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.
These are all valid, if incomplete, thoughts. But racist? That’s a new one.
Yet that is the argument two professors make in a newly published paper in the Federal Reserve Bank of St. Louis Review. 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 note 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 which 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 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% of whites get family money for college while that’s the case for only 14% of blacks. Similar gaps exist in family money for a home (12% vs. 2%) and other purposes like starting a business (26% vs. 19%).
The financial education programs now being put forth in schools and communities are a presumed fix. Yet while these programs have much to offer in the ways of setting budgets and investing for retirement they cannot offset the advantages that wealth transfers bestow on so many at key moments in life, the professors assert.
That’s what makes the financial literacy movement racist. No amount of money savvy can put money in the bank of those who have no money—and those who embrace financial literacy as a way the to level the playing field cement a point of view that does nothing for great numbers of 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 compared to $11,030 for black Americans, they note. “In a capitalist system, if you lack capital, it just locks in inequality,” Hamilton says.
Whew. That’s a lot to consider. Certainly, family money and connections are an advantage. There is no question that being debt free, having start-up capital or a down payment in your 20s helps put you on a clearer path to financial security. These advantages are less common among people of color.
But that does not make 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 saving small amounts adds up, and how to weigh the cost of a loan versus the potential payback. Financial education should include instruction on networking; how to target, meet and gain the confidence of people who can help your ambitions. It should include reviewing job skills that will be most in demand in the future and pay well.
Darity and Hamilton want more than that. They want every child to receive as much as $60,000 in “baby bonds” at birth, from the federal government. The exact amount would be means tested with newborns of wealthy families receiving little or nothing. It would be surprisingly affordable in the context of other asset-building programs promoted through the tax code, they argue. This money would be released only in adulthood and to be spent only on an asset-building activity.
Their idea is not as foreign as it sounds. The City of San Francisco deposits $50 into a college account for every child that enters kindergarten. Oklahoma deposits $1,000 in a college account for newborns. A federal program called Kidsave has been floated to do the same thing nationally. The U.K. experimented with a similar program.
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 an historic wrong with a lump sum at birth. That the race card is being played here and now is a sign 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.