Closing the racial wealth gap by investing in Black consumers

Organizations that incorporate racial equity into their strategic agenda can promote growth and advance Black economic mobility. How can business leaders realize this transformative growth?

In the second episode of McKinsey’s new Future of America podcast, McKinsey’s Kweilin Ellingrud and Shelley Stewart III discuss how sustainable, inclusive growth can help to close the racial wealth gap and open new opportunities to better serve Black consumers. An edited version of the transcript follows.

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Closing the racial wealth gap by investing in Black consumers

Kweilin Ellingrud: Welcome to the second episode of McKinsey’s Future of America podcast, where we’ll explore how we can build a future that drives sustainable and inclusive growth. I’m your host for today, Kweilin Ellingrud. I’m a McKinsey Global Institute director and a senior partner based in Minneapolis. I lead McKinsey’s insights on the future of work, gender equality, racial equity, and productivity. Today I’m joined by my colleague Shelley Stewart, a senior partner in our New Jersey office and the head of McKinsey’s Institute for Black Economic Mobility. In that role, he’s led numerous research reports on economic mobility and racial equity. Shelley, welcome, and thanks for being here today.

Shelley Stewart III: Thank you for having me.

Kweilin Ellingrud: Shelley, can you tell our listeners a little bit about your background?

Shelley Stewart III: I’m Shelley Stewart, a senior partner with McKinsey. Among several things, I have had the privilege of founding and leading our Institute for Black Economic Mobility, our think-and-do tank focused on helping to accelerate economic inclusion for Black people, with a starting focus on the United States. This links to some of my background prior to McKinsey. I was doing investing in areas that would now be considered impact investing, serving certain types of communities through housing investments and healthcare investments. So I’m very, very happy to be having this discussion with you.

Kweilin Ellingrud: This is all about sustainable and inclusive growth, and I want to start with inclusion. Before we dive into your broader, extensive research on economic inclusion for Black Americans, let’s talk about the fundamentals of sustainable and inclusive growth. What does it mean to you?

Shelley Stewart III: Sustainable, inclusive growth is such an important and relevant concept throughout the world. I’ll start with growth because that’s a topic folks are very familiar with, and it is important. Think about the United States. It’s important to our fiscal health, as a country, for us to grow so that our tax base is growing and so that those dollars can be used for public goods and public services that we all use. It’s really important for individual living standards. We should be thinking about this concept of growth. But growth by itself—growth without thinking about the distribution or how those benefits accrue—is incomplete.

As you start to think about sustainable, inclusive growth, you introduce ideas like how broadly distributed are the benefits of that growth? If you’re talking about improving living standards, what’s the distribution of that improvement going to look like? In many developed and developing countries, the more inclusive the economy is, we actually find, the more growth you get because growth is driven by, in large part, workforce productivity. People need to be participating in the economy for their circumstances to improve.

When I think about sustainability, a number of things come to mind. One is obvious: the sustainability of our planet, of our environment. That’s an existential issue that you can never pay enough attention to. But the sustainability of institutions and the sustainability of political systems requires that we have inclusive economic participation. We know from history that as inequality starts to grow, and resources accrue to a smaller and smaller number of people, systems start to get a bit shaky. These are really interwoven and interlinked concepts, and I’m glad that we’ve expanded from talking about just GDP as a single metric to thinking about sustainable, inclusive growth.

Kweilin Ellingrud: We can’t have the growth without the sustainability and the inclusion. Last June, Shelley, you published a report on the economic state of Black America, and there were some staggering statistics about the racial wealth-inheritance gaps and other gaps. Can you tell us more about those insights?

Shelley Stewart III: We wanted to understand the economic participation of Black Americans today. We started with the wealth gap. We wanted to understand, if you take wealth off to the side, what are the factors for economic participation? Many of those, ultimately, should contribute to wealth. How are Black Americans doing today? We looked at things like Black Americans as workers, and the wages and income associated with that; as business owners and entrepreneurs; as consumers of goods and services, many of them essential, things like food and healthcare access; as savers and investors; and as residents. We found, across the board, substantial disparities that have to be addressed if we’re going to even think about making progress against the wealth gap.

