The Road to Financial Liberation is Paved Unevenly: An Analysis of the Compounded Effect of Generational Trauma and Racially Biased Financial Algorithms on the Livelihoods of People of Color

Abstract

This paper examines the historical financial trauma faced by people of color and the racial bias that exists in algorithms utilized by the financial sector today. While both of these factors are individually detrimental to the livelihood of people of color, the combination of the two introduces a harm that makes it difficult to achieve financial liberation in the United States. In this paper, we introduce an equation to illustrate the compounding effect of the harms endured by people of color and utilize the original concepts of financial trauma and financial liberation to expand upon them. Similar to the expression of ‘a whole being greater than the sum of its parts,’ we describe the compounding effect, or Harm Z, as being the combination of financial trauma accumulated over generations by people of color and biased algorithms that discriminate against them today. We propose that the combination of these two factors has a compounding effect, and the harm they inflict upon people of color together is greater than the harm these two factors impose individually. We then discuss how Harm Z prohibits individuals from achieving financial liberation or accomplishing the ‘American Dream.’ The paper ends with a policy proposal on how to begin eradicating the racial biases present in algorithms in the financial sector.