Black-Owned Businesses (BOBs), African American Spending Habits, Race Matters, and Wealth Inequality

Individual who had a self-employed parent is roughly two to three times as likely to be self-employed as someone who did not have a self-employed parent. The high incidence of growing up in a single-parent family and the strong intergenerational link in self-employment may limit business ownership opportunities for blacks. If black children are less likely to live with both parents, they will have a lower likelihood of being exposed to a self-employed parent and fewer chances to work in a family business. – Fairlie and Robb

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I live in Philly and over a month ago one the our oldest black-owned bookstore was about to shut down because the family member was an older women who was taking care of her elderly mother and working the bookstore on a part-time schedule.  A few hundred people by way of Facebook swooped in and saved the day by contributing to their revenue and for them to live another day.  As usual, I suggested that what they need is volunteers, financial advising, operations management, marketing, and selling for the business.  Additionally, it was an older business model of business and it needed to be upgraded to be competitive among the big giants such as Barnes & Noble and Amazon.  I was told we had to do one thing at a time and that will come in the future.  Who knows what the future holds for this bookstore in Philly, but hopefully they get the opportunity and time to make it in the community for another 50 years.

Blacks earn less but spend more than the general population. They also save less, at every income level. Even Blacks who have gained a good education and earn high salaries tend to spend more than they make. Economic freedom requires living within, preferably below, your means Fraser counsels. Saving and investing must become fixed budget items he asserts, just as important as the mortgage, rent and groceries. – Celeste Carol

 

As I was scrolling on Facebook another black-owned business was being promoted with just a picture of someone drinking water branded, Pure.  Its a black-owned company with no additional information listed with the photo.  I put in my researching skills and finally found the website of the alkaline water and for a case of 24, the price was $20.00.  For five cases of Pure Alkaline water, the price was $90.00.  I had several debates on Facebook from the time I found the price until now and was conflicted in whether or not it was worth paying $20.00 or should I stay with my Deer Park or Poland Springs case (24) for $3.99?  I love black-owned businesses and love promoting them whether they are art, music, poets, writers, tax services, etc.  But am I willing to support BOBs at the expense of my income?  What does supporting these businesses really mean for me?  Additionally, how can I be sure that my dollars spent will do right by the community?

Hout and Rosen (2000) note a ‘‘triple disadvantage’’ faced by black men in terms of business ownership. They are less likely than white men to have self-employed fathers, to become self-employed if their fathers were not self-employed, and to follow their father in self-employment. – Hout and Rosen

But I am also a business person, autodidact, researcher, and source provider.  I look up everything and use my business mind to either ask more questions, research more information or come to conclusions with sources provided.  I know and have seen what makes organizations and companies work, even worked for a small business owner who wanted me to organize his whole business and after 5 months told me, “that he is the boss and he tells me what to do.”  This is after I provided organizational development to his company and made some great changes, only for him to realize that he needed to change in order for the changes to be complete.  He felt as though I was “trying to take his company.” When in fact, I just cleaned up a lot of his messes up that cost him thousands of dollars over a 15 year period.  But change is constant and sometimes changing a flawed system means that you need to change the behaviors of the people in the system as well and when you are use to working in your own mess without someone “checking you” it makes it extremely hard for the consultant that wants to help them do better and do right going-forth.  I was let go because he decided not to change his habits.  It was a hard consulting job but it was a great learning experience.

Relatively disadvantaged family business backgrounds among black business owners contribute to worse outcomes. The lack of prior work experience in a family business among black business owners appears to limit their acquisition of general and specific business human capital useful for running successful businesses. Finally, other forms of human and business human capital, such as education and prior work experience in a related business, appear to limit the potential for business success among blacks. In contrast, highly educated owners are one of the main reasons behind the success of Asian-owned business in the United States. – Fairlie and Robb

Now back to black-owned-businesses (BOBs).  I guess for me reading the different responses on many social media websites on why we should support BOBs and how our black dollar circulates in our community for 6 hours as one site has posted.  That’s debateable, but that’s what people are saying.  While other communities are circulating their dollar multiple times.  Still I have questions and these questions will hopefully help me and you come together in order to provide the best data for our BOBs, but also for these people that circulate memes that are sometimes or borders on false.  So here is the information I researched and I will have the sources below for everyone to vet and look through, if needed.  But please give me feedback if you come across anything that contradicts what I say or to add to it…..but please provide SOURCES!!!!!

