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 2017 paper in the Federal Reserve Bank of St. Louis Review.
The Racism Inherent in the Financial Literacy Movement.
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 argues that those who have access to financial education are bound to win.
The underprivileged — many of whom are Black — must be brought into the financial mainstream, Bryant argues. By his estimate, 40 million American adults are underbanked.
But financial education is 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 the last 30 years, the Black homeownership rate of 42.9 percent remains the same, while the homeownership rate among whites increased by 3.9 percent, according to a study by The Joint Center for Housing Studies of Harvard University.
Where Financial Education Programs Fall Short
The financial education programs now being put forth in schools and communities are a presumed fix.
But though these programs have much to offer in the way of teaching about the importance 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.
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 United States has made no progress in closing the income gap between white and Black households. From 1970 to 2018, the difference in median household incomes actually grew by $10,000 between the two demographics, Pew Research Center found.
Whew. That’s a lot to consider. Family money and connections are certainly an advantage.
There is no question that being debt-free, having startup capital, or 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 Toward Financial Literacy
However, none of the above makes the financial education movement 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 asset-building activities.
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 ideas 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 is 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.