To raise children to become responsible adults and members of society, they are taught a variety of critical skills: socialization, time management, self-care, communication, etc. However, one essential skill that is commonly forgotten is financial literacy.
Currently, less than half of U.S. states require high school students to take a personal finance class prior to graduation. This gap in education has led to a growing issue in this country — one that puts the futures of Americans at risk.
The Importance of Financial Literacy
Financial literacy education is important because a basic understanding of personal finance is essential for living a happy and healthy future. This type of education could help students learn core finance elements, such as budgeting, planning for retirement, managing debt and tracking spending. Without this knowledge, people are unable to make solid decisions about their finances, which can mean the difference between financial stability or poverty.
According to the Standard & Poor’s Ratings Services Global Financial Literacy Survey, 43% of U.S. adults are financially illiterate. Recent studies also reveal that the financial literacy of people from underserved communities, particularly Black Americans, lags even further behind.
The Racial Wealth Gap and Financial Literacy
Over the course of the last four centuries, a culmination of racist practices and policies targeting Black Americans created the racial wealth gap. This gap, which endures today, contributes to the disparity in generational wealth between white and Black Americans. A study conducted by the U.S. Securities and Exchange Commission (SEC) revealed that in 2019, the average white household had 7.8 times more wealth than the average Black household.
When both groups were asked to answer questions for the P-Fin Index, which measures personal finance knowledge, white adults answered 55% of the questions correctly compared to 38% of Black adults. While a lack of financial literacy is a contributing factor to the racial wealth gap, it may also be a key part of the solution.
Why Financial Literacy Is Critical for Black American Students
Due to the racial wealth gap, Black students commonly need to take out student loans to afford college tuition. A study conducted by the Education Data Initiative shows that after graduation, Black American students need to repay an average of $25,000 more in student loans compared to their white peers. Additionally, the study shows that four years post-graduation, nearly half of Black graduates owe 6% more than they took out.
The inequitable amount of debt that Black American students are forced to take out to afford college ultimately reinforces the racial wealth gap cycle, especially if they aren’t financially literate. While not a perfect solution, providing students from underserved communities with personal finance education can help this issue.
By making financial literacy education accessible to students, they will be provided with the tools and knowledge they need to prepare for a lifetime of successful debt management, budget creation, as well as saving and investing.
How Philanthropists Are Helping to Make Education More Affordable
While some states are starting to require a financial literacy program in school, more needs to be done. Making affordable education accessible to all students has been a key focus of Robert F. Smith’s philanthropy throughout his career.
As the son of two education professionals, Smith was taught the value of education at an early age. His parents, along with other adults from his community, worked hard to make sure that they had access to a quality education, which is something Smith continues to try to pay forward.
In 2019, Smith shocked the world when he announced that he was paying off the student loan debt of the entire graduating class of Morehouse College, along with the Parent PLUS Loans taken out by their guardians. The positive impact of the $34 million endowment inspired Smith to do more. His inspiration led to the creation of Student Freedom Initiative, a nonprofit that is dedicated to freeing students from the burden of student loan debt. Through the program, students are given access to a variety of academic, professional and financial opportunities.
Learn more about Smith’s work with Student Freedom Initiative.