The Black community is under-invested. Lower incomes and higher propensities to consume puts the Black community in the precarious position of paltry wealth accumulation. The Black community also does not have significant ownership on a local level of any economic activity within a primary or even secondary economic sector. Such ownership could provide a platform for entrepreneurial development and much needed income generation within the Black community in the form of jobs or dividends.
The numbers, admittedly, paint a less than rosy picture. Based on the most recent household wealth data from the U.S. Bureau of the Census, median black household wealth is approximately $6,314. When you remove ownership of equity in a home, median net worth falls to $2,124. The national median net worth is $68,828, and after excluding equity in a house, national median net worth falls to $16,942.
Also of concern is the disparity in the ownership of financial assets, particularly equity and debt. The national median value for stocks or mutual funds owned by a household is approximately $20,000. For black households, the median value of stocks or mutual funds held is approximately $4,750. I believe that this disparity in ownership of financial assets meant that there was no cushion that Black Americans could use to dampen the impact of the 2007-2008 recession.
One cushion that Black Americans could avail themselves of is ownership of the very utility infrastructure that has been providing them, as consumers, with reliable services, and, as prospective investors, with reasonable returns on their equity.
Let me say this. I’m not offering investment advice, but as an economist, I believe that consumers should occupy the investment class as well, getting back some of the hard-earned dollars they spend on products and services. The utility sector should be no exception.
Utility shares, ironically in the positive today after another down day on Wall Street, are known to be bond-like in their behavior. In other words, they act as a haven when other equities are taking a hit in value. The opposite occurs when the market rises and investors get brave and want to dip their toes in other stocks. Utility share values may fall, but the yields their dividends provide may rise.
No investment is safe, but there are three primary characteristics about the utility sector that serve not only the consumer but the investor. The first characteristic is grid reliability. From the electricity generation plants to interstate transmission lines to local distribution, the regulatory framework requires utilities maintain the grid to standards that provide customers with electricity 24 hours a day, seven days a week.
Second, there is the rate regulation aspect of the framework. For regulated, investor-owned utilities, state public utility commissions approve a rate of return that utilities may earn on the assets that they employ to provide your electricity service. Commissions also set the rates investor-owned utilities may charge. The framework provides consumers with clarity and transparency about pricing.
Finally, there is you, the consumer. We take for granted how well we know the product entering our homes every day. In addition to the clarity and transparency of price information, consumers are intimate with the quality and reliability of the product. To paraphrase a world renown investor, we buy what we know.
The regulatory framework for investor-owned utilities strikes the balance between shareholder expectations regarding returns and consumer expectations regarding service quality. It’s time for the Black American community to take advantage of the balancing act.