To manage your finances, a sound, effective and thorough, understanding of finance, we call financial literacy is crucial. People should know how to manage their debts and save money. African Americans play a vital role in the economic establishment of the United States, but in comparison to their white counterparts, they still lag in financial wellness. Financial literacy is one of the main reasons behind this complex gap. Financial literacy and financial wellness are tightly intertwined, especially in African Americans.
One of the latest studies on the Personal Finance Index (P-Fin Index) conducted by GFLEC and TIAA institute provides new insights on Black financial literacy.
There are eight areas on which P-Fin Index study is based:
- Managing debt
- Comprehending risk and uncertainty
- Only 38% of the answers were correct by African Americans compared to 55% of white people.
- Their best score was in borrowing and managing debt.
- The lowest score was in comprehending risk and uncertainty, insuring, investing, and go-to information source.
- Insuring and understanding is a troubling part of financial literacy
- Functional financial literacy saves people from rainy days or debts
Demographic differences also contribute to the gap between the two parties. People with good formal education, high incomes, and sound financial education tend to have a high financial literacy rate.
This study also emphasizes the need for proper financial education to increase the literacy rate by including such kind of topics as insuring or understanding the risk on which literacy rate is shallow. This will automatically lead to the financial wellness of a society.
The Need for More African American Personal Finance Professionals:
The role of black financial advisors dramatically impacts financial literacy in the United States. Although many companies are having Black financial advisors working for the fulfillment of financial literacy among African-American still, the employment ratio of Black Advisors is only 2% in the United States. It's crazy!
Reduce the wealth gap
According to many surveys conducted in the United States, it has been observed that there is a significant racial wealth gap between white Americans and African-Americans. For example, if a white family holds assets of $630,000, the average African American family holds $98,000. White families are almost six times wealthier than black families. Also, the median black family income is $45,200, but being white has the privilege to have a salary of $142,500, which is almost three times greater than the black median FAMILY income. For black people to recover from this recession, financial literacy is critical! Being financially literate and empowered is the only way African Americans will become more economically stable so that they can narrow the wealth gap.
Economic mobility among African Americans is observed to be very low in comparison to their white counterparts, regardless of their family status or no marriage or single-parent household. This review was conducted by Census Bureau race data in 2018.
The paper suggests that black Americans can face very high rates of incarceration and have less ability to access high education as compared to white Americans, which is the reason for lower economic mobility. The ratio of black dropouts in high school, lower attendance rates, and quality occupations are also lacking compared to white people.
TIAA (Teachers Insurance and Annuity Association )
Financial literacy and having a sense of wellness among African Americans indicates the new insight from the personal report saying that Black Americans have 38% of personal finance education compared to white Americans having 55%, which tells us about a tremendous wealth gap between communities. They further say that:
“African Americans make 13% of the US population, and hence a very critical part of the economy is dependent upon them. Regardless of the economic gap, Stephanie Rose, the head of TIAA Institute, said in a press report that having no literacy gap between White and Black People is very important to highlight the challenges and issues to make a better economy of our country.
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A closer look at the race gap
The financial literacy gap between white and black Americans is not entirely dependent upon the two communities. Also, it is related to various demographics in the population of adults. This gap is lower among young females who are more educated than females with less formal education.
Washington D.C. financial wealth report
The report on the financial wealth gap in D.C finds that black people are seven times more unemployed than white people, even though they are active workers. Not because of the reason that they are incompetent, but because of racism. It points to the times when there was slavery in D.C., and all the lower-paid jobs were given to black people. Nowadays, this led to a racial crisis in many employment-related metrics, which includes many benefits and opportunities to grow wealth for a black family.
Main points were:
- Black men can face many difficulties in finding a good job.
- White entrepreneurs have access to useful resources and excel in their business, but the black entrepreneurs have to face many difficulties.
- They also don’t have much-paid leaves, health insurance, and retirements benefits than white people.
Conclusion and Solutions
It’s not essential to move out of the financial crisis at once, but if you set up a plan for your betterment and you stick to it, it will surely take you somewhere out of the crisis.
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The last event was mainly focused on financial literacy. Saving money and thinking about retirement is the best way for black Americans to turn this ship around. Also, according to a national survey, if an emergency comes about right now, most families don’t even have 400 dollars to get through the situation. I imagine this was made worse by the coronavirus pandemic. The only solution is to save money for our families. Also, full-time employees should have a minimum salary of $3,500/month so that after all their expenses, they could save some money for their retirement.
Want to test your financial literacy? I created a quiz to see where you stand! Come back and post your results in the comments!