The starting point on the wealth side of this equation is that there were many events, throughout the course of American history, that contributed to the creation of wealth. The history’s quite well documented. In many instances, Black Americans were not able to participate in wealth creation events. So we fast-forward to today, and we see there’s a big gap.

You look at the factors that would need to be in place to close it, and then we started to get into the solution space. Take something like wages. We know there’s a $220 billion annual wage gap for Black Americans today. That is, if Black Americans were paid their fair share of wages every year, it would be $220 billion higher. That’s more dollars flowing into Black pockets every year. Trying to understand where the disparity is showing up, and what we need to do, is the focus of that report.

If Black Americans were paid their fair share of wages every year, it would be $220 billion higher.

Shelley Stewart III

Kweilin Ellingrud: Shelley, can you help us understand that racial wealth gap in more detail? What are the implications?

Shelley Stewart III: The racial wealth gap is pretty substantial today, and it hasn’t really changed over time. It’s pretty entrenched that the median Black family has about one-eighth, one-ninth of the wealth of the median White family, depending on the year you’re looking at. If you look at the wealth flows in a given year, there’s about a $300 billion gap of missing wealth flows into the Black community. If Black Americans had their fair share of the wealth flows every year, based on their share of the population, it could be $300 billion more. Sixty percent of that is due to the missing inheritance. That is a function of Black Americans being unable to participate in a lot of the historic wealth creation events in this country. The impact still shows up today annually when you look at wealth flows.

Combine that lack of wealth and that inheritance gap with the fact that many Black Americans live in communities that lack resources and don’t have their own resources to supplement them. Then it’s very hard to have an equal opportunity to thrive and achieve your full potential, because that requires resources. Wealth is an outcome, but it’s also an input. So we must think about what can we do to help, knowing that this gap exists? What can we do to address it and to make sure that it doesn’t impede the ability to progress in society?

Kweilin Ellingrud: You mentioned historical wealth creation events that Black Americans weren’t able to participate in or to participate in fully. What are some examples of those?

Shelley Stewart III: There’s a couple that I would highlight. One is redlining and what it did for Black Americans as it relates to owning homes that would appreciate in value. That was a huge wealth creation event, and Black Americans were largely excluded from it. There are significant knock-on effects of being excluded from these wealth creation events. That has to be acknowledged. Another example would be the GI Bill. The GI Bill was a wonderful mechanism to create economic mobility and, ultimately, wealth creation opportunities, like educating our returning heroes and veterans, who we should’ve been investing in. I’m glad that we did, but Black Americans did not participate in the same way other Americans did.

These exclusions add up over time, so that if you get to a point where now some of the barriers have been reduced, you haven’t really addressed the fact that the starting point is significantly lower for Black Americans. You have to build that into the calculus looking forward.

Kweilin Ellingrud: One of the things that you wrote really stuck with me. In writing about closing racial economic gaps, you said, “This isn’t just about righting historical wrongs. It’s also about choosing a more dynamic future.” What a perfect way to describe what we need for sustainable and inclusive growth. Can you talk about what that more dynamic future would look like?

Shelley Stewart III: Absolutely. We just talked about the history, and we have to acknowledge that history because it is important to understand the starting point. Then you can start to think about how we build going forward. But it’s not just about that. It is also about investing in people—human capital, the workers of tomorrow—to build and foster a stronger and more dynamic labor force, which then sets us on a path for a more dynamic future.

Investing to educate people to a very high bar, regardless of family wealth and income, will pay off for us in the future, in terms of our workforce. If we can find ways to foster the formation of more diverse businesses, that will strengthen our domestic supply chains and make our economy more resilient. To me, it just comes down to having an opportunity to invest in human capital, which has implications for our labor force, for our business ecosystem. That rising tide will lift all boats. In doing that, we will also be addressing some historical wrongs. A synergy exists between those two things.

Kweilin Ellingrud: Shelley, you’ve talked about Black Americans as workers, as homeowners. What about as consumers? You recently published a deep dive on the experience of Black consumers. What were some of the insights you found?