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Child Support Expenditures for 2012: The average child support in 2012 was $208.46.  For Asians they spent 66.39, African Americans spent $213.91, Hispanics spent $210.62, and Non-Hispanic white and other spent $207.25. – The New Strategist Editors, Who’s Buying by Race and Hispanic Origin, 9th Edition (2014)

African American Spending Habits from 2012 Data

  • Blacks spend an average ($670.52) amount on the largest entertainment category— cable and satellite television service. They spend ($69.18) well more than the average ($37.03) household on video game hardware and software. Hispanics spend 5 percent ($120.43) more than the average ($114.59) household on toys, games, and hobby supplies.
  • Blacks spend over four times ($12.23) the average ($2.82) on wigs and hairpieces. They spend slightly more ($302.81) than the average ($292.83) household on personal care services. Hispanics ($488.26) and blacks (641.45) spend less than average ($1207.35) on education overall, but blacks spend 47 percent ($11.28) more than average ($7.66) on technical school tuition.
  • Black households spent $6,751 on transportation, 25 percent less than average (average $8,998). Blacks spend 8 percent ($826.72) more than average ($763.60) on used cars.  Hispanics ($117.01), blacks ($120.07), and especially Asians ($251.47) spend much more than the average ($71.99) household on mass transit fares. Together, Asians, blacks, and Hispanics, whose share of all consumer units is 29 percent, account for 56 percent of spending on mass transit.
  • Asians ($2391.29), blacks ($1696.84), and Hispanics ($2029.88) outspend the average household ($1,736) on a number of apparel categories. All three groups spend well more than average ($346.83) on footwear and account for 43 percent of the footwear market. Asians, blacks, and Hispanics spend much more than average ($40.21) on coin-operated apparel laundry and dry cleaning and account for 63 percent of the market. Blacks spend the most on professional laundry and dry cleaning ($61.42).
  • Black households spend 8 percent ($794.61) more than the average household on cash contributions to religious organizations. On most other financial products and services, however, black spending ($563.33) is below average ($828.87). Blacks and Hispanics spend 30 percent less than average on financial products because many work in low-paying entry-level jobs.
  • Blacks spend 29 percent ($2972.73) less than the average ($3920.65) household on food overall, but they spend more than the average household on a number of grocery categories. Asians ($360.07), Hispanics ($338.14), and blacks ($211.77) spend significantly less than the average (451.16) household on alcoholic beverages.
  • Blacks spend more than twice the average on gifts of natural gas and electricity for a renter (paying a family member’s bills).
  • Blacks spend 20 percent ($14,394.80) more than average ($16,887.41) on Housing Operations costs— which include shelter, utilities, and all household operations ranging from household services and housekeeping supplies to furniture and equipment.
  • Blacks spend 15 percent less ($14,395) on Shelter and Utilities.  Blacks spend 41 percent ($4,521.03) more than the average ($3,186.25) household on rent. Black households spend slightly ($369.20) more than average ($358.54) on residential phone service and nearly ($822.64) an average ($861.97) amount on cell service.

Why are Asian Americans More Successful @ Owning Businesses?

