Is Financial Literacy Really the Answer?
An exploration of the factors contributing to the racial wealth divide for African Americans.
by Alexandra Banks
By Alexandra Banks
White Americans have had a 400 year head start on African Americans as a result of slavery causing a wealth gap between the races that has only increased. While the median white wealth has increased by almost $15,000 since 1983, the median wealth of black households decreased by 75 percent between 1983 and 2016. Currently, the median wealth of black families is about $17,000 compared to $171,000 that of white families in the U.S.
With black wealth being one tenth of white wealth in the U.S., the causes and remedies of the racial wealth gap are a heavily debated topic amongst the black community and economists, some place the blame on a lack of financial awareness amongst black citizens, attributing a portion of the wealth gap to a lack of financial illiteracy. Similarly, organizations such as the Society for Financial Education and Professional Development have focused their efforts on the overall promotion of financial literacy which frequently targets the youth. Celebrities such as actor Will Smith and rapper Nas have also shown interest in the issue, investing in a financial literacy app for teens.
Often the debate pivots to the efficacy of financial literacy and its use as a tool to combat the shortfall. And with any debate, not everyone agrees with the solution.
“The racial wealth gap is because of historical things that have happened within the country not because blacks don’t have financial literacy…increasing financial literacy is not going to be a remedy for closing the racial wealth gap,” said Dr. Omari Swinton, president of the National Economic Association, a think tank of economists of color promoting economic growth, and chair of Howard University’s economic department.
To understand the current state of the racial wealth gap, the economic history of blacks in America has to be explored.
Since the first enslaved Africans were brought to America, blacks have been at an economic disadvantage compared to whites. While white plantation owners and the common white Americans were building wealth through land ownership, paid labor and the production of cotton and tobacco, blacks were considered property and subhuman.
According to the Economic History Association, “by the mid 1830s, cotton shipments accounted for more than half the value of all exports from the United States.” And “in the seven states where most of the cotton was grown, almost one-half the population were slaves, and they accounted for 31 percent of white people’s income; for all 11 Confederate States, slaves represented 38 percent of the population and contributed 23 percent of whites’ income.”
“When I think of black Americans, I think of people who were brought here to really build wealth for other people and based on that legacy we’re behind,” said Howard University associate professor of finance, Dr. Lynne Kelly.
The gap didn’t stop at the end of enslavement.
Post slavery, the introduction of Jim crow laws in 1877 legalized the enforcement of racial segregation in almost all aspects of public life. Segregation in housing and financial institutions, which are pertinent factors in building wealth, led to institutionalized discrimination and racism towards blacks.
“There have been instances when we haven’t been able to buy homes in certain communities because of things like red lining or banks wouldn’t lend to people of color,” said Dr. Kelly.
The term red lining comes from the practice in real estate where agents would literally draw a red line around a neighborhood on a map, typically poorer communities or communities of color, that they would consider to be a high financial risk which often led to the refusal of service.
“Also, banks historically have not lent money in the same way to our community vs others to do things like start businesses,” she continued.
Prior to the Fair Housing Act of 1968, which prohibits discrimination in “renting or buying a home, getting a mortgage, seeking housing assistance, or engaging in other housing-related activities” there was no protection for blacks and people of color against discrimination from institutions by means of mortgage lending and borrowing, renting and buying homes, and many other housing related services. And although federally outlawed, discriminatory practices in lending still occur today.
“At the peak of the subprime boom African American’s making a quarter of a million dollars a year were more likely to get subprime loans than whites making $35,000 a year on average… for financial literacy to be a driver there you would have to assume that African Americans making $250,000 a year have lower levels of financial literacy than whites making $35,000 and that just doesn’t make any sense to me at all,” said Dr. Jacob Faber, an assistant professor of public service at New York University Wagner.
Through his research in sub-prime mortgage lending, Dr. Faber believes that the discrepancies in racial wealth are due to predatory and discriminatory practices within institutions and should not be considered as a result of financial illiteracy within the black community.
