Three Ways to Increase Financial Literacy Among African Americans
Financial literacy is defined as the “ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.”
Every individual needs to be aware of their options when it comes to saving, insurance, managing debt, balancing a budget, and investing for retirement. However, as financial products have become more complex, many people do not have the necessary skills to make the best choices for themselves or their families. And many Americans also lack the savings necessary to weather a crisis such as COVID-19 that has resulted in record unemployment. In fact, a recent study found that nearly 70% of Americans don’t have $1,000 saved to use in an emergency.
Financial uncertainty is especially prevalent within minority communities where research finds that African Americans tend to exhibit lower financial well-being than the U.S. white population. “Given the strong link between financial literacy and financial well-being, increased knowledge can lead to improved financial capability and behaviors,” said Annamaria Lusardi, Academic Director of GFLEC and Denit Trust Endowed Chair of Economics and Accountancy at GWSB.
As within the rest of the population, financial literacy varies dramatically across demographic groups within the African American community as well. Financial literacy is greater among men, older individuals, those with more formal education, and those with higher incomes. That said, one area that stands out is the lack of financial knowledge exhibited by college students in a study conducted at a historically black college. This research concluded that the reason for this anomaly could be the fact that many of the students are first-generation and come from lower-income households with no history of wealth generation in their families. They also are forced to take on larger student loan debt than their white counterparts. Based on data collected from a study in the Spring and the Fall of 2016, the research shows that less than 4 percent of the student respondents could answer all five basic financial literacy questions.
So, now that the data supports what many already suspected, what can be done to ensure that this lack of financial preparedness does not continue to plague current and future generations? The HBCU Coalition explores how many of the solutions are coming directly from organizations and individuals within the African American community.
Our Money Matters:
Supported by a 3-year multi-million dollar philanthropic commitment from the Wells Fargo Foundation in coordination with HBCUCoaltion.org, the initiative, Our Money Matters aims to equip black and minority college students, and communities surrounding HBCU and MSI campuses, with the knowledge to improve their financial stability and set them on the path to success. Unlike most financial literacy programs, the new Our Money Matters financial wellness program offers a broadened approach including a financial portal, integration into HBCU and MSI online courses, one-on-one financial education counseling, on-campus support services such as career counseling, and more. As Ron Butler, CEO of HBCU Community Development Action Coalition states, “In the aftermath of civil unrest for racial equity, addressing economic equity plays a crucial role in achieving racial equity. Our partnership with the Wells Fargo Foundation demonstrates our aligned interest in equipping students within HBCUs, MSIs, and surrounding communities with the tools needed to achieve financial vitality now and for future generations to come.” The free portal includes many personalized features such as a financial wellness check-up. It’s easy to sign up with registrants getting immediate access to helpful information such as tutorials, financial courses and budgeting tools.
Financial Education Curriculums
Another approach that has been proposed by many experts including Annamaria Lusardi is to “Increase efforts to promote research-based financial education in middle and high schools”. Although only 28 states to date have recommended financial literacy standards, there has been an increase in states making it a mandatory requirement. For example, New Jersey Lt. Gov. Sheila Oliver signed a bill mandating school districts to integrate financial literacy into every year of middle school. Lessons will cover topics like investing, credit cards, managing debt and budgeting. New Jersey Assemblywoman Angela McKnight, a primary sponsor of the bill, says she became interested in the subject after speaking with people on the campaign trail about their financial hardships. “One of the main issues they were facing was debt: How can they get out of debt?” she says.
African American Financial Experts:
As with most things in life, we tend to listen to advice more intently from someone that we can relate to and that’s especially true when it comes to money. While there is still a relatively small percentage of black financial advisors, that’s starting to change and that bodes well for increased financial literacy among people of color as a whole. In 2017, NerdWallet started profiling African American financial gurus and it has now become a yearly feature. From Samantha Ealy (CEO, Generation Wealthy) to Michelle Singletary (columnist, “The Color of Money) to Chris Browning (Podcast host of Popcorn Finance), there are an increasing number of experts out there who have large platforms to communicate with an African American audience. As financial expert, Patrice Washington stated, “Race does matter, to a degree. A lot of mainstream financial advice assumes that everyone has the basic information. In reality, different conversations are happening in a lot of African American households. What I try to explain to black parents is that your kids can even learn from your failures if you are transparent enough to share. That can be a valuable lesson.”
The bottom line is that people that needed financial education and opportunities the most, were often the least likely to have access. Fortunately, that has started to change through some of the programs that we have highlighted in this blog. That said, there are many other resources that are available as well and many of them are low cost or completely free
but we need to ensure that people know how to find them. As Merck’s CEO, Ken Frazier recently told CNBC’s “Squawk Box, “Education is critical. That’s the great equalizer. We always say we’re a land of opportunity, but opportunity in a knowledge economy comes through education and training.”