How Dollars Circulate in Black Communities

As we enter 2021, now is the time to increase the net worth of Black communities. Though Black communities are increasing their income, the wealth of these communities remains stagnant. In this article, we’ll explain the importance of supporting Black businesses to raise the level of money circulation.

What is Money Circulation?

Money circulation is the currency that is physically used to conduct transactions between consumers and businesses, plus money that is stored in banking institutions. Money circulation is critical to a community’s potential for economic mobility. More money in circulation means higher financial stability and potential for economic growth.

A study by the Selig Center for Economic Growth found that money circulates one time in the African American community, six times in the Latino community, and nine times in the Asian community. In white neighborhoods, money circulates nearly an unlimited number of times. In part, this explains the wealth gap for Black communities.

Buying Power vs. Money Circulation

Although Black people have more buying power than ever before, their economic prosperity is still limited. Buying power, or the amount of income someone has to spend, doesn’t equate to economic growth. Although Blacks have nearly $1 trillion gross national income, only 2 percent is reinvested into Black communities.

The key is that income needs to stay in the Black community for longer. Currently, a dollar circulates six hours in an African American community, compared to 20 days in a Jewish community and 30 days in an Asian community.

The Importance of Supporting Black Businesses

To have higher money circulation, Black communities need to reinvest their money into Black businesses. There needs to be a greater effort to purchase from Black-owned retailers instead of White-owned chains.

Another way to circulate money is for African Americans to start their own businesses. This helps to generate wealth and pass it to the next generation.

Learn about Black Wall Street history.

The Empowerment Experiment

Maggie Anderson, the author of “Our Black Year,” decided to only buy from Black-owned businesses for a year. Though she and her husband expected to have some challenges, the Empowerment Experiment revealed a stark reality. For example, they only found one Black-owned dry cleaner in the entire Chicago area.

The Decline of Black Businesses

Part of the reason for the lack of Black businesses is due to a lack of customers. Black businesses have found it hard to survive in recent years. Researchers think that this is due to a feeling of black inferiority towards other Blacks that dates back to slavery and segregation.

Integration might be one of the causes of the decline of Black businesses. During segregation, Black-owned companies had customers who had no other choice but to frequent their stores. Once segregation ended, those same Black customers may have felt that White-owned businesses were superior.

The Solution? Black-Owned Banks

There is heated debate over how to solve the problem of low-dollar circulation in Black communities. While reinvesting money by shopping in Black businesses can help, it may not be enough. Many Black businesses source their products from White-owned or foreign-owned companies.

An emerging solution for reinvesting in Black communities is Black-owned banks. Companies like Greenwood help to circulate wealth within Black communities. We give grants up to $10,000 each month to a Black or Latino business. When you sign up for an account, we’ll provide five meals to insecure families through Goodr. Make a difference by registering for an account today.