As a result of discrimination within the housing market, Americans are currently experiencing racial disparities in home ownership.
“I think it’s very unlikely to close the racial wealth divide without dealing with the home ownership divide,” said Dedrick Asante-Muhammad, Chief of Race, Wealth and Community at the National Community Reinvestment Coalition, a grass roots organization that aims to help its members build wealth.
“71 percent of whites are homeowners, 21 percent of blacks are homeowners…one huge problem of blacks is that everything they do they get less of a return. So even when we’re homeowners we get less of a return than whites on homeownership,” said Muhammad.
A study on racial disparities in home appreciation from the Center for American Progress, suggests that despite the passing of the Fair Housing Act, there is still residential segregation within homeownership as well as homes within black communities and those of color being worth less than homes in white communities.
The study states that in response to the Great Depression, the government instituted programs such as the Homeowners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and the secondary mortgage market which were geared to benefit whites more than blacks through discriminatory borrowing and redlining which has contributed to the current state of the market. The findings include racial steering, a practice of driving homeowners towards or away from certain neighborhoods due to their race.
“There’s a historical perspective from slavery, a racism perspective, and then there’s a literacy perspective…to close the gap we have to do well in those three areas” Kelly continues. Dr. Kelly believes that although financial literacy is not the defining component in closing the racial wealth gap, increasing literacy within the black community would help to reduce the gap.
Conversely, economist and political commentator, Dr. Julianne Malveaux believes the answer to reducing the racial wealth gap can be found in public policy and not in the increasing of black financial literacy.
“That is not a solution to the wealth gap issue. Reparations is a solution to the wealth gap issue,” she said.
She is calling for a change in public policy and a fundamental difference in economics. This she says will be the answer to reducing the current wealth gap.
“Even when poor people are financially savvy, the poverty is structural and has to do with the nature of predatory capitalism in our country,” she said.
The term predatory capitalism refers to the practice of having a select group of people profit at the expense of the rest of those within the economy.
Dr. Malveaux believes that regardless of the financial literacy of marginalized groups within the U.S., the racial wealth gap will persist until institutionalized changes are made.
Like Dr. Malveaux, others argue that the issue is not within financial literacy but the lack of means that would allow one to be financially literate.
“Well you gotta have the income to even work with anything and that’s been the primary issue… We’re the last to be hired, if we are hired. We’re often underemployed,” said Dr. Debby Lindsey-Taliefero, research associate for the Center of Race and Wealth and Howard University professor of economics.
Dr. Taliefero referenced her personal experience with discrimination as it relates to her mother who despite having a collegiate education was only able to obtain work cleaning houses until the NAACP helped her obtain a career within teaching. She feels that despite having the qualifications, African Americans and minorities have historically and continue to be at a disadvantage institutionally which leads to an income disparity.
According the 2018 U.S. Census data, black Americans have the highest percentage of poverty at 20.8 percent with Hispanics coming in second at 17.6 percent. As well as Blacks having the lowest median income in 2018 of only $41,361.
Additionally, while financial literacy is an issue, it is not specific to that of the African American community.
In the 2018 Financial Capability study of over 20,000 American adults, only 34 percent were able to answer three or more of the five financial literacy questions asked. Americans overall lack a sense of financial literacy and proper skills to make beneficial financial decisions, it does not appear to be a prominent factor in the outcome of the racial wealth gap.
The Student Loan Debt Crisis is Targeting Black Students
A look into why black students are at a greater risk of defaulting on their student loans and how the higher education system has not been of great assistance.
By Cheyenne Majeed
The student loan debt crisis is nothing new, although recent data shows that the crisis is impacting a specific group of students the hardest. Black students at both Historically Black Colleges and Universities and Predominately White Institutions have become the primary target of the racial wealth gap due to the lack of resources black families face.
Even with a college degree, black graduates may not reap similar economic benefits as their white counterparts, raising questions about whether the rise of black students in debt is due to their economic background and racial inequality.
