Is financial education racist? In the decade since financial literacy became a focal point of my work, I have heard all manner of criticism. Financial instruction doesn’t change consumer behavior. The lessons can’t keep up with the pace of financial change. Slick marketing overwhelms the message of the financial literacy movement.

These are all valid, if incomplete, thoughts. But racist? That’s a new one. Yet that’s the argument that two professors make in a paper in the Federal Reserve Bank of St. Louis Review.

The Racism Inherent in the Financial Literacy Movement

Is the Financial Literacy Movement Racist? Financial literacy may be a means to address the socioeconomic gap but questions of its sufficiency across populations remain.

In a nutshell, Duke’s William A. Darity and the New School’s Darrick Hamilton argue that policymakers and educators misunderstand the root cause of black poverty. Financial education does not address the deeper problems. Therefore, it is racist.

Darity and Hamilton are not the first to notice racial overtones in the way we pass on financial know-how. The activist John Hope Bryant has called financial literacy the civil rights issue of our day.

The underprivileged — many of whom are African American — must be brought into the financial mainstream, Bryant argues. By his estimate, 40 million American adults are underbanked. But he sees financial education as part of the solution — not the problem.

Darity and Hamilton see financial education in a different light. They believe that the true cause of black poverty is limited access to capital that would allow more people of color to finish college, put down money for a home, or fund a small business without debt. These are advantages that many others enjoy.

In an earlier study, they found that 34 percent of whites receive family money for college, while only 14 percent of blacks get that same privilege. Similar gaps exist in family money for a home (12 percent vs. two percent) and other purposes like starting a business (26 percent vs. 19 percent).

Where Financial Education Programs Fall Short

The financial education programs now being put forth in schools and communities are a presumed fix. But while these programs have much to offer in the way of setting budgets and investing for retirement, they can’t offset the advantages that wealth transfers bestow on so many at key moments in life, the professors assert.

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No amount of monetary savviness can put money in the bank for those who have none.

That’s what makes the financial literacy movement racist. No amount of monetary savviness can put money in the bank of those who have none. And those who embrace financial literacy as a way to level the playing field cement a point of view that does nothing for many people of color.

“The vast inequality between black and white citizens suggests that there’s more going on than poor choices,” the authors write. In 2013, the median household wealth was $134,230 for whites, but just $11,030 for black Americans, they note. “In a capitalist system, if you lack capital, it just locks in inequality,” Hamilton told the Institute for New Economic Thinking.

Whew. That’s a lot to consider. Family money and connections are certainly an advantage. There is no question that being debt-free, having start-up capital, or a being able to make a down payment in your 20s helps put you on a clearer path to financial security. And these advantages are less common among people of color.

In Favor of a Broader Approach Towards Financial Literacy

However, none of the above makes financial education racist. It may argue for a broader approach. There should be more focus on when and how to open a bank account, how to find grants and raise money cheaply, how to save small amounts so that they add up, and how to weigh the cost of a loan versus the potential payback.

Financial education should also include instruction on networking — how to target, meet, and gain the confidence of people who can help your ambitions. And it should include reviewing the job skills that will be the most in demand in the future and will thus pay well.

Darity and Hamilton's Solution

Darity and Hamilton want more than that. They want every child to receive as much as $60,000 in “baby bonds” from the federal government when they’re born. The exact amount would be means tested, with newborns of wealthy families receiving little or nothing.

They also argue that it would be surprisingly affordable in the context of other asset-building programs promoted through the tax code. This money would be released only in adulthood, to be spent only on an asset-building activity. Their idea is not as foreign as it sounds. San Francisco deposits $50 into a college account for every child that enters kindergarten.

But these are about locking in compound returns for as long as possible for everyone, and encouraging families to contribute along the way — not about correcting a historic wrong with a lump sum at birth. That the race card is being played here, and now it's a sign that the financial literacy movement is on the world’s radar.

That’s good. The movement needs attention, and it has ample room to better serve all constituents. But massive federal handouts are a pipe dream. Getting smarter about money habits will always be your best hope for financial security, and financial education at school, at work, and in the community can only help that goal.

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