Three Ways to Address the Financial Literacy Gap Among African Americans
The President's Advisory Council on Financial Literacy defines financial literacy as the “ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.”
Every individual must 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. This is especially true within the African American community 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 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. Based on data collected from a study in the Spring and the Fall of 2016, the research shows that less than 4 percent of respondents could answer all five basic financial literacy questions. This is especially troubling considering the amount of crushing debt that faces most students when they graduate.
So, now that the data is in, what can be done to ensure that this lack of financial preparedness does not continue to plague current and future generations? BCT Partners explores how many of the solutions are coming directly from organizations and individuals within the African American community.
National Black Church Initiative:
The NBCI is one such vehicle that is determined to educate and empower African Americans on how to handle money. For the first time in their history of over 400 years, a faith-based coalition of 34,000 churches comprised of 15 denominations and 15.7 million African Americans is helping to educate their congregants on critical wealth-building activities. They have created two main vehicles to aid in this initiative – the NBCI Money Course and the NBCI Money Booklet. The course is designed to be a series of lessons on Finance 101 giving participants the tools they need to feel confident and financially literate. The booklet will provide a financial scorecard and allow individuals and families to get a complete picture of their assets and liabilities in an easy to understand format. NBCI's groundbreaking program gives African American families the confidence and tools they need to navigate their finances and manage their money. Examples of topics that are covered in the money course can be found here.
Financial Education in Schools
Another approach that has been proposed by many including Annamaria Lusardi is to “Increase efforts to promote research-based financial education in schools”. Although only 28 states 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”.
So, while the research has made us more aware of the problem, it remains to be seen if the programs described in this blog will make a substantial difference. That said, it is certainly an initiative well worth the investment. Some might even say it could be the main determination of whether African American families simply get by or actually thrive. As Cy Richardson, senior vice president for programs at the National Urban League states, "The convergence of financial, credit and debt management provides headwinds for us all—yet structurally speaking the African American community has little margin for error compared to other groups and must continue to demonstrate progress on the critical measures and knowledge that are necessary to make financially responsible decisions—decisions, that are integral to our everyday lives and existence."