April is National Financial Literacy Month — but no matter what the date is, it’s always a good time to start and continue to work on understanding your money.
Introduced by the National Endowment for Financial Education (NEFE) over 25 years ago, the month-long observance is also known as National Financial Capability Month
Organizations, state governments, and local communities use this month to provide education and resources on every aspect of personal finance.
But what exactly is financial literacy? Financial literacy is the foundation for better management of personal finances and financial decision-making.
For the Black community, there’s a gap in financial literacy and financial wellness.
How Black Folks Compare in Understanding Money
The Personal Finance Index (P-Fin Index) is a 28-question test used to measure financial literacy. It looks at eight areas of personal finance.
According to the 2023 TIAA Institute-GFLEC Personal Finance Index report, on average, U.S. adults correctly answered only 48% of the index questions in 2023.
This is slightly lower than previous years, where it’s stayed consistent at around 50% since 2017.
Black adults, on average, answered 34% of the P-Fin Index questions correctly. A majority, 41%, correctly answered seven questions or less. And 5% answered over 75% of the questions correctly.
The good news: The Black community is fairly literate and knowledgeable about borrowing and consuming. Over 40% of the questions in those areas were answered correctly.
However, overall, Black folks still lag significantly behind when it comes to understanding money compared to other races and ethnicities.
“To me, financial literacy is about being empowered,” Renée Baker, head of private client group advisor inclusion networks at Raymond James, says.
“It empowers me in a way my parents didn’t have, and all the generations before me. It gives me a level of freedom so I can feel free to make the choices that I need to make.”
Baker works to retain and support financial advisors from underrepresented groups like the Black community, the LGBTQ+ community, women, and veterans.
Her passions are financial literacy and inclusion to help empower diverse and marginalized groups. Baker also led a Tedx Talk on the racial wealth gap in 2022.
“[The racial wealth gap is] no fault of our own. It’s not that we’re not educated or smart. It’s a lack of access,” she says.
The First Steps Are the Easiest
The first steps on the journey to financial wellness depend on the starting place and the desired destination. But the start remains the same — getting a grasp on where you stand.
James Thompson, head of diverse and multicultural segments at Bernstein Private Wealth Management and host of the “Changing the Trajectory” podcast, recommends focusing on the budgeting aspect to start.
Knowing what you’re earning and saving, what debts there are, and how much you can invest all touch on the eight areas of the index test.
Others focused on increasing financial literacy among communities of color agree.
“I would say, number one, get a true understanding of your wealth — even if it’s negative,” says Lawrence Delva-Gonzalez. “The more you know, the better you can attack and address it.”
Delva-Gonzalez is a veteran, Certified Fraud Examiner, and auditor with the U.S. Department of Treasury. He’s also the mind behind the financial literacy education blog, The Neighborhood Finance Guy.
If you come across an unfamiliar term, Thompson says use sites like Investopedia, for example, to get a deeper understanding of their definitions and applicability.
The second step, according to Delva-Gonzalez, is setting out a five-to-20-year goal plan because without one, “you’re not effectively giving yourself enough of a ‘why’ to work towards.”
The goals could be shorter-term like getting out of debt, saving to buy a home or a car, or longer-term, such as retirement.
Another easy way to boost knowledge and understanding is through financial-focused books, podcasts, online courses, and workshops, Baker says.
Building a Strong Financial Legacy
“Financial literacy is more about how you apply what you’re learning to support this journey of income, wealth, and legacy,” Thompson says.
Tangible generational wealth is at the forefront of many discussions around money. Thompson wants people to consider that financial knowledge is part of generational wealth.
Although she would like to see more Black folks having conversations around financial literacy, Baker has hope based on the increase in education starting in elementary school through high school.
“This is a time for our community to be very bold and empower themselves with information and knowledge when it comes to financial literacy,” Baker says. “We can do better and it’s time for us to start using our power to build wealth in the black community and keep it there.”
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