How to Solve the Financial Literacy Crisis in Black America
There is an urgent need for greater financial literacy throughout America - but especially in African American communities.
With Black spending power increasing every year — recently surpassing $1.3 trillion — and a GDP (gross domestic product) equivalent to being the 16th largest country in the world, there should be reasons to be optimistic about African American wealth. Surely, with data such as these, many would conclude that blacks in America are doing quite well. But we know that is simply not the case.
African Americans have made tremendous strides in just about every industry in America. They are doctors, lawyers, teachers, politicians, religious leaders, athletes, entertainers, entrepreneurs, CEOs, etc. However, a primary stumbling block for this demographic is money management.
The most significant concern when meeting with #seniors and #baby boomers in the African American market is that they are inadequately prepared for retirement because of the severe lack of savings/investments. Most of them have never acquired basic financial management skills and are worried that they may not have enough money to live comfortably in their retirement days. Many of them have never been taught basic fundamental financial strategies.
Let's take a look at the three main reasons why this is the case:
1. Financial education is lacking.
A major cause of the problem is that, from elementary school through college, African Americans are less likely than the general population to receive any type of basic financial education class. For many, these types of classes were simply never part of the curriculum. Similarly, very few African American children report learning from their parents. Many of the parents never learned basic money skills as a child, and do not have the knowledge to pass these skills on.
2. Increased income does not translate to increased financial literacy.
In most cases, higher-income African Americans are no more financially literate than those with lower incomes. In fact, in a study conducted by Merrill-Lynch and Operation Hope, the African Americans that scored highest in a financial literacy test were those in the lowest family income category (earning below $20,000 per year). Although there has been an increase in African Americans graduating from college and securing higher-paying positions, financial literacy continues to plague even those in the middle and upper middle classes.
3. There are challenges to saving.
According to the Pew Research Center, the wealth gap between Blacks and Whites in the U.S. is over $100,000. The recent massive layoffs (due to COVID-19) has not helped this situation. Many factors have contributed to diminished wealth, including layoffs, decreasing equity in home values, borrowing from employer sponsored 401(k) accounts and the lack of alternate long-term wealth building accounts. African-Americans are more likely to use credit and debit cards than other cultural markets - and less likely to have bank accounts or other types of savings accounts.
How advisors can help
Across all markets and demographics, we face challenges in growing financial literacy in America. However, these challenges appear to be somewhat more pronounced among the African American community. Although there are very few African American financial advisors in America, one way to give back is by simply teaching financial literacy classes. For example, I've been teaching an adult "investment 101" wealth building course, "Sick and tired of Being Broke" since 2001 through Temple University's PASCEP program. Students learn how stock markets work, how to buy stocks and mutual funds to build wealth, decrease and/or eliminate debt, planning for retirement, maximizing employer retirement plans (401k, 403b, 457), reduce taxes and much more.
Fighting financial illiteracy is our mission!