From the AFRO publisher’s desk: financial training can’t start too early

By Frances “Toni” Draper AFRO Publisher and CEO

It was a colorful 3x5 card (more like a booklet) with patriotic symbols and slogans about money. Every day, I put a dime in one of its tiny slots. If I recall correctly, the card held about five dollars worth of dimes that I could exchange for U.S. Savings Bonds.

U.S. Savings Bonds were sold in schools as part of a program called the “Savings Bonds in Education Program.” The program began in 1956 and continued through the 1970s. It was designed to encourage students to save money and to learn about finance, while supporting the government. Under the program, bonds could be purchased for as little as $1.

This was a big deal for me and my classmates at Gwynns Falls Elementary School– and for students throughout Baltimore. It was also, for many of us, our first real introduction to savings—piggy banks excluded. Through savings bonds, we learned that if we held on to our bonds for a specified length of time, they would be worth more upon redemption. However, the interest rate was so low it took a long time to get to face value!

This was my first introduction to finance and savings. A few years later, I got another lesson in finance from my mother who was a single parent to three school-aged children. I was the oldest. One day, my mother called all three of us into a family meeting and said “I’m working two jobs and in graduate school, and I need some help. So, from now on, your sister Toni will be handling the family checkbook, and paying the bills for the household.”

What? I’m 16. What do I know about checkbooks and bills?! Isn’t it enough that I have two younger siblings to watch? Well, anyone who knew my mother, knows that didn’t deter her. Not one bit.

A couple of weeks later, she took me to the bank and added my name to her checking account. Then she sat me down at the dining room table, gave me a list of bills and said, “Just make sure we have food, that the mortgage is paid, and that the lights stay on.”

Surely, she’s kidding, I thought to myself.

I didn’t even like math (or so I thought), much less budgets and bills. Thank God, she coached me along the way and eventually I learned how to handle the family finances. And, yes, we ate every day and the lights stayed on.

The point of sharing this story is not to highlight my mom or me, but to highlight the importance of teaching financial lessons to our children at an early age – the earlier the better. Many times, however, that’s not what’s happening in the Black community for a variety of reasons. So, I decided to go the Artificial Intelligence (chat.openai.com) route to see what “they” had to say in response to my query, “Why is it that many Black Americans do not know about finance and investing.”

Below is the AI-generated response: “There are a number of factors that contribute to the financial literacy gap among Black Americans. Some of these factors include:

1. Historical and ongoing discrimination: Black Americans have faced discrimination in many areas of life, including education, employment and housing, which has limited their access to financial resources and opportunities.

By Cy Richardson and Ayanna Fortson National Urban League

Even though African Americans make a significant economic contribution in the United States, their financial wellness lags behind that of the rest of the country.

Numerous economic indicators highlight this disparity, such as median household income, net worth, and the likelihood of carrying student-loan debt.

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The reasons behind these financial wellness gaps are complex; accordingly, a report conducted by the TIAA Institute, highlights new insights from the TIAA InstituteGFLEC Personal Finance Index (P-Fin Index).

The P-Fin Index measures eight key areas of personal finance knowledge: earning, consuming, saving, investing, borrowing and managing debt, insuring, comprehending risk and uncertainty, and go-to information sources.

According to the report, AfricanAmerican adults answered 38 percent of the P-Fin Index questions correctly, compared to 55 percent of White adults. African Americans scored highest in the areas of borrowing and debt management but scored lowest on questions relating to insuring. African Americans scored comparatively low on questions related to comprehending risk, investing, and identifying go-to information sources. The report states that low levels of financial literacy in insuring and comprehending risk are especially troubling.

“Risk and uncertainty are inherent in financial decision-making, and individuals face a range of choices regarding events to insure and how to structure their coverage,” the report states. “Poor insurance decisions can leave an individual under-insured for some risks and over-insured for others, as well as overpaying for coverage.”

There are demographic differences in financial knowledge among African Americans. For example, financial literacy is greater for those with more formal education, those who received financial education, and those with higher incomes. Men and older individuals also tend to have greater financial literacy than women and younger adults. The gap in financial knowledge between African Americans and Whites can be partially attributed to underlying demographic differences between the two groups. However, the differences cannot account for the entire gap as financial literacy is still lower for African Americans compared to Whites in each demographic subgroup reported in this study.

The connection between financial literacy and financial wellness is welldocumented, and this is true among African Americans as well. For example,

2 Lack of access to financial education: Many schools do not offer comprehensive financial education, and Black Americans may not have access to financial literacy resources outside of school. Additionally, financial information is often written in complex terms and jargon, which can make it difficult for people with limited financial education to understand.

