Black buying power topped $1.2 trillion dollars in 2016, according to African-Americans: Demographic and Consumer Spending Trends, 10th Edition.
According to a 2013 Nielsen Study titled Resilient, Receptive and Relevant: “The growth in black buying power stems in part from an increase in the number of black-owned businesses as well as from an uptick in education among the African American population, which leads to higher incomes. Despite historically high unemployment rates, blacks have shown resiliency in their ability to persevere as consumers.” (My translation: Many black people continue to spend money even when they don’t have a steady source of income.)
All of this points to the progress made by black people in the area of income growth, which is a good thing. However, the rapid growth of black buying power over the last half-century has caused many of us to incorrectly equate our capacity to spend with an increase in black wealth. This is because of flawed reverse logic: The more wealth you have, the more you are able to spend (true). Therefore, the more you are able to spend, the wealthier you must be (absolutely not true).
Incorrectly believing that spending power equals wealth is what causes people to say things like these actual Tweets and Facebook posts:
“We have over $1 trillion in black buying power—why can’t all those millionaires [not] black football players quit the National Football League and start their own league?”
“Black buying power is over $1 trillion—we should pool our money to provide the capital to create black-owned Fortune 500 companies!”
“If we would just leverage our black dollars, we could create our own multinational bank, and finance our own businesses!”
First of all, wealth is not what you make, but what you keep. So buying power, by definition, can’t be wealth because you no longer have it; you have exch
anged that money for goods and services. In other words, that $1.2 trillion is spoken for. To use that money to say, finance a major sports league, a movie studio, or a chain of black-owned multinational banks, means no longer spending that money on food, clothing, housing, cars, entertainment, electronics and myriad other things we buy.Remember, wealth is not measured by income, but net worth: your assets (what you own) minus your liabilities (what you owe). How do you know that income is not wealth? Because your salary (unlike stocks, bonds, cash, real estate, precious metals, jewelry, fine art, a business and other assets) cannot be passed down as an inheritance to your children.
Buying power is not a measure of wealth, but of our capacity as consumers. To the degree we withhold our spending from companies that are harmful, disrespectful, or unfair to black consumers, and intentionally direct our dollars toward companies (including black-owned businesses) that are beneficial to black communities and value black consumers, our spending power is important.
However, income growth and the related increase in buying power can’t contribute to the capacity to build wealth, unless you spend at levels less than the amount of income you generate—using the difference to bank and invest. In other words, the ability to build wealth depends on the degree we control our spending, so that after we pay income and other taxes, and for necessities such as housing, food, and transportation, we have something left over to not just spend, but to earmark for emergency savings, retirement savings, an investment portfolio, buying real estate (beginning with our own homes), financing businesses, and acquiring other assets.
Right now, while black income has grown rapidly over the past 70 years, our spending has grown even faster, which means we are spending every penny we make and then some (which is the case for most Americans). And what allows us to spend more than we make? Easy access to credit, of course.
Too often, when we say we don’t have money to finance businesses, save for retirement, afford life and disability insurance, buy our own homes or build an investment portfolio, it’s just not true—and our $1.2 trillion in buying power is graphic evidence of that. The truth is that money is in our garage, in our homes, and on our bodies, in the form of consumer goods, such as cars, clothes, electronics, and experiences (such as that daily, gourmet coffee-dessert) that we’re convinced we deserve and can’t live without, or even defer long enough to save, rather than borrow at interest, to have. And far too much of our money is going toward interest payments on the debt we took on (much of it via credit cards) to make these purchases.
The growth in black income, and the corresponding increase in black spending power is a good thing—but only if we adopt the proper lifestyle to leverage it. We have two choices:
A Poverty-Creation Lifestyle
Spend more than you make, regardless of income, and borrow, paying interest and fees, to cover the difference. After providing for basic necessities (and often instead of doing so) you spend all of your income on high-priced, low-value, depreciating assets, such as clothes, cars, jewelry, etc. The priorities are needs first (sometimes second), luxuries second (often first), saving and investing last (often never).
A Wealth-Creation Lifestyle
Spend less than you make, regardless of income, and save and invest the difference, earning interest, dividends and capital gains. Invest as much as possible in sensibly priced, appreciating assets, such as stocks, bonds, mutual funds, real estate, etc. The priorities are needs first (sometimes second), saving and investing second (often first) and luxuries last (and later).
For growing black buying power to have a positive impact on our efforts to build black wealth, eschewing the former lifestyle in favor of the latter must become the cultural standard of African Americans. It may not be easy, but it’s absolutely necessary. Of course, this is why Earl Graves Sr. created Black Enterprise—both the magazine and the mission—nearly a half-century ago.
By the way, as of the 2010 U.S. Census, there were 42 million black people in America (including multiracial African Americans). That means $1.2 trillion equates to about $28,600 in spending power per person. How much of your share are you prepared to put up to finance a new professional sports league?