To show just how important the U.S.S. RocketShip program is, let’s walk through an example of The Butterfly Effect in action.
Michael is a black man who lives in Austin. Michael’s earliest memory is hysterically crying while crawling over his mother who was unconscious and bleeding profusely from her head. Although he never knew how she was hurt that particular time, he later assumed she had been beaten by one of her live-in boyfriends or her pimp.
He knew his mom was a prostitute, and men would come and go all day and night. A couple of them had been nice to him, but those didn’t seem to last very long. The others would beat him, mock him, have sex with his mother in front of him, burn him with cigarettes and, in the case of the man who was possibly his birth father, force him to try marijuana at the age of seven. Michael had two older brothers, but one was in prison from the time Michael was born and the other was killed in a drive-by shooting when Michael was three. Once in a while, his mom would ask him to deliver little packages around their decrepit apartment complex, instructing him to bring back the money he was given in return.
Michael's best buddy lived next door and they would leave really early on summer mornings and roam around the neighborhood until well after dark. After wheezing most of his life, the school nurse determined Michael had acute asthma, but he never got the proper medication to ease it. When he was sixteen, his mom was diagnosed with a life-threatening heart condition, so he dropped out of high school to work full time to support her.
Michael’s chaotic early life and his time in juvenile detention have made his life difficult to say the least, but things are turning around!
He recently got his GED, received a small pay raise at work, and married the love of his life, the very beautiful Angela. Michael and Angela just had their first child, a perfect baby boy named James, and they are ready to buy their first home. Everything is looking up for Michael!
Let’s take this journey with Michael and Angela. The first stop is house hunting:
Michael and Angela contact a realtor and are ready to see houses, but they soon learn that racial discrimination is still painfully prevalent in the housing market.
Several realtors won’t even see them at all, proving true what the Civil Rights Division of the U.S. Department of Justice says: “race discrimination in housing continues to be a problem. The majority of the Justice Department’s pattern or practice cases involve claims of race discrimination. Sometimes, housing providers try to disguise their discrimination by giving false information about availability of housing, either saying that nothing is available or steering home-seekers to certain areas based on race. Individuals who receive such false information or misdirection may have no knowledge that they have been victims of discrimination.”
This is just one of many reasons why home ownership still tilts significantly in favor of white Americans. The black homeownership rate of 44.1 percent remains significantly behind the white home-ownership rate of 72 percent – a difference of 28 points. This is a major problem because housing is the most reliable way Michael and Angela can begin accumulating wealth.
Sadly, they are far from alone. The latest Survey of Consumer Finances released by the Federal Reserve revealed that there is a total difference of $240,120 in wealth between the median white household and the median black household, meaning for every $100 in wealth held by white households, black households have $15. The median wealth (the number squarely in the middle of all the numbers) of white households is $285,010, compared to $44,890 for black households and $61,620 for Hispanic households. The mean net worth (the average) of white households is $136,717, compared to $21,145 for black households and $22,749 for Hispanic households.
Michael and Angela have found the perfect home, but no bank will give them traditional financing because they are “credit invisible.”
The Consumer Financial Protection Bureau (CFPB) reports that “one in ten adults in the U.S., or about 26 million people, are ‘credit invisible,’ meaning that 26 million consumers do not have a credit history with one of the nationwide credit reporting companies. An additional 19 million consumers have ‘unscorable’ credit files, which means that their file is thin and has an insufficient credit history (9.9 million) or they have stale files and lack any recent credit history (9.6 million). In sum, there are 45 million consumers who may be denied access to credit because they do not have credit records that can be scored. Together, the unscorable and credit invisible consumers make up almost 20 percent of the entire U.S. adult population. Consumers who are credit invisible or unscorable generally do not have access to quality credit and may face a range of issues, from trying to obtain credit to leasing an apartment.”
A study from the National Fair Housing Alliance – a consortium of more than 200 private, nonprofit fair housing organizations, state and local civil rights agencies, and individuals from throughout the United States – found that “our current credit-scoring systems have a disparate impact on people and communities of color. These systems are rooted in our long history of housing discrimination and the dual credit market that resulted from it. Moreover, many credit -scoring mechanisms include factors that do not just assess the risk characteristics of the borrower; they also reflect the riskiness of the environment in which a consumer is utilizing credit, as well as the riskiness of the types of products a consumer uses.”
Meanwhile, the rent is due, but Michael doesn’t get paid until next Friday.
So, he heads to the nearest payday loan store, where he is forced to pay sky-high interest for a short-term loan. Twelve million Americans use payday loans, and the average fees on a typical two-week payday loan equates to an annual percentage rate of almost 400 percent.
This is a vicious cycle. Every time Michael gets paid, he is already financially behind because he has an enormous interest payment to make from his last paycheck – which means he has to take out another of these high interest loans to just barely keep up with the interest.
Michael has an accident that damages his car, but he doesn’t have the money to pay the deductible to get it fixed. His job is an hour away from his home and there is no public transportation that can get him there. Michael loses his job.
According to the Federal Reserve, 46 percent of American adults have not set aside money for three months of expenses in an emergency savings or “rainy day” fund. Some of this group say they could possibly borrow money from friends or family, but 31 percent of them say they couldn’t cover three months of expenses by any means.