Shelley Stewart III: This topic of the Black consumer is a really fascinating and important one. Sometimes it’s a little bit counterintuitive for folks when we’re talking about wealth building and economic mobility. How is consumption consistent with that thread? Sometimes we forget that much of what we consume consists of necessities critical to human development. If you look at Black consumers today, much of what they consume are basic needs: food, housing, healthcare services, things that relate to training and education, and then, of course, all the other stuff—transportation, apparel. All these different things contribute to human development in their own way.

When you don’t have access to these things at the appropriate level, or the quality of the offerings is below what it should be, there are real consequences for the economy. Take food. We looked at what the US Department of Agriculture defines as “food deserts,” which lack affordable fresh-food options. We found that eight million Black Americans—one in five—live in what is defined by the USDA as a food desert. That has all sorts of implications for families, for the way children experience education and health. There are all sorts of downstream consequences from this lack of access. I’m talking about both groceries and restaurants.

We find similar access issues with financial institutions. You’re significantly more likely to live in a “banking desert” if you’re Black. Similarly with healthcare and also with broadband. The broadband issue touches many things. If you don’t have access to broadband, or affordable broadband, there are implications for your ability to learn remotely, a huge issue during the pandemic. Broadband also affects the potential to access remote healthcare. There are many things that compound when you don’t have access. We’ve been quite focused on shining a light on the access issues. Understanding who Black consumers are, and ensuring that the products and services you’re designing and delivering meet their needs, is very, very important, but also a commercial opportunity for companies. This is another example where win–wins can be created.

Kweilin Ellingrud: What can consumer-facing companies do to capture part of that opportunity?

Shelley Stewart III: The opportunity is huge. It’s measured in the hundreds of billions. Overall, the Black consumer segment is by no means monolithic. But if you take it in the aggregate, it’s going to be growing from around a billion dollars of consumption across categories today to around $1.7 billion by 2030. If you look at the underlying growth rates implied there, and you compare that with other parts of the population, it’s faster. This should be a sign that there is a real opportunity.

As you think about what you can do to address the challenges, there’s a number of things. First, what does your company look like? If you’re in the four walls of your business, what voices are in the rooms and in the rooms at all levels? If you think about something like marketing and consumer insights, do you have diverse voices, with diverse lived experiences, in the room to ensure that the Black customer segment is acknowledged and considered? So one point is that the diversity of your company matters.

Beyond that, there’s a number of things, we found in our research, that Black consumers really care about. One is that they do want to know what you’re doing from a corporate-social-responsibility perspective. What are the issues you are championing and supporting philanthropically? What are the issues you’re championing publicly that are political or policy issues? Black consumers want to understand how well this maps to things that are important to them. How are you interacting with diverse companies and, in this case, with Black brands and helping them come to market? That matters to Black consumers.

When you’re designing products and thinking about the features, the pricing, and the channels to market, how are you incorporating insights about the desires and needs of Black consumers into that design process? There are a whole bunch of things you have to do. It’s not just ensuring that Black customers or people show up in your marketing. Black consumers expect a holistic approach to winning their wallets, their hearts, and their mind share. The prize is big, and we’ve seen companies do it. But it’s got to be authentic because if it’s not, Black consumers will sniff that out.

Kweilin Ellingrud: That’s for customer-facing or consumer-facing companies. What about nonconsumer-facing companies? I’m thinking of business-to-business industries. What can they do to capture more of that opportunity with Black Americans?

Shelley Stewart III: Some of the things are similar. One is driving broader diversity, equity, and inclusion through your institution. Those expectations—from shareholders and from employees, particularly younger employees—are only increasing. Regardless of whether you’re a B2B or B2C, the expectation that you’re building a diverse company and a diverse workforce is really important. But what commitments have you made to diversifying your supply base? What does your location strategy, the physical assets and infrastructure, look like? Where you choose to situate them has implications for which communities benefit. How are you taking an inclusive frame when you’re thinking about that? The same thing holds for your philanthropic commitments and the policy issues that you’re engaged with and care about. All companies can benefit from those things.

Kweilin Ellingrud: Shelley, I’d like to talk about the future of America more broadly. We talked a lot about the inclusion element of sustainable and inclusive growth. Now I’d like to shift a bit to the growth piece of things. Where and how do you see CEOs and companies—especially Black-owned companies—driving transformative growth?

