great Recession of 2007-2009. As of 2019, adjusting for inflation, the median household income in Detroit was $33,970, which is nearly a $4,000 increase from 2010.
“Systemic barriers to wealth creation can be seen,” the DFC report found. “For example, in how home values appreciate at lower rates for African American homeowners than for white homeowners, challenges in getting a mortgage to purchase a home and access to capital to start or expand a business.”
D’Mello’s addressed the economic inequities present in Detroit when it comes to building wealth over time.
The journey begins in investing in education.
“Education for young folks is the most fundamental change agent when it comes to moving your family forward,” said D’Mello.
“One thing to look at is creating a business and investing in real estate in Detroit as it’s growing rapidly, is popular right now. Small businesses are a way to earn a living and have steady income to depend on. In real estate, there are a lot of cases where people are buying old, dilapidated houses and investing on returns whether they fix and sell or rent out.”
Building generational wealth would not be readily possible without removing systemic barriers for the Black community.
DFC’s report concludes six key markers toward a more economically equitable city:
- Improve educational outcomes at all levels.
- Improve access to affordable, quality health care.
- Increase the number and share of middle-wage jobs.
- Grow and strengthen middle-class neighborhoods.
- Increase capital access and supports for minority-owned small businesses.
- Increase access to quality affordable housing.
“Younger generations have a head start when it comes to sustaining a better future and even those struggling can begin at a small advantage,” said D’Mello. “Wealth creates wealth.”