Black folks have some catching up to do
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. These areas are: borrowing, comprehending risk, consuming, earning, go-to information sources, investing, insuring, and saving.
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,” says Renée Baker, head of private client group advisor inclusion networks at Raymond James.
“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. “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.”
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. 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 agree who are focused on increasing financial literacy among communities of color.
“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.
The second step, according to Delva-Gonzalez, is setting out a five-to-20-year 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
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. 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.
“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.
Bria Overs is an award-winning journalist and a business reporter. She is currently reporting at The Baltimore Banner. For more information, visit bria-overs.com.
