Deconstructing the variables for differing populationsExcerpts from a new whitepaper from the American College Of Financial Services, Black America’s Financial Wellness, written by Timi Joy Jorgensen, PhD, Assistant Professor and Director of Financial Literacy, examine the ‘specific predictors of financial well-being’ for this demographic group. Access the full report here.
It takes more than information to influence people’s lives, and money alone does not result in financial health. Financial well-being is “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.”
Financial well-being is a holistic view of our financial lives and includes our access to financial services, our financial behaviors and decisions, as well as how we think and feel about money. Because financial well-being is somewhat objective and subjective, it accommodates the realities and individualities of financial circumstances. It is the ideal measurement to evaluate the financial health of individuals and communities.
Generally, financial and economic research controls for gender, race, or ethnic heterogeneity of populations. In statistical analysis, controlling for race or gender is simple. In real life, that’s not an option. Nobody gets to push the “appear as a gray avatar” button to walk into a bank, apply for a mortgage, or navigate starting a small business. We show up as we are, and our identities have real implications on how we experience life. The reality of carrying our identity with us throughout our financial and economic life experiences prompted this research.
In an effort to understand the cultural specificity of financial well-being, Timi Joy Jorgensen, PhD, Assistant Professor and Director of Financial Literacy at The American College of Financial Services, conducted research that deconstructed the variables that were predicting financial well-being for different populations. This report focuses exclusively on the specific predictors of financial well-being for Black women and men in the United States.
Understanding the identity-specific predictors of financial well-being is the first step for the financial services industry to engage in culturally competent and meaningful ways with Black Americans. Financial empathy and data-informed business solutions can foster a business environment of concerted economic inclusion.
Excerpts From The WhitePaper ‘Black America’s Financial Wellness’:
This Is An Issue Of Economic Empowerment And Equality
Black women and men experience the lowest levels of access to financial education, banking, lines of credit, and stable incomes. The lack of access influences the ability to take action. Lack of access and financial autonomy continues to diminish financial well-being by eroding the financial satisfaction, financial confidence, and financial self-efficacy of Black men and women, as well as compounding the financial stress.
Black America is a fertile and untapped marketplace of resilient and capable consumers ready for better financial alternatives – communities, legislators, educators, and financial services organizations must work together to develop viable alternatives for historically underserved markets. Therein lies the opportunity for unprecedented growth.
Limited Access Is Financially Crippling
Black consumers experience the lowest levels of access of any identity. Access measures financial knowledge, income stability over the previous 12 months, and access to banking and lines of credit. Just over 10% of Black men and 14% of Black women reported the lowest levels of access. Only eight percent of Black men and seven percent of Black women experienced the highest tier of access. By comparison, three percent of White men reported the lowest tier of access and 30% of White men experienced the highest tier of access.
What exactly does low access mean? Access scores range from 0–11, which are broken down into four levels (or quartiles) of access. Access is calculated as the sum of:
- Financial knowledge (# correct out of six questions)
- Income stability (stable household income over the last 12 months)
- Access to banking (has a checking account, has a savings account)
- Access to lines of credit (has a credit card, has an auto loan)
Over 14.6 million American adults have the lowest level of access; of which, 4.9 million are Black adults. What has led to this lack of access? There are several contributing factors. On the financial services side there are proximity issues for low-income zip codes. There are also issues of affordability when it comes to opening accounts or dealing with overdraft fees.
The financial socialization side-effects are that people find other ways to accomplish their banking needs through alternative financial services. Generally, in low-access areas, alternative financial services thrive because they are meeting a demand for check cashing, bill pay, access to credit, or services to smooth uneven income.
Black America Models Financial Resilience
Unlike the overall consumer market, where financial stress strongly predicted financial well-being, financial stress was not a significant predictor of financial well-being for Black women. Black women are key stakeholders in the financial culture and well-being of Black communities. The most significant predictors of financial well-being for Black women were ACTIONS. Tangible solutions for Black women to improve their financial well-being include paying credit cards in full, being able to handle an unexpected $2,000 expense, and regularly contributing to retirement savings.
Black women have a financial resiliency that, if met with a culturally competent financial services industry, can lead to an economic equality revolution never seen before in the history of our country. For the U.S. overall, financial stress and financial well-being are so highly linked, there could almost be an equal sign between the two. In other words, high levels of financial stress almost certainly correlate with low financial well-being. For Black women, financial stress was not significantly predictive of financial well-being.
Access the full report here.