African Americans represent more than 12 percent of the U.S. population, but are less likely than the rest of the country to be financially secure. A 2010 study from Brandeis University on the “African American wealth gap” found that many African American families have a negative net worth – meaning that they have more debt than assets – and at least 25 percent of African American families have no savings or other assets to turn to in time of need.
The causes of this wealth gap are complex and long-standing. For years, many African Americans have faced discrimination in housing, the workplace, and getting access to credit. One of the many scandals that emerged from America’s recent housing bubble was that some banks allegedly steered African Americans into high interest “subprime” loans, even if the borrowers had good enough credit to qualify for better options.
Michelle Singletary, personal finance columnist for the Washington Post, wrote a great article recently on the causes of the African American wealth and savings gap, and explained how financial services firms can reach this large and potentially lucrative market of people who need help with saving and investing money.
Singletary wrote about the recently released Prudential Financial study, “The African American Financial Experience,” a survey of 1,500 African Americans with income of $25,000 or more.
Here are some of the findings and lessons from the survey:
African Americans are an emerging market for financial services. Sixty percent of the survey respondents have an annual income of $50,000 or more, and express strong interest in finding out more about financial products and services that could benefit them. According to the survey, African Americans have more money to spend and are looking for ways to spend and invest it wisely. (A separate 2010 survey from BET found that African American buying power is expected to reach $1.3 trillion by 2013.)
[Free Resource: Check your free credit report and score]African Americans are self-directed about financial planning. African Americans are more likely than the rest of the U.S. population to seek out their own resources and information on financial planning – such as reading books and financial services websites like Quizzle.
African Americans want to learn before they buy financial products. The survey also found that African Americans are especially interested in learning more about financial planning via their churches and faith-based organizations. If financial planning firms want to reach African Americans, they should first reach out to churches.
African Americans are less likely to own financial products. African Americans have low levels of ownership of IRAs, mutual funds, stocks and bonds. This means that they are missing out on the benefits of long-term growth in the stock market, and might be at risk for a less secure retirement.
The financial services industry needs to rebuild trust with the African American community. For many years, African Americans have been discriminated against and taken advantage of by unscrupulous elements of the financial services world with practices such as “redlining” (banks drawing a “red line” on a map and refusing to offer loans to African American neighborhoods) and predatory lending (banks directing African American borrowers into unfairly complex, costly loan arrangements). As a result, African Americans are less likely to trust financial services companies, and tend to rely instead on their own research, friends, family and employers for financial advice.
Skepticism is good, to a certain degree. People should always understand the financial products they’re buying, and don’t sign on the line if you don’t trust the person selling you the loan, stock, mutual fund or insurance policy.
Unfortunately, many African Americans (and other Americans) have grown so mistrustful of the financial services industry that they are undermining their own long-term financial security by failing to take advantage of some of the great products that can help save for retirement and provide for other financial needs.
Financial services firms can help to rebuild trust with African American customers (and all customers) by doing a better job of teaching customers about the value of their products, explaining fees in an upfront and transparent fashion, and treating all their customers fairly and equitably. That will be a victory for all Americans.
All Americans can use Quizzle.com to find great tools and resources to manage their personal finances. With Quizzle’s helpful financial tools, you can improve your credit, save money on your home loan, and create a more secure foundation to reach your financial goals.
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