“The big reason for the racial wealth gap has to do with policies of disinvestment, making properties and assets of blacks appreciate at a slower rate than those of whites,” Fredrick Wherry, director of the Dignity and Debt Network, a group of experts around the world who develop meaningful financial services for low and moderate income households, wrote in an email interview.
The legacy of enslavement and the aftermath of economic and legal inequality is part of American history. This history still impacts African Americans in many facets of society and higher education is no different.
“I think it goes back to understanding that African Americans, while we are not new to acquiring assets and wealth, it is still relatively new for us in terms of how to manage assets and wealth. For example, African Americans really didn’t have a fair opportunity to go into the home buying market as of 50 years ago. We know real estate is a tool, in this example, for wealth—The Fair Housing Act,” said Sonia Lewis, the first African American and woman to own a student loan repayment company in the country.
According to the Federal Reserve, The United States has $1.6 trillion in student loan debt. Data becomes limited when being able to identifiably show how much just how much student loan debt hits each racial group on the grounds of race. Credit bureaus do not analysis information based on race. On the grounds of race, gender and other protected characteristics, the Equal Credit Opportunity Act prohibits the collection of data regarding this information pertaining to racial groups.
Instead, information used to show racial disparities upon different racial groups have been analyzed based on locations and zip codes.
Research has shown that some scholars believe racial disparities in debt can be looked at as a form of “predatory inclusion” for blacks. Although blacks have gained great access to postsecondary institutions, it has come at a cost. Blacks have made these gains on exploitative terms while their white counterparts have not had to deal with the same repercussions.
Financially, the black experience for a college student primarily stems from the adequate or inadequate resources they have. Family wealth is one of the most important resources and factors for black youth to acquire an adequate education. It’s one of the leading driving forces when it comes to racial disparities. Most financial aid decisions are based on a parent or guardian’s income rather than their wealth. The average net wealth of a college-educated black individual is less than whites.
The median net worth of a white individual who graduates high school or less is worth $94,500 compared to a black individual whose worth is $10,910. A white person who attends some college with no degree is worth $86,690 while a black individual’s worth is $15,600. With an associates degree a white person is worth $117,600 while a black person is worth $8,300. With a Bachelor’s degree or higher blacks are worth $68,000, in contrast, their white counterparts are worth $399,000.
Dr. Fenaba R. Addo, professor of Money, Relationships, and Equality (MORE) in the school of Human Ecology’s Department of Consumer Science at UW-Madison, said the concern about black borrowers and the disproportional burden student loan debt holds versus white borrowers is partially due to the lack of resources and special programs to address the disparity.
“I think we need to think of some comprehensive program that only addresses some debt consolidation for those[blacks] because we know that a lot of them were preyed on by predatory services and a system that is broken, but as well as dealing with the accumulation place as well. How do we think about why black households have one tenth of a wealth of white families and what does that mean for their ability to help support their children to go to these costly colleges?,” Addo said.
Although the student loan debt crisis has sparked much media attention and conversation, it’s still difficult for some to view student loan debt as a crisis, let alone a crisis for black youth.
“It does not look like a traditional debt-related crisis. Federal student loans are guaranteed so if borrowers do not pay, it will not trigger an economic tailspin like the subprime mortgage crisis. The crisis may lie in the side effects of being overwhelmed by student loan debt. Borrowers are delaying major life events including marriage, buying a home, or starting a family. Extended family members are taking on debt to pay for a student’s education. This can also take a toll on individual well-being. Some borrowers feel trapped and it goes beyond the students. This is a multigenerational issue,” Dr. Tisa Silver Canady, higher education and finance strategist, said.
Research conducted by the Institute on Assets and Social Policy (IASP) revealed that “twenty years after starting college, the median debt of white borrowing students has been reduced by 94 percent—with almost half holding no student debt—whereas black borrowers at the median still owe 95 percent of their cumulative borrowing total.”
When black borrowers take out a loan starting at a fairly low amount, after years out of college, they end up owing way more than they initially borrowed due to the lack of financial support offered. Although this is an issue for almost every student, regardless of race, data shows that over time it does stifle black students more heavily.
