To be liquid asset poor means if a family was to encounter an out-of-the-ordinary expense such as a broken water heater or medical bill, the family would have to borrow money to pay it. And that’s just the tip of the problem. If they are among the 56 percent of consumers who have subprime credit scores, their only recourse may be turning to a high-cost, predatory lender and we all know the rates Pay Day Lenders require!
Who are the liquid-asset poor?
According to the Corporation for Enterprise Development and its Assets and Opportunity Scorecard, the “majority of liquid-asset poor are white (59%), employed (89%) and nearly half (48%) have some college.”
Look further and the data shows that approximately four out of five (78%) of the lowest income households are liquid-asset poor, and among households of color, the number is staggering; nearly two out of three live in asset poverty.
If we, as a nation, want to influence the quality of consumers’ financial literacy or as I prefer to call it, financial empowerment, then fighting asset poverty and its devastating influence on the “American Dream” must top our agenda.
More than an ability to pay bills
Asset poverty is at crisis stage in the U.S. It reaches far beyond one’s ability to pay the bills without securing a loan. For households of color, it directly impacts their long-term financial security.
Based on the Scorecard’s latest data, households of color have “approximately one-tenth the median net worth of white households ($12,377 and $110,637, respectively). For such families without savings, they are much more vulnerable to economic catastrophe in the form of foreclosure, homelessness and prolonged use of public assistance. And as the racial wealth gap continues to grow, finding solutions becomes even more difficult.
Although The Great Recession saw the wealth of white families fall by just 11 percent, The Urban Institute found that among African-American families, the drop was 31 percent, and among Hispanic families, wealth declined by more than 40 percent.
As the recession began to subside in 2010, less than half of Hispanic and African-American families owned homes while three-quarters of white families did. Knowing that homeownership is a large portion of wealth for African-American families (53% of wealth compared to 39% for whites), one can easily see that for African-Americans, losing their home represented a significant, if not a total, loss of all their assets.
The American nightmare
During a seminar for the National Council of Women’s Organizations, Meizhu Lui said America’s belief that hard work generates wealth and success is a myth. As the director of the Closing the Racial Wealth Gap Initiative, she claimed disparities of wealth between white families and those of color are undermining the American dream. According to Lui, the greatest distinguishing factors of a person’s wealth are their gender and/or race, a fact illustrated by comparing the median net worth of a white family to that of an African-American or Latino family.
It’s generally assumed that financial literacy programs help people make wiser financial decisions, but the question remains: is it knowledge that improves behavior or more experience in financial activities? I believe the answer is both, and much more.
Financial education programs must work hand in hand with banking institutions, government and the private sector to address not only cultural obstacles but to also implement solutions designed to transform America’s nightmare back into a dream of promise and prosperity.
As America marks financial literacy month, let’s remember that financial literacy programs will not solve the challenges wrought by asset poverty alone. As the Scorecard notes, “Without improved policies at all levels of government that help families earn more, save more, and build assets, the yawning income and wealth inequality gap will widen rather than narrow. Inaction consigns millions to persistent financial insecurity, dimming their economic future and the future of the nation as a whole.”