Lagging Wages

According to 2002 census figures, black men still earn roughly 25 percent less than their white counterparts who have the same level of education.

Specifically, the median income for a black man with a high school diploma was $27,224 in 2002, compared to $35,738 for whites. For those with higher educations, the discrepancy is even wider. The median income for a black man with a master's degree was 27 percent less than his white counterpart: $50,763 for blacks versus $69,655 for whites.

Black women also earn less than their white counterparts, although the differences are smaller. Black women with high school degrees earn 12 percent less than whites, while black women with master's degrees earn 6 percent less.

Investing Habits

The wage discrepancy harms African-Americans in more ways than one, as income levels are one of the most important factors motivating blacks to invest (age is the biggest determinant for whites).

Over the past six years, Ariel Mutual Funds and Charles Schwab & Co. have partnered on the Black Investor Survey to better understand the investing patterns in the African-American Community as well as to draw attention to the need to build wealth within this community. Key findings of the survey reveal habits and perceptions which hinder wealth building.

Issue: More blacks consider real estate the best investment overall. Additionally, a huge percentage (71 percent blacks and 61 percent whites) chose home improvements over stocks as the better investment.

Mellody's Tip: Since 1926, the stock market has been the best investment, outperforming all other investments, including real estate and bonds, and African-Americans have been missing out on this wealth-building machine. Investing does not always require a lot of money, it only requires discipline and patience. In fact, many mutual funds allow you to invest as little as $50 a month if you invest in an automatic investment plan.

   Issue: More blacks consider themselves to be conservative investors.

Mellody's Tip: Unfortunately, playing it too safe can hurt your portfolio, as many investment goals, such as retirement, are long-term. Investors who put all of their money in low-risk, low-yielding securities like bonds and CDs do so to their detriment. Investors should remember that the stock market has averaged about 10 percent per year over the long-term. Those with longer time horizons need to learn how to balance risk and return. Money invested in a bank barely outpaces inflation, and investors could regret excessive conservatism come retirement day.

Setting Financial Priorities

   Issue: Blacks tend to save for their children's education before retirement. Many black families will trade away a comfortable retirement to send their children to college. In addition, a leisurely retirement is viewed as a luxury.

To this point, when asked in the Ariel-Schwab Black Investor Survey how they plan to spend their retirement years, only 41 percent of blacks said to spend "more time on leisure activities," compared to 56 percent of whites.

Mellody's Tip: For African-Americans, the path to success has always been expressed in one word: education. Parents stress it, teachers drill it into the heads of black students, and now, the Black Investor Survey findings suggest that many black families will trade away a comfortable retirement to send their kids to college.

Your children can borrow money for education, but you cannot borrow money for retirement. I like to use the analogy of an oxygen mask on an airplane to illustrate this point. You are always told to put your oxygen mask on first before helping your child. The same could be said for retirement. You need to prepare for your retirement first, then worry about education for your children. Keep in mind, there are no scholarships for retirement.

   Issue: Blacks tend to be over-insured. In fact, African Americans have 29 percent of their assets tied up in insurance products, compared to 13 percent for whites.

Mellody's Tip: Insurance is for insuring and not for investing. Essentially, life insurance helps to ensure that your debts will be covered and your dependents will have the financial resources to run the household without you. My general rule of thumb is to carry life insurance coverage of four to 10 times your annual gross income. For example, if you make $25,000 per year, you should carry a minimum of $100,000 in life insurance coverage.

Issue: Black women tend to control the family finances more so than their white counterparts. With the average woman outliving the average man, more and more women are finding themselves facing retirement unprepared. To make matters worse, women earn 74 cents for every dollar men earn wages which translate into less invested for retirement.

Mellody's Tip: All women need to take a pro-active approach with regard to their financial situation. The best advice is to ask questions and stay informed. In addition, you need to prepare for your own retirement. As such, if your employer offers a retirement savings vehicle, such as a 401(k) plan, do your best to defer the maximum contribution. For stay-at-moms, it is critical to have your spouse open a spousal IRA on your behalf in which you can invest up to $3,000 per year.

   Issue: Blacks are not able to invest as much because they are more likely to be caring for aging parents or supporting adult children.

Mellody's Tip: For those families who have adult children returning home, there are a few ways to ensure that the arrangement is mutually agreeable. Consider charging rent and making your child pay for their portion of the utilities and groceries. Also agree upon the length of stay and rules regarding household chores and guests.