  • Networks of co-ethnics may provide valuable resources such as customers, labor, and technical assistance to assist in starting and running businesses. – Fairlie and Robb
  • The three lines of small business in which owner remuneration are highest, on average–finance, insurance, and real estate (FIRE); wholesaling; and professional services–accounted for 28.5 percent of the Asian business startups, versus 23.1 percent of nonminority male business formations. – T. Bates
  • In contrast to the black experience, Asians have high levels of wealth and invested capital. The median level of net worth for Asian households is roughly similar to the white level of net worth. Asian businesses, however, start with substantially higher levels of capital. For example, 12 percent of Asian-owned firms have startup capital of $100,000 or more compared with fewer than 5 percent of white-owned firms. – Fairlie and Robb
  • Some ethnic minorities have a comparative in attracting cheap labor from within their own network.  Asians can co-ethnics and family members, which may provide an edge in hiring low-paid and trusted workers. – Fairlie and Robb
  • Ethnic immigrant workers may have restricted job opportunities because of limited English skills but fit in well working for ethnic business owners who understand their own language and culture. – Fairlie and Robb
  • Korean immigrant businesses that are more reliant on ethnic resources have lower levels of start up capital and lower levels of gross sales. – Yoon (1991)
  • Asians are the most educated racial group in the United States.  Asians are much more likely than whites to graduate from college or graduate school. Estimates from 2000 U.S. Census microdata indicate that nearly half of all Asian adults have at least a college degree. – 2000 U.S. Census Data
  • A larger share of Asian business owners had less than six years of work experience than white owners before starting their business. The opposite is true at the other end of the distribution. More than one quarter of white business owners had twenty or more years of work experience, prior to opening their businesses, compared with 13 percent of Asian business owners. – Fairlie and Robb
  • Less than 47 percent of Asian-owned firms have an outstanding loan compared with nearly 56 percent of white-owned firms. Asians are less likely to have credit lines, mortgages, vehicle loans, equipment loans, or capital leases. Asians are more likely than whites to have owner loans and to borrow through the use of credit cards.  These findings could mean that Asian owners are necessarily more reliant on friends and family or on owner equity than are white owners. – Bitler, Robb, Wolken, and Fairlie
  • The relative success among Asian-owned businesses and lack of success among black-owned businesses is partly due to high levels of startup capital among Asian firms and low levels of startup capital among black firms. – Fairlie and Robb

 

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Racial  & Wealth Inequality

  • Among home owners, blacks have much less equity in their homes than whites. The median home equity among black homeowners is $35,000, whereas the median home equity among white homeowners is $64,200. Blacks are clearly less likely to own their own homes, and among those who own a home, they have less equity in their homes. – Fairlie and Robb
  • Forty-five percent of blacks have net worth of less than $5,000. Less than one fifth of all whites have net worth below this level. At the top of the distribution, only 2.7 percent of blacks have a value of net worth that is at least $250,000. Among whites, 22.2 percent have values of net worth in this range. Comparing asset distributions makes it strikingly clear: most blacks have very low levels of wealth, and relatively few have high levels of wealth when compared with whites.
  • Median weekly earnings for full-time black workers are 80 percent of median weekly earnings of full-time white workers (U.S. Bureau of Labor Statistics 2004). The median net worth of whites, on the other hand, is nearly eleven times higher than the median net worth of blacks. – Fairlie and Robb
  • Lower levels of wealth among blacks are likely to translate into less access to startup capital. Business creation is often funded by owner’s equity, and investors frequently require a substantial level of owner’s investment of his or her own capital as an incentive and as collateral. Racial differences in home equity may be especially important in providing access to startup capital. – Fairlie and Robb

“Most of this money quickly departs in the hands of landlords, business owners, and bankers who live in more upscale parts of town,” Shuman writes. “The principal affliction of poor communities in the United States is not the absence of money, but its systematic exit.” – Maggie Anderson

MJS Causcol
Causcol, nws, adp, 16 of 16 – Aundre (cq) Cross, letter carrier, is a regular customer at the BP gas station at 807 W. Atkinson Ave., Milwaukee, Wi. He stops in for lunch on Monday, April 8, 2013 and orders from Ramona Swinnie, left. Swinnie’s mother Diane Stowers is the owner of the gas station. For James Causey column on black owned businesses in Milwaukee. Angela Peterson/apeterson@journalsentinel.com

