In 2013, the net worth of white households was an astonishing 13 times greater than their African-American counterparts. If our nation is to achieve its full economic growth potential, something has to be done about this, and fast.
One of the biggest reasons for this gaping chasm is a lack of basic financial knowledge by far too many African-Americans. According to the Wharton School, more than one-third of this net worth problem can be accounted for by this gap in financial knowledge.
The Standard & Poor’s Global Financial Literacy Survey has determined 62% of men and 52% of women in this country can be classified as financially literate. These numbers are much worse for African-Americans. According to the Huffington Post:
“African-Americans suffer from insufficient financial education as well. The National Financial Capabilities Study, for example, posed 5 questions to test financial literacy and found that, White respondents on average answered 3.0 of 5.0 questions correctly, while African-Americans averaged 2.4 correct answers.”
This lack of knowledge causes huge gaps in wealth between the two groups over long periods of time. Those with limited financial knowledge end up PAYING huge interest costs on things, like pay-day loans and credit cards. Those with knowledge end up EARNING huge interest on 401ks and IRAs. This interest differential over decades of time has created the current gap we see in today’s statistics.
Living on Long Island, these discrepancies are very apparent. According Long Island’s Newsday:
- Racial inequities resulted in the loss of $24 billion to Long Island’s economy in 2014.
- White Long Islanders with a Bachelor’s degree earn $40 an hour while their African-American counterparts earn $32.
- The unemployment rate for African-Americans is 9%, about double that of the white population.
- 42% of census groups did not have a single African-American resident in 2010 and 2014.
The obvious solution to this problem is education. This will be easier said than done. I don’t pretend to know the answer to this immensely complicated problem, but I do know this: when people care the unexpected can happen.
I can relate this issue to a personal story. When I was teaching in the NYC Public School System, I introduced the students to the Stock Market Game. The majority of the student population was eligible for both free breakfast and lunch. Many lived in dangerous housing projects where nightly gun fire was the norm.
One way I motivated the students to play the game was by encouraging them to write letters to the various companies they purchased in the game. The idea was to get free samples. Companies like Nike, and the idea of a free pair of sneakers, got things moving along.
I told them they could exaggerate a little in their letters to get their point across. I mentioned the term “White Lie” which made for a pretty memorable conversation.
My proudest moment during the game was when I heard a young girl admonishing her male teammates about their investment strategy. They evidently wanted to buy more bank stocks when they were already at capacity.
She scolded them, “If one bank goes down so could the rest of them. This is not safe.”
I almost fell off my chair when I heard this. I complimented her in front of the whole class and her smile was a mile wide.
My point is when people care; we can begin to solve problems in this country.
This is a problem we should all care about
Sources: Newsday: Study: Race Inequity stunts LI economy, Huff post: Financial Literacy Is the Key to Solving Economic Inequality