3. Lack of trust in financial institutions: due to historical and ongoing discrimination, many Black Americans have a lack of trust in financial institutions and may be hesitant to invest their money. They may also be more likely to rely on informal financial networks, such as friends and family, rather than traditional financial institutions

4 Economic inequality: Black Americans are more likely to live in poverty and have lower median incomes than White Americans, which can make it difficult to save and invest money.

Wow! AI is going to be (and already is) a game changer. It is important to note that these factors are not exclusive to Black Americans, and that financial literacy is a widespread issue in the United States. It is also important to address financial literacy as a systemic issue that requires a comprehensive approach, including increasing access to financial education, promoting financial inclusion and addressing the root causes of economic inequality and discrimination.”

Bottom line? While structural and overt racism are still alive and well in America, financial literacy is a must for the advancement of any community and the creation of generational wealth.

As Booker T. Washington so aptly said, “At the bottom of education, at the bottom of politics, even at the bottom of religion, there must be for our race economic independence.” those with higher financial literacy tend to save for retirement, have non-retirement savings, and manage their debt better overall. They are also less likely to be financially fragile.

This article includes information generated by artificial intelligence.

While not a cure-all, the National Urban League (NUL) believes increased financial literacy can lead to improved financial capability and practices that benefit even those with relatively low incomes. We also believe that future initiatives that aim to bridge these gaps must better target the needs of specific demographic subgroups if they are to be successful.

Financial literacy is combining financial knowledge with attitudes, skills, and behaviors, which are essential to make a financial decision based on personal circumstances. It helps improve your financial well-being. Undoubtedly, being financially literate will assist in influencing financial decisions. The ability to make financial decisions and improve financial well-being are two important aspects of the definition of financial literacy.

However, concepts defining financial literacy have failed to highlight the financial issues associated with the complex financial environment. According to traditional financial literacy framing, anyone can be considered financially illiterate for not having enough skills or knowledge regarding finances. Researchers have learned that people who have low incomes can possess the same decreased bandwidth in decision-making as those suffering from personal and other stressful situations.

Being financially literate can be difficult for people living in poverty who are also struggling to change their financial conditions. Financial assets may also affect lower earners adversely as they fall into the ‘bank fee poverty trap.’ This trap occurs because they do not own any mortgages or cannot meet minimum bank balance requirements.

Problems with the concept of ‘financial literacy’ Culture

Following certain cultural customs could positively impact neighborhoods from a community perspective while causing people to appear to be financially illiterate from an individualistic perspective.

Financial literacy does not determine how others are affected when an individual makes a financial decision, such as supporting a local store that will open opportunities for employment by creating ample benefits specifically for the community. Whereas shopping online with large stores is more likely to be a less expensive financial decision, it can produce adverse effects on those who are running physical brick and mortar store locations. It is essential to highlight the influences of financial decision making and how others are affected according to the definition of financial literacy. It includes cultural and personal values, socioeconomic status, life stages, professional associations, educational level, media, and much more.

Financial dilemmas

Financial literacy should include an individual’s capacity to reflect on the critical consequences of their financial decisions. For example, individuals may face “financial dilemmas,” which include stressful situations such as sudden expenses or unemployment. It is highly rational, therefore, that people with lowincome can be the “best budgeters” due to the implementation of their practiced survival skills. For instance, if there is an option to either pay rent or feed the family, an individual’s financial decision may be conflicted. It is not a “lack of financial literacy” that affects these decisions. Rather, low-income families may have a limited stronghold over their financial matters.

Education

Another main issue related to financial literacy is that only 17 states are providing financial education. Schools must give essential life lessons about financial skills to young people. This education will help them to effectively monetize their own labor and manage their assets efficiently. There is a definite need for programs comprised of financial literacy skills to be offered to students to learn how to manage and implement their finances appropriately in the real world.

Finally, NUL believes that financial literacy is a collective problem. Issues related to financial literacy are not associated with only one individual or group or individuals. It is a common problem for the whole nation as it directly affects the younger generation. Our country needs to plan on how to implement and operationalize the concept of financial literacy in the most efficient and effective possible manner. The government at all levels should allocate funds for proper training programs that will create awareness regarding financial and risk management. It is urgently necessary to impart the efficacy of financial literacy onto young adults of color as it will allow them to make better financial decisions and manage their finances intergenerationally and with heightened eloquence.