Black-Owned Businesses

  • Blacks spend less money in black-owned businesses than other racial and ethnic groups spend in businesses owned by members of their groups, including Hispanics and Asians. – Tatiana Walk-Morris
  • The line of small business in which owner remuneration is lowest, on average–personal services–is the area in which blacks are most heavily overrepresented. Another industry of substantial black business overrepresentation–transportation–had the dubious distinction of being number one in terms of small business rate of failure. – T. Bates
  • Many Black-owned businesses are privately owned which prohibits the generation of funds through the sales of company stock and similar financing alternatives. Much of their resources are reinvested in the business. In order to make contributions of financial resources, firms, whether Black-owned or not, must have discretionary income that is not needed for firm survival or growth. – Edmundson and Carroll
  • Because of the added responsibility that successful Black business people have as role models for youth in the community, they are often besieged with proposals by community based leaders to provide free services and attend speaking engagements. – Edmundson and Carroll
  • Many Black business owners team up with other Black business owners to give back to their community because contributions made by groups of Black business owners and professionals enable many of them to give back more generously than if they gave back individually. – Edmundson and Carroll
  • Black businesses have lower revenues and profits, hire fewer employees, and are more likely to close than white-owned businesses. In most cases, the disparities are large. Average sales among black firms are roughly one fourth that of white firms, and black firms hire one third the number of employees on average as white firms. – Fairlie and Robb
  • A determinant of success in small business is the owner’s education level. After controlling for other factors, firms with more highly educated owners have lower closure probabilities, higher profits and sales, and more employment.  Therefore, if black business owners have lower education levels than white business owners, disparities in education levels could explain why black-owned businesses under-perform relative to white-owned firms, on average. – Fairlie and Robb
  • Previous work experience in a family member’s business and previous work experience in a business providing similar goods and services have large positive effects on business outcomes. These findings suggest that the lack of opportunities for black owners to acquire important general and specific business human capital may limit their ability to create successful businesses. – Fairlie and Robb
  • Several recent studies have examined the reasons behind the lack of black-owned businesses and find that relatively low levels of education, assets, and parental self-employment are partly responsible. – Fairlie and Robb
  • Black business owners are more likely to be high school dropouts and are less likely to be college graduates. Black business owners, however, are equally likely to have graduate school degrees as white business owners. Overall, 26.2 percent of black business owners have at least a college education compared with 33.3 percent of white business owners. – Fairlie and Robb
  • If blacks have less prior work experience in a similar business, then they may have had less of a chance to acquire the skills that are specific to a type of work or industry that are useful for running a successful business. – Fairlie and Robb

 

Sources:

Tatiana Walk-Morris, Blacks Are Challenged to Buy From Black-Owned Businesses to Close GapNew York Times Company, 11-2015.

Edmondson, V. C., & Carroll, A. B.. (1999). Giving Back: An Examination of the Philanthropic Motivations, Orientations and Activities of Large Black-Owned Businesses. Journal of Business Ethics, 19(2), 171–179. Retrieved from http://www.jstor.org/stable/25074086

Fairlie, Robert W., and Robb, Alicia M.. Race and Entrepreneurial Success : Black-, Asian-, and White-Owned Businesses in the United States. Cambridge, MA, USA: MIT Press, 2008. ProQuest ebrary. Web. 26 January 2016.

Race For Success: The Ten Best Business Opportunities For Blacks in America
Celeste, Carol. Network Journal5.5 (Feb 28, 1998): 18.

Anderson, M. (2012). Our Black Year : One Family’s Quest to Buy Black in America’s Racially Divided Economy. New York, NY, USA: Public Affairs. Retrieved from http://www.ebrary.com

Timothy Bates, The changing nature of minority business: A comparative analysis of asian, nonminority, and black-owned businesses, The Review of Black Political Economy, September 1989, Volume 18, Issue 2, pp. 25-42

The New Strategist Editors, ed. Who’s Buying by Race and Hispanic Origin (9th Edition). Amityville, NY, USA: New Strategist Press, LLC, 2014. ProQuest ebrary. Web. 26 January 2016.

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