“Especially in regards to repayment, those require policy-based solutions because if a young adult doesn’t require that much debt, but is having difficulty paying it off and the systems aren’t in place to help them navigate the repayment process, there’s not much that individual can do,” Addo said.
More policy-based solutions, in favor of blacks, are ideal to help students get out of this hole says Addo.
Several policy proposals have been suggested from Democratic candidates for president in 2020. Bernie Sanders and Elizabeth Warrenhave made student loan debt one of their major concerns if they are elected into office.
Addo also added, student loan debt is not easy to get rid of. “In fact, it’s hard to get rid of. You can’t discharge it in bankruptcy. An individual would have to prove undue hardship, which is almost impossible to prove in court,” Addo said. “Given the mixture of public and private funds, if you have a lot of private loans or other kinds of loans that are not the federal ones, they don’t have the same protections—the ability to put them in forbearance or defer them when you go to graduate school or something like that. These differences have very real implications for one’s financial status.”
While this matter hurts black students generally, black students at HBCUs experience an even tougher barrier. Unlike PWIs, many HBCUs have small endowments. Many alumni of HBCUs are not able to give back in the way they may intend to due to the financial burden of paying back their student loans.
While the short term impact of student loan debt on black borrowers is more known, long term effects are still being analyzed and studied.
Research has been conducted to look at short term impacts regarding a student’s relationships, family decisions and mental health outcomes. For example, it has been shown that student debt makes black students more likely to drop out. Over two thirds of black students who didn’t finish college said that it was due to the high cost of college.
“I look at wealth outcomes and if we think it’s contributing to the inability to accumulate wealth, that can (have) massive implications for long-term stability and security,” Addo said.
Student loan debt is a common and shared experience that most students, not on scholarship, face in college.
“There is an old quote attributed to Benjamin Franklin, something to the effect of “an ounce of prevention is worth a pound of cure.” It will become less normal as more and more students begin to break out of the habit. We have to make more informed, practical decisions about education beyond high school. It is a complex question to answer and I want to help people simplify the process and figure it out,” Dr. Canady said.
Dr. Canady suggest to help break this cycle black people learn about money and how to advocate for themselves. “Once you learn, teach others and mobilize. Invest in continuing financial education. Learning does not have to take place in school nor cost you money. There are plenty of free financial education resources online through federal government entities such as the Consumer Financial Protection Bureau (consumerfinance.gov), the Federal Trade Commission (ftc.gov) and the U.S. Department of the Treasury (treasury.gov),” Canady said.
Ride the Wave: Social Media’s Effect on Groupthink
With so many people communicating with each other via social media it raises the question, can/are people being influenced by groupthink and how does that affect society and its future?
By Dikembe Wilkins
In the late 2000s social media, such as Facebook and Twitter made the world even smaller than the internet did in the 90s. Allowing millions of people that, ten years before, wouldn’t be aware of each other’s existence to connect and share common and differing ideas. This constantly creates a changing online world. The side effects of which on the minds of society are still for the most part unknown.
Presently, online communities wage verbal wars against each other, stan (stalker fan) armies have become “a thing” and people get judged by the color of their text messages. This behavior could have something to do with an old concept called “groupthink.”
Groupthink was first brought to the public when social psychologist Irving Janis, had his book, “Victims of Groupthink,” published in 1972 and follow it up with a second book in 1982, “Groupthink.” Through his studies he defines groupthink as a “mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ striving for unanimity override their motivation to realistically appraise alternative courses of action.” Basically, when similar people are exposed to each other in a group setting they can be influenced by one another to think the same.
With so many people communicating with each other via social media it raises the question, can/are people being influenced by groupthink and how does that affect society and its future?
Yanick Rice Lamb, a professor at Howard University who researches self-censorship thinks so. “I think that social media causes a lot of people to fall in line with each other and to adopt the thinking of the group that they’re in, whether it’s positive or negative.”
