My last post started a debate among readers: is a lack of financial savvy and education or cultural factors like racism and historic lack of access to financial institutions primarily responsible for the racial wealth gap in the US?
I'll keep my own opinion out of it, but will share some of the best points I got by email from a few readers.
A 28 year-old single mother from Boston with a degree in sociology and "a sh*tload of student loan debt", blames societal factors:
"I was thinking today about some of the early welfare laws of the 20th century and the impact they have had on "the black family"...if a man was found living in the house (man-in-the-house rule) with his woman and children, welfare benefits were automatically and drastically reduced. Just thinking of the impact this must have had...being penalized for trying to maintain your family unit! Then I thought about more recent rules prohibiting and penalizing people for having savings, once on welfare. While welfare is only a small part of the history of black folks, it does illustrate how government has systematically prevented economic mobility among our poor for years.
Then we have the middle class. How many news reports have we read and seen that deal with banks unfairly charging higher interest rates for Black/Latino consumers or car insurance companies charging higher rates in zip codes where the population is predominantly Black."
Still, she admits her own family is an example of how education plays a role. Several property owners preceded her, yet none of them ever discussed how to save for or acquire a home, leaving her to do the research on her own, she said.
Another reader, a 31-year-old publicist from suburban Maryland, says simply that "at the end of the day, no matter what happened in the past, there's no excuse for not handling your money right except [lack of] education. Culture has nothing to do with you not knowing..."
I'll post more feedback as it comes.
Thursday, March 22, 2007
Monday, March 19, 2007
Education or Culture
I came across this post on another personal finance blog: One columnist's take that the wealth gap between minorities and whites is cultural, and a blogger's counterpoint that the wealth gap is one born of a lack of education about finances.
I don't think you can separate the two: Unfortunately, the black community has always lacked sophistication and knowledge about wealth, and that's been paired with some very necessary, but bad habits. After all, it wasn't even a century ago when black folks could not deal with the financial mainstream -- not banks, brokerages, real estate agents and so on, so alternate means of saving, borrowing and investing evolved to meet the need. In the meantime, only in the past few years has financial literacy become a priority in American education and media.
So I say it's culture plus education. Tell us your take in the comments section.
I don't think you can separate the two: Unfortunately, the black community has always lacked sophistication and knowledge about wealth, and that's been paired with some very necessary, but bad habits. After all, it wasn't even a century ago when black folks could not deal with the financial mainstream -- not banks, brokerages, real estate agents and so on, so alternate means of saving, borrowing and investing evolved to meet the need. In the meantime, only in the past few years has financial literacy become a priority in American education and media.
So I say it's culture plus education. Tell us your take in the comments section.
Friday, March 16, 2007
Loans coming home to roost
A new study first reported by one of my Globe colleagues shows that once again, when there's an economic cold going around, black folks catch the flu. This time the illness might be too much for many of black homeowners to survive.
The story, "A smoking gun on race and subprime loans", details that African-Americans are far more likely than whites and in some instances Latinos to have used such loans to buy their houses during the housing boom (which has now gone completely bust, in case anyone was still wondering).
What's a subprime mortgage? In short, it's a type of loan that's supposed to be targeted at people with poor credit. The important thing is that they're typified by higher interest rates than someone with a good credit score would pay. Not all subprime loans are bad, in fact they exist to help people who otherwise would not be able to borrow money for a house because of dings on their credit.
But too many people who shouldn't have had these typse of loans -- or who couldn't afford homes at all -- were using them to buy houses at overblown prices. What's worse is that many such loans not only came with high interest rates, but also had adjustable rates. For those people, who are disproportionately black, the worst-case scenario came true: home prices dropped while interest rates rose, meaning their monthly payments are now unaffordable and many of the homes they bought can't be sold because they are now worth less than the original price.
So why is this a "black community" problem as opposed to one for people with bad credit to worry about? For one, any number of factors contribute to African-Americans having lower credit scores than people of other ethnicities -- like less experience with credit and home buying or fewer family resources for down payments or to stave off credit card bills -- which makes it far more likely for us to have to pay higher interest rates on home mortgages.
Still, if you're college educated, professional and in a high income bracket, you're likely to have better credit and not have to worry about this, right? Actually, another report says that at least in Boston, affluent African-Americans were the most likely segment of the population to have used a subprime loan to buy a house. Assuming, again, that people with higher incomes are more likely to be eligible for cheaper loans, then, that's a trend that's both disturbing and not entirely explicable.
And since subprime mortgages are being blamed for a record number foreclosures all across the country, it's conceivable that many African-Americans across the country are in grave danger of losing their homes -- which could be disastrous in the long term for some black neighborhoods.
