Fabulous Financials

As a follow up to yesterday’s guest post, here’s an article written by TIME that says the real problem with credit cards is the cardholders.

Credit-card companies, though, may not be the only ones we need to be protected from. Every penny of Americans’ nearly $1 trillion in revolving debt started with someone — some individual person — whipping out a piece of plastic and making a decision to use it. We could consider that free will and just call it a day, but there’s plenty of reason to believe the story isn’t so simple. There are piles of evidence that people are bad decision makers when it comes to how they use credit cards. Even when presented with full and fair information, they often make decisions that are not in their own economic best interest…

We can blame credit card companies all day for their sneaky profit making tactics, but no one is forced to use a credit card.  Many people view credit as free money and throw caution responsibility to the wind.  Even with the new regulations, there will still be tons of people with unmanageable credit debt.  Why?  Lack of personal accountability.  The government can’t protect you from yourself.

Here’s a Washington Post article that caught my attention about the high cost of poverty.  I think the subtitle says it all.

Having Little Money Often Means No Car, No Washing Machine, No Checking Account And No Break From Fees and High Prices.

I can’t imagine my life without a car, a washer & dryer in my home, a checking and savings account, or a grocery store with fresh meat and produce.  However, most poor people do not have the means to obtain the basic needs and conveniences that we take for granted.  To meet their needs, alternative businesses set up shop to provide similar services…for a fee, of course.

- Most poor people do not have a checking or savings account.  When they receive a paycheck, they rely on corner stores or check cashing points that charge fees or a % of the face value.

- Most poor people do not have a washer & dryer in their homes.  They have to drag baskets of clothes to the laundromat and spend half a day doing loads of laundry every week.

- Most poor people do not have the disposable income to furnish their homes.  They rely on “rent-to-own” businesses that charge 2x the regular price with convenient weekly payments.

- Most poor people live in less desirable neighborhoods.  Problem(s):

• Thriving businesses avoid these neighborhoods, so poor people rely on convenient stores or mom & pop shops for their basic food/hygiene needs.  These are usually small businesses, resulting in limited selection and higher prices.
• Homes in these neighborhoods are usually older, in need of repair, lack proper insulation, roofing and windows.  As a result, the utility bills are 2-3x higher than average.
• Higher auto insurance premiums as a result of crime stats.

- Most poor people do not have the disposable income or credit to buy a reliable car.  They may resort to a “buy-here-pay-here” dealer and end up with a lemon that cost an arm and a leg to fix.  If buying from a reputable dealer, the loan may have unfavorable terms and a higher interest rate.

- Most poor people have been caught up in payday or car title loans that charge 200% APR (or more) to borrow a few hundred dollars for two weeks.

It’s a never ending cycle that, apparently, is widely accepted as a way of life.  From the article:

According to the Census Bureau, more than 37 million people in the country live below the poverty line. The poor know these facts of life. These facts become their lives.

The poor pay more because their options are appear to be limited and alternative businesses charge more to cover their risks.  Supply and Demand.  But where does the cycle end?  And more importantly, when does the focus shift from daily survival to upward mobility?

I was reading an article on MSN Careers, titled “What the Class of 2009 Will Earn.”  The article discussed how the current economy is affecting students who are graduating this year and listed the following 2009 starting salaries secured by a few recent grads:

• Pharmacy Technician in FL: $23,000
• TV News Reporter in NY: $25,500
• Ad-agency Employee in NC: $28,000
• 1st Lt in Army w/ Finance Specialization in NC: $36,900
• Crime Investigator in GA: $40,000
• Social Worker in MS: $45,800

I don’t know about you all, but I think that Social Worker in Mississippi overstated her starting salary.  A four year liberal arts degree in a southern state?  Nah, I aint buying it!  Maybe she included the value of her benefits and perks in the total.  Who knows. *shrug*

Anyhoo, the article goes on to state…

To date, the average job offer to a 2009 graduate with a bachelor’s degree is $48,515, down about 2 percent from last year, according to NACE. (Parents who got their first jobs in the early 1980s had it slightly better. The average job offer for the Class of 1982 was $22,450 — or, adjusted for inflation, $49,485).

I think these “average” numbers are also grossly inflated.  I know there are some exceptions, especially in IT related or highly specialized fields.  But if $48,500 is the “average” salary for a 21 year old fresh out of school, then why is the median household income in the entire US of A only $50,740?  Yea, riddle me that.