Lamb believes that groupthink could be pushing social media users into self-censorship, feeling that if they share a view that is oppositional from their group’s they may be ostracized. “Others also don’t want to be singled out for tweets by people they don’t know. They don’t want people coming for them.” Such as when an Atlanta chef Justin Mack tweeted “Barbs will buy everything Nicki but concert tickets.” In response the Barbz, Nicki Minaj stans, spammed his restaurant with bad reviews on Google and Facebook. Mack also says he received death threats and his mother was harassed.
While instances of argument and harassment are common on social media, groupthink may also influence people’s perceptions and their behavior as consumers.
The U.S. government seems to believe that this is a topic worth looking into as they have invested money into research on similar subjects through the National Science Foundation (NSF).
The NSF funded Social Cyber Security from the Human-Computer Interaction Institute is currently making progress on this front. Recently the aforementioned group has published an overview of their current research about How Your Brain Believes Without Thinking, naming four ideas for why this happens:
Cori Falkaris, a member of the Social Cyber Security team says that social media “makes it very easy to access what other people think and because there is such a huge amount of media and it’s something that we’re looking at for so much of the day, it can also influence us in ways that we’re not even conscious of.”
Falkaris and the team have found that it is much easier for people to use system one thinking and make a decision to go with the group than to use system two and compare the pros and cons of an action.
“We are more likely to think that something, or a certain behavior is correct if we see other people doing that or thinking that way,” said Falkaris.
She believes that it’s also possible that groupthink could factor into consumers unknowingly acting as marketing tools for companies.
Examples of this would be how through social media the Popeyes chicken sandwich went viral resulting in a drastic increase in sales that would lead to the sandwich selling out nationwide in late August, or consumers conflating green text messages with a lack of wealth, pushing people to buy an iPhone.
The assumed way to combat the urge to push a product would be for people to use their second system of thinking. But Social Cyber Security says that they have yet to find a way to get people to think critically before they act online.
Lamb also felt that groupthink factored into the brands that people tend to support or buy the most from, specifically phone companies.
“I think there’s a lot of groupthink in terms of products and definitely in terms of people purchasing phones. I think that some companies tap into that to fuel it, or they’re watching it so they can know how to pivot or counteract if it’s working negatively.”
Dr. Yong Jin Park, professor of policy, technology and society at Howard University, who researches how people apply new technologies and social media in societies says that the life span of groupthink is not very long. He believes that online events such as cancel culture happen dramatically and last about one or two days but are quickly dropped
“But let’s say if that “dramatic thing” somehow impacts your psychology, which most studies do not measure, then we’re probably having some of the great groupthink going on because of social media,” said Dr. Park.
Dr. Park also thinks that anyone could be vulnerable to groupthink and that groupthink via social media can be used for both good and bad.
He mentions “Black Twitter” as a social space that is used to spread information that most likely would not make it to the mainstream media, such as instances of police brutality. However, according to experts, even as a space that has done good it may also have a negative effect of isolating itself from the opinions of other groups.
Referencing “Black Twitter,” Dr. Park says, “It should be influencing beyond the reach of African American society. In other work that I did, those kinds of tweets are very much happening on the African American focus but on the other, whites don’t actually tweet each other (black twitter and white twitter are not interacting). That means that there is a possibility there that we have (a) certain bubble actually going on.”
“So, vulnerability despite the fact that we have the potential of spreading (awareness of) police brutality. Vulnerability is tied not just to African Americans but to whites too. They are isolated as much as African Americans, as much as probably Asians. If that’s not happening, meaningfully conveying the message from one group to the other, although that same group actually thinks quick and intensely, if that group actually does not communicate with the other. Then you know we’re all vulnerable in that sense.” According to Dr. Park that vulnerability he is referring to is social media users putting themselves into echo-chambers, limiting their openness to outside concepts curbing their ability to reach those outside of their group.
The idea that social media and the internet’s influence on people is a very new concept and is still in its early stages of being researched. Because of this there are very few published studies on the subject and researchers have found it difficult to judge the internet’s long-term effects.