During Financial Literacy Month, state treasurers across the nation are spearheading innovative financial education programs targeted specifically at women and minorities to help solve economic inequalities. But to fully address this growing issue, Congress, nonprofits and the private sector must unite on a national financial literacy plan to ensure that all citizens can benefit from America’s prosperity.
While many Americans are more confident than ever about their financial future, half are in danger of financial ruin from the next major emergency and, collectively, they are carrying almost $12.7 trillion in debt. Although most Americans have legitimate reasons to be hopeful, African-Americans and women, who suffer from persistent inequalities in employment, wages and wealth, have not experienced the same recovery as the rest of the nation. Since 2010, the gap between male and female poverty has widened. While female employment has recovered at much the same rate as male employment, men filled nearly 2 out of every 3 jobs added to the U.S. economy in the 4th quarter of 2016. Single women that do find steady employment can expect to earn only 79 cents for every dollar earned by white men.
Economic inequality is even more pronounced along racial lines. While employment has improved for all races since 2009, the current unemployment rates for African-American men and women are comparable to the unemployment rates white men and women experienced during the worst of the recession. The African-Americans that manage to find employment face a severe and enduring racial gap in wealth production. In 2013, for example, the net worth of white households was still roughly 13 times that of a typical African-American household.
Whatever the root cause of the disparity, researchers for the Wharton School found that more than one-third of financial inequality in the U.S. could be accounted for by the differences in financial literacy. If that sounds exaggerated, consider how relatively minor gaps in employment and wages get compounded over a lifetime of wealth management. Because people who are more financially literate are more likely to plan, save, and invest—and less likely to accumulate credit card debt, borrow against their 401(k) or use payday lenders—they can generate massive wealth from modest beginnings, while their less financially literate counterparts struggle with debt and fall further behind.
Financial literacy is not equally distributed, however. The groups that are most at-risk for being economically disadvantaged are also the groups with the least financial knowledge. In the U.S., the gender gap in financial literacy is particularly acute. Standard & Poor’s Global Financial Literacy Survey found that 62 percent of men, and 52 percent of women, were financially literate.
African-Americans suffer from insufficient financial education as well. The National Financial Capabilities Study, for example, posed five questions to test financial literacy and found that, White respondents on average answered 3.0 of 5 questions correctly, while African-Americans averaged 2.4 correct answers.
State treasurers are addressing the crippling disparity in financial literacy by implementing innovative projects to serve woman and minorities.
The state treasurer in Connecticut, for example, works with the Connecticut Association for Human Services to support The Connecticut Money School, a project providing financial education workshops to minority and low-income communities. And for the past four years, the state treasurer’s office in Nevada has hosted an annual Women’s Money Conference, training over 2,500 women in basic finance, with post-conference mentoring sessions to help women apply the principles they have learned.
Additionally, the state treasurer in Massachusetts recently launched the Women’s Economic Empowerment Series, free educational sessions that focus on financial issues (like wage negotiation) that are of particular interest to women. After two pilot sessions, nearly three-quarters of the attendees said they would apply the learning to their own finances, and 69 percent said they would share the information with other women.
State treasurers across the country are also worked closely with the private sector to incorporate financial education into public school curriculums, a model replicated in such diverse states as Tennessee, Missouri, Nebraska, South Carolina and Vermont. Similar partnerships, addressing the racial and gender gaps in financial literacy, will be essential if the U.S. is to attain the more than $2.1 trillion in additional gross domestic product the country could realize by state and federal policymakers, the private sector and the nonprofit community cooperating to address the gender gap in wages and wealth.
Economic inequality robs disadvantaged communities of tremendous opportunity and costs the nation in lost productivity and diminished global competitiveness. We share a duty to help prepare our fellow citizens with the tools necessary to make informed and prudent financial decisions, for their own security and for the continued prosperity of the nation.
Rhode Island State Treasurer Seth Magaziner and Indiana State Treasurer Kelly Mitchell are Chair and Vice Chair of the National Association of State Treasurers’ (NAST) Financial Education and Empowerment Committee.