Financial Literacy is the ability to understand and manage your personal finance. It requires skills like saving, budgeting, investing, and avoiding debt. Good financial education can benefit black communities in many ways, including reaching their financial goals, such as paying for education, buying a home, building generational wealth, and retiring comfortably.
In the rest of this post, we’ll dive deeper into financial education in the African American Community and the various ways it can benefit them.
Close the Racial Wealth Gap
First, financial education can help close the financial wealth gap (difference in net worth between white and black households) that has existed for a long time. According to a report from the Federal Reserve, the median net worth of black households was only $24,000 in 2019, while that of white households was $142,500.
This gap highlights decades of discrimination and systemic racism that have limited the economic opportunities of African Americans. However, learning about money and how to invest and manage it will help them make sound financial decisions.
Borrowing and Managing Debt
Building credit scores, taking student loans, and paying off credit card debt are areas of financial education most folks encounter very early in life. But most African Americans still struggle with debt.
According to the Credit Sesame 2021 survey, about 54% of African Americans have a credit score below 640, while just about 37% of white folks report having poor or no credit. The survey also found that 30% of African Americans said they were tricked or misinformed in their first interactions with credit, compared to 18% of white Americans.
Understand Risk and Uncertainty
Financial risk is an essential strategy that’s often not understood by people with little or no financial education. Investing funds in the stock market is a risk. So is taking a student loan or buying a home.
Most times, when you take a financial risk, you know the possible outcomes. For instance, if you buy cryptocurrency, you know it might drop in price.
Conversely, uncertainty is when the possible outcome of future events is unknown. For example, no one can predict when there will be a fire outbreak or precisely what the United States economy will be like in the next five years.
Insurance is a risk management solution and hedge against uncertainty. It’s used to protect against financial losses.
But according to the TIAA Index study, insurance is one of the least understood aspects of personal finance among African Americans. While understanding risk, identifying reliable sources of financial resources, and investing follow.
Prepare African Americans for Retirement
Institutionalized racism has negatively impacted most African Americans’ earnings, savings, home values, and overall wealth. This discrimination doesn’t disappear when you retire. According to a report by the Center for Global Policy Solutions, about 83% of African American seniors do not possess the asset they require for retirement
In the past, most workers depended on pensions because it was a guaranteed source of retirement funds funded and managed by employers. But in recent years, the retirement landscape moved towards defined contribution plans like 401(k)s, which require employees to invest in the stock market.
This has made it impossible for African Americans without good financial education to participate. Plus, most blacks work for employees who don’t offer 401(k)s plans.
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Teach African American Students How to Access the Best Student Loan
According to a report, African American students’ median student loan debt is $30,000, $7,000 higher than their white American counterparts.
This data highlights two things:
- Most black American Students don’t have the financial education needed to make an informed decision about how much student loan debt to take.
- They don’t have information on how to use the funds properly.
Help Empower Black Communities to Overcome Financial Challenges
Several African Americans struggle with accessing good financial products and services, like loans, bank accounts, investment options, and insurance. They often face higher fees and costs for these products and services because of factors like credit history, location, or discrimination. Becoming financially educated will help African Americans navigate the financial landscape. They’ll also avoid predatory practices that can destroy their financial health.
It Can Help to Inspire Young African Americans to Chase Their Dreams
Many young African Americans have creative potential and an entrepreneurial spirit that can be harnessed through support and financial education. By teaching them how to start and grow a business and invest in cryptocurrency and the stock market, they can be inspired to attain financial freedom. They can also contribute their quota to the economic growth and development of the African American community.
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Financial education enhances awareness of consumer rights and financial regulations. This knowledge helps protect individuals from predatory lending practices, fraud, and other financial pitfalls. The aim is to ensure fair treatment and economic justice.
Overall, financial education catalyzes economic empowerment and improved financial well-being. It also dismantles historical economic disparities within the black community. Financial education can create a more financially resilient and prosperous future for the entire community. And this is possible by equipping black people with the necessary knowledge and skills.
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