Financial Literacy: The Key to Creating and Sustaining Wealth for African Americans


Inheritance planning is a lifelong endeavor that requires patience, discipline, a strong work ethic, and money and tax skills. Being “rich” should not only be defined in numerical terms. Otherwise, what’s the point of having a lot of money for people who can’t benefit from it, because they are not in good physical or psychological health?

For example, we have all heard of famous athletes who, despite having earned millions of dollars playing professional sports, end up bankrupt. A myriad of issues could have led to their financial ruin: marital infidelity leading to divorce, heavy child support, financial illiteracy, out of control spending, poor investment choices, cheating by unscrupulous business owners, and more.

Therefore, being “rich” must involve more than having millions of dollars. Have you ever heard of a person who won the Lotto, only to have nothing to show for a few years after winning? According to a 2006 report by the Camelot Group, 44% of lotto winners spend all of their winnings within five years. For wealth to last and leave a legacy for the next generation, consumers must have a sustainable plan to ensure longevity. of wealth.

When it comes to the African-American community, a major area where we need to improve in order to strengthen our ability to create and maintain wealth becomes financial literacy.

Why financial literacy?

A major differentiator between those who understand how money works and how to make money work for them has everything to do with literacy on the subject of money and personal finance. According to the 2009 Consumer Financial Literacy Survey, “54% of African Americans, far more than their white counterparts, strongly agree that they could use answers to everyday financial questions from a professional “. This survey also found that “African American adults were less likely than Caucasian adults to have learned information about personal finance in school.”

The wealth disparity between white and black households has a lot to do with education. Many African Americans who invest today, whether through their company-sponsored retirement (401k) plan, an IRA/ROTH IRA, or a regular taxable brokerage account, are investors. first generation. Fortunately, thanks to the internet and online trading resources such as “E-Trade” and “TDAmeritrade”, African Americans are now more likely to explore opening a brokerage account and buying stocks and mutual funds.

However, the financial literacy issue has a lot to do with the lack of black financial advisors representing financial services institutions across the United States. While I welcome the progress made by some companies in recruiting African Americans to become financial advisors, there is still a long way to go before there is an adequate level of black finance professionals who meet the financial education needs of African Americans.

At many large brokerage firms, the percentage of African Americans who are employed as financial advisors is around 2% or less! Given such low percentages of African American financial advisors in the United States, should we be surprised at the wealth disparity between white and black Americans? According to data from an economic survey of 2,000 American families surveyed every three years between 1984 and 2007, researchers found that the wealth gap between white and black households more than quadrupled regardless of bracket. income, according to a recent study conducted by the Institute on Assets and Social Policy (IASP) at Brandeis University.

In 1984, the average white family in the sample held about $20,000 more in assets than the average black family. By 2007, the “racial wealth gap” had increased by $75,000. However, taking into account the most recent data, the average white family had about $630,000 in wealth, compared to just $98,000 for African-American families and $110,000 for Latino families. In fact, before the recession caused by the lack of regulatory and financial oversight on Capitol Hill and Wall Street, white families were on average about four times wealthier than non-white families, according to analysis of Federal Reserve data by the Urban Institute. In 2010, white Americans were six times richer than African Americans.

Gaining financial literacy will also strengthen the ability of many black people to recover from the devastation caused by the Great Recession. Recovery isn’t just a matter of watching the value of your 401(K) rise to the level it was before the recession. If you don’t learn how to properly diversify your portfolio (whether it’s real estate or stocks, bonds, and mutual funds) so that it will weather the next financial crisis, you will inevitably repeat history in terms of the value of your investments.

African Americans need to place as much emphasis on acquiring financial literacy as we do on getting a four-year college education! If financial literacy continues to elude the black community, then getting a quality four-year college education will be out of reach for many of us, due to the rising cost of a college education. The current and future financial viability of a strong black middle class depends on African Americans becoming more financially literate today, so that tomorrow the African American community will have a chance to close the gap in ever-increasing wealth that has always existed among white people. and black people in America, who, unfortunately, have grown even larger in this post-recession era.

A quote that represents my business philosophy as a wealth management advisor and personal finance educator is borrowed from a man whose material and spiritual wealth has been spoken of throughout the centuries. His name was King Solomon. He said, “How better to acquire wisdom than gold! And to gain understanding is to be chosen over money! (Proverbs 16:16)

Source by Martin A. Smith

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