Shelley Stewart III: I’m really excited about what I am seeing on the Black-owned–company front. Over the last couple of years, we have seen a whole wave of individuals decide to go out and take risks and start new companies to meet the demand that has been unmet. There are a few different areas or sectors where I’m seeing this. One is financial inclusion, the second is healthcare access, and the third is consumable products.

On the financial-inclusion front, a whole wave of entrepreneurs use technology—fintech—as a catalyst and a lower-cost, quicker way to get to market for products and services. These companies offer traditional banking services to the underbanked and investing opportunities to folks who traditionally have been blocked from participating because their wealth wasn’t large enough to participate in some platforms. You’re really starting to see some innovation leak in. You see some of the bigger companies recognizing this, but some exciting things going on in the fintech space are starting to bridge some of these gaps.

On the health and access side, things are very similar. Particularly in urban areas, you’re seeing entrepreneurs get bold about using technology and planting physical locations in “healthcare deserts” to serve this population. If you look across the country, there are a lot of these markets. You’re 2.5 times more likely to live in a healthcare desert if you’re a Black American. There are entrepreneurs who see and recognize this, and they are jumping into that breach and filling that opportunity.

You’re 2.5 times more likely to live in a healthcare desert if you’re a Black American. There are entrepreneurs who see and recognize this, and they are jumping into that breach and filling that opportunity.

Shelley Stewart III

On the consumer product side, it’s category by category. In beauty and some of the stuff on the apparel side, there has been, historically, a level of dissatisfaction with not being seen in the products delivered to market by some more traditional companies. You’re seeing people take advantage of that. Some of them are celebrities; some of them are smaller brands of entrepreneurs who recognized this opportunity. I’m really excited about the growth potential of these diverse entrepreneurs who are recognizing a real opportunity.

We’re also in a moment when a bright light has shined on the lack of capital that has historically flowed to these companies. We’re starting to see some of that unlock, and that’s a huge opportunity for the investment community, as well.

Kweilin Ellingrud: So that’s the growth piece. We talked already about the inclusion piece. The third and final piece is around sustainability. How does sustainability intersect with racial equity?

Shelley Stewart III: Sustainability really is an important topic—as I said earlier, an existential topic for everyone, given what’s going on with the environment. There’s a couple of interesting intersections with racial equity. I believe that environmental justice and sustainability issues are also racial-equity issues, particularly if you think about the situation in the United States.

The populations most vulnerable to the environmental disruption that’s on the horizon are communities that are poor and more racially diverse, given the overlap. They often live in places that have more paved roads and less green space, which has a lot of implications for air quality and things like that. Often, they live in places that are either currently or historically adjacent to industrial and other pollutants. So as we think about sustainability, and we think about climate justice and environmental justice, a failure to move quickly will further widen existing gaps and disparities.

When we surveyed Black consumers, what we found was interesting. They are very focused on the sustainability of supply chains for the things that they buy. Very focused on health and organic as they relate to food. Whether you’re in a Black-owned business or any company trying to sell to this segment, you have to be strong on sustainability because this is something these consumers actually care about. In some instances and some categories, they care about it more than other segments of the population.

Kweilin Ellingrud: Overall, we’re seeing the economy recover from a jobs perspective pretty steadily. I think right now we’re about 1.6 million jobs below where we were pre-COVID-19, a little over two years ago. But we also know that Black Americans have been disproportionately affected, certainly from a health perspective and even from a jobs perspective. What can we do to level the field?

Shelley Stewart III: It starts with understanding where we are in the data—understanding the employment levels at some level of granularity. Some will say, “If we isolate the data about Black Americans, are we creating more issues?” We’ve already, in some ways, tried that approach. My view is that if we don’t understand what’s happening, it doesn’t get better. Even before you think about what we’re going to do, a fundamental understanding of how Black Americans are doing in the economy, at some level of granularity, is really, really important. We shouldn’t shy away from that.