Not sure if you've got one? Right now interest rates on a 30-year, fixed rate mortgage are about 5.6 percent, give or take a few points. If you're borrowing, or have borrowed, at a significantly higher rate than that in recent years, you've likely got a subprime loan.
Know anyone who has a subprime mortgage, or think you have one and want to tell your story? Email us.
The story, "A smoking gun on race and subprime loans", details that African-Americans are far more likely than whites and in some instances Latinos to have used such loans to buy their houses during the housing boom (which has now gone completely bust, in case anyone was still wondering).
What's a subprime mortgage? In short, it's a type of loan that's supposed to be targeted at people with poor credit. The important thing is that they're typified by higher interest rates than someone with a good credit score would pay. Not all subprime loans are bad, in fact they exist to help people who otherwise would not be able to borrow money for a house because of dings on their credit.
But too many people who shouldn't have had these typse of loans -- or who couldn't afford homes at all -- were using them to buy houses at overblown prices. What's worse is that many such loans not only came with high interest rates, but also had adjustable rates. For those people, who are disproportionately black, the worst-case scenario came true: home prices dropped while interest rates rose, meaning their monthly payments are now unaffordable and many of the homes they bought can't be sold because they are now worth less than the original price.
So why is this a "black community" problem as opposed to one for people with bad credit to worry about? For one, any number of factors contribute to African-Americans having lower credit scores than people of other ethnicities -- like less experience with credit and home buying or fewer family resources for down payments or to stave off credit card bills -- which makes it far more likely for us to have to pay higher interest rates on home mortgages.
Still, if you're college educated, professional and in a high income bracket, you're likely to have better credit and not have to worry about this, right? Actually, another report says that at least in Boston, affluent African-Americans were the most likely segment of the population to have used a subprime loan to buy a house. Assuming, again, that people with higher incomes are more likely to be eligible for cheaper loans, then, that's a trend that's both disturbing and not entirely explicable.
And since subprime mortgages are being blamed for a record number foreclosures all across the country, it's conceivable that many African-Americans across the country are in grave danger of losing their homes -- which could be disastrous in the long term for some black neighborhoods.
Not sure if you've got one? Right now interest rates on a 30-year, fixed rate mortgage are about 5.6 percent, give or take a few points. If you're borrowing, or have borrowed, at a significantly higher rate than that in recent years, you've likely got a subprime loan.
Know anyone who has a subprime mortgage, or think you have one and want to tell your story? Email us.
Tuesday, March 13, 2007
We're Back
So sorry for the long delay, but finally comes the relaunch of Blackpeoplesmoney.com. You'll notice the page is redesigned for easier navigation and a livelier look and feel. I hope you enjoy.
We also plan on posting a lot more often going forward, and are making it easier for you to contact us by simply dropping a not to blackpeoplesmoney@gmail.com. (Hopefully this box won't get deluged with spam so that it won't have to be changed).
We also plan to add a few contributors to the site and some new interactive features. Stay tuned for those.
One thing you should immediately notice in our links section is a link to a free financial literacy kit from HSBC, a bank based in New York. I'm not shilling for or paid by HSBC, but the link is an example of one way we hope to improve, by regularly linking to resources that hopefully our readers will take advantage of as you try to educate yourselves about money and get your financial weight up.
The HSBC kit comes on either CD-ROM or as nine booklets on banking, credit history, financial planning, home ownership, insurance, investing, managing your money, retirement planning and using credit. It's available in English or Spanish. You can get the kit by clicking the link we provided or emailing HSBC.
Again, we hope you enjoy the redesign. Thanks for reading. Stop back soon. Tell a friend. Or a few.
-Keith T. Reed
Creator, blackpeoplesmoney.com
We also plan on posting a lot more often going forward, and are making it easier for you to contact us by simply dropping a not to blackpeoplesmoney@gmail.com. (Hopefully this box won't get deluged with spam so that it won't have to be changed).
We also plan to add a few contributors to the site and some new interactive features. Stay tuned for those.
One thing you should immediately notice in our links section is a link to a free financial literacy kit from HSBC, a bank based in New York. I'm not shilling for or paid by HSBC, but the link is an example of one way we hope to improve, by regularly linking to resources that hopefully our readers will take advantage of as you try to educate yourselves about money and get your financial weight up.
The HSBC kit comes on either CD-ROM or as nine booklets on banking, credit history, financial planning, home ownership, insurance, investing, managing your money, retirement planning and using credit. It's available in English or Spanish. You can get the kit by clicking the link we provided or emailing HSBC.
Again, we hope you enjoy the redesign. Thanks for reading. Stop back soon. Tell a friend. Or a few.
-Keith T. Reed
Creator, blackpeoplesmoney.com
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