Financial Illiteracy Will Make Us a Permanent Underclass

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These days, I’ve become increasingly alarmed by the growing pattern of recklessness and neglect that seems to govern the management of our personal finances. Recent actions–or I should say inaction–by large numbers of African Americans have prompted me to suggest taking a bold step and declare a state of financial emergency. I make this assertion not for dramatic effect but to bring attention to the need for us to take corrective measures. If not, this self-destructive behavior will continue to threaten the future of our families for generations to come.

Let me give you an example. I recently discovered much to my dismay, that 21.7% of African American households are “unbanked,” while 31.6% are “underbanked,” compared with 3.3% and 14.9% of white households, respectively. What does this mean? As a member of the unbanked, you’re walking around without a checking or savings account. The underbanked rely primarily on nonbank money orders, check-cashing establishments, and payday loans to conduct transactions.

By refusing to use traditional banking services, a sizable segment of our community is accepting what I consider a form of second-class citizenship, relegating themselves and their families to a financial underclass. Without access to checking and savings accounts or credit and debit cards, engaging in basic activities such as renting cars and booking hotels becomes difficult–if not impossible. Moreover, the inability to establish a solid credit rating derails any chance of buying a home, the cornerstone of wealth-building.

Many avoid financial institutions for one reason: fear. Last year’s financial crisis provided some with an excuse to maintain their outmoded mattress finance mentality. But the Federal Deposit Insurance Corp. has insured checking and savings accounts for 76 years (the coverage limit for depositor accounts currently stands at $250,000), and not one depositor has ever lost a cent. Moreover, you have to ask yourself whether a major bank has a better chance of going out of business than the local check cashing store.

I know some of you may believe this issue of being unbanked doesn’t have anything to do with you. After all, those who fall in the unbanked category reside in relatively low-income households–at least 71% had annual earnings of less than $30,000. But this money management phobia and lack of discipline is endemic across economic stations. For instance, Insight Center for Community Economic Development reported that 42% of whites invested in an IRA or Keogh plan for retirement versus a mere 7% of African Americans. And the Ariel Education Initiative and consulting firm

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  • As much as I agree with this article, I think we have to also consider (some) of the reasons why many people do this. I think it’s easy to declare an emergency and talk about the great right & wrongs people are doing with their finances, however as stated many of the people making these financial mistakes are in the $30,000 & below households. Those neighborhoods do not exactly harbor nor exude the best fiscal decisions, instead it’s the opposite. Around every corner there are check-cashing stores, money-orders & quick payday loan business. It might not be the most optimum decision, but it is the most convenient.

    Although my wife and I are not in either of the 2 categories listed,

  • In this country you are what you own and some people want others to be able to see their so called wealth. Many people don’t see owning a home and investments as a way of obtaining wealth. Our country believes in convenience and conditions individuals into believing that they can buy into whatever fantasy there is even if it creates debt that they’ll never recover from. Their indebtedness on both fronts enriches other’s, but they don’t see it.
    I can’t wait to read the February issue with Ursula Burns on the cover. I can’t help but think of her position as one of the best examples of the exchange of power in this nations history when Anne Mulcahy retired from Xerox and handed the helm of the Corporation to her. Now, that’s what empowerment is all about.

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