The second thing we should recognize is the jobs that Black Americans are disproportionately in and revisit these jobs. All types of Americans are in them. Do these jobs have adequate compensation? Do they have adequate benefits? Do they have adequate flexibility? Do they have adequate predictability? We called these “essential workers” during the crisis. Well, then, we should treat them like essential workers. Are these good jobs? Are people being fairly compensated for the work that they’re doing and the contributions that they’re making to society?

Then the third thing is what are we doing to help Black Americans get positioned for the kinds of jobs that are increasing in number and compensation? That could be through education further upstream and helping to make sure that, for example, college is affordable, so Black Americans won’t be afraid to take on the risk of getting a graduate degree in some STEM [science, technology, engineering, and math] field that we know will pay off but that’s so expensive.

We tracked some of this in our research. We looked at the pipelines into law and into medicine, and there was a falloff point. It is different by occupation, but a lot of it was around affordability or how long you could forego earning an income, in the case of becoming a physician. It’s important to be deliberate about the challenges that might be unique to certain populations, to have a fair and open dialogue about this, and to take action across the private and public sector. These are things that we have to do if we’re going to change the circumstances.

Kweilin Ellingrud: Absolutely. Shelley, to your point, when you look at jobs that Black Americans are more likely to occupy, it’s a bit bimodal. Black Americans are more likely to be in customer service and sales, in food service, right? Those were deeply impacted by COVID-19 and also deeply impacted by long-term automation trends. So the number of those jobs is shrinking over time, and there’s certainly a lot of disruption. On the other side, Black Americans are more likely to be in healthcare, right? That is rapidly growing, certainly in some long-term growth trends. So lots of disruption on both sides. I think Black Americans are more likely to be in both big-gainer occupations and big-loser occupations over the next five, ten years.

I was struck by what you shared about racial wealth gaps, historical drivers of some of the inequities, and what companies can do to close those gaps. We’re wrapping up each of our Future of America episodes with a rapid-fire Q&A. Shelley, you’re up. Is there a book or an article you’ve read recently that excites you about more sustainable and inclusive growth in the future?

Shelley Stewart III: I recently read an article in the New York Times, an interview with Thomas Piketty. He looks at the distribution of wealth. I was surprised at the title of the article, 1 given what we know about the increased accumulation of wealth by a smaller and smaller set of individuals. He was optimistic about a more inclusive economy. The arc of history suggests you have to consider a period longer than decades to understand where this is going. He talks about the fact that the US has done this before. We’ve put in place policies and programs that have made the economy more inclusive. We can decide to do that again. There’s nothing deterministic about where we are today. I thought this was a fascinating mix of some economic history, some philosophical musings. It does give me a level of optimism that someone who really studies inclusive growth is optimistic, despite what recent trends in the data suggest.

Kweilin Ellingrud: Wonderful. Beyond those historical examples or trends, what makes you personally optimistic that we can achieve sustainable and inclusive growth?

Shelley Stewart III: I’m optimistic because of the quantity and quality of discussions that we’re having with our clients across the private, public, and social sector on this topic of improved economic mobility for all Americans. This is something that seems to be top of mind everywhere. I think there’s a broad recognition that the level of opportunity you have at birth should not be a function of the resources you have at birth. We can choose, as a society and as a country, to take a different course, to invest in human capital and choose a much more dynamic future for ourselves.

Kweilin Ellingrud: I want to shift to actions that we can all take. What’s the one thing that listeners can do today to help promote sustainable and inclusive growth?

Shelley Stewart III: One thing that is very actionable is to support Black-owned businesses. There are a number of different ways to do that. You can use your dollars to buy goods and services from these businesses. You may be in a position to invest, either personally or through your profession. Fostering and supporting business ownership in diverse communities is really important to fostering sustainable and inclusive growth. It will do a lot to support communities where many diverse founders live. It will also do a lot for job creation in those areas. So I would highly suggest that as one very tactical thing to do.

Kweilin Ellingrud: Thank you, Shelley. That was Shelley Stewart, a senior partner in our New Jersey office and the leader of McKinsey’s research on Black economic mobility in the United States. I’m Kweilin Ellingrud. You’ve been listening to McKinsey’s Future of America podcast series. Thank you for joining us.

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