Assuming the recent grad has a related degree for his/her chosen career field and ZERO work experience, maybe a few internships, I find it very hard to believe that an employer pays ~$50k – on “average” – out the gate.  Maybe the outliers in IT and highly specialized career fields are skewing the data.   Stats can be manipulated to support whatever conclusion you want to present.  In my opinion, these articles give recent grads unrealistic expectations of the workforce.

And finally, this piece of the article was interesting as well…

In specific fields of study, NACE found that the average job offer was $58,438 for engineering students; $57,693 for computer science students; $46,973 for business students; and $36,807 for liberal arts students.

Hmm…when I was a young lad, my first job out of college paid a salary of ~$32,000.  After accounting for inflation, this is ~$37,900 in 2009 dollars – no where near the “average” of ~$46,900!  Although my career has taken off and my salary has quadrupled since then, I’d like to think I was fairly compensated with only a 4 year Business degree and no relevant experience.

Am I off base here?  Is this article accurate?

Compared to some of you, was I underpaid as a new grad?

Better yet, let’s get some REAL data.  How much did YOU earn fresh out of school?

Comment anonymously if you prefer.

ABC is airing a one hour special, titled UN-BROKE, on FRIDAY, MAY 29 at 9:00p.m. Eastern Time.  Combining humor and information, it will address everyday finances (i.e. credit cards, mortgages, stocks and bonds, investing, 401k) and feature Will Smith, Samuel L. Jackson, the Jonas Brothers, Christian Slater, Cedric the Entertainer, Seth Green, Sesame Street’s Oscar the Grouch, Rosario Dawson and the E*Trade Babies.  The topics will include:

• ” Will Smith, who gets down to basics with a boardroom full of corporate finance executives.
• ” Samuel L. Jackson, who appears as a bestselling author of self-help books and who is “Broke as Hell and Not Going to Take it Anymore!”
• ” The Jonas Brothers, who teach screaming teenage girls the mysteries of the stock market. ” Seth Green, who explains the fundamentals of a smart mortgage from his “crib.”
• ” Cedric the Entertainer, who talks back to credit cards.
• ” Christian Slater and Rosario Dawson, who visit an office workplace to explain the importance of investing in a 401(k) retirement plan.
• ” The E*Trade Babies, who meet Mellody for an online chat from their high chairs.

To advertise for the special, here’s a more responsible version of “Cribs” with Seth Green:

He’s a nut!  You know ‘genuine velour’ is what’s hot in the streets home decor! LOL!  This ABC special is expected to make people laugh while they learn about basic personal finance.  I bet Will and Ceddie are gonna cut the fool with a little 411, so I definitely plan watch.

Don’t forget, this FRIDAY, MAY 29 at 9:00p.m. ET.

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After a speech at Morehouse College, Chairman of the Federal Reserve, Ben Bernanke, was asked his opinion about the household wealth gap between whites and blacks in America.  His response to the students: “minorities need to strengthen their financial literacy” and financial education. The full article can be found here.  After reading the article, a Fabulous Financials reader wanted to know what I thought about Mr. Bernanke’s comments so here’s MY opinion. To put this in context, here’s a stat from a related article:

The gap between the wealth of white Americans and African Americans has grown. According to the Fed, for every dollar of wealth held by the typical white family, the African American family has only one dime. In 2004, it had 12 cents.

I was going to say Bush did it. LOL! But I decided to give an honest answer. I think his response was too simplistic. He chose the easiest, least controversial, way to answer a loaded question in 10 words or less. Although I do agree, everyone – not only minorities – need to strengthen their financial literacy. However, saving money, building a credit record, and integrating into the mainstream banking system (all mentioned in the article) are not the end-all-be-all solution that will magically put blacks on a level playing field with whites.

In my opinion, the household wealth gap is due to the following:

1. Whites Had a Head Start

Slavery, segregation, racism, discrimination, etc. My ancestors were slaves, my grandparents lived during segregation, my parents experienced blatant racism, and still today, I experience covert racism and discrimination. So let’s see – if I made someone hold you back with brute force for several hours while I ran full speed ahead, it would be absurd if I expected you to catch up with me in only a few minutes. Sure, there are people with stamina and sheer determination who may give me a little competition, but they are few and far between. It is difficult to overcome DECADES of physical, mental, emotional, and institutionalized oppression.

2. Closing the Gap Assumes a Level Playing Field in Other Pertinent Areas

Covert or what I refer to as “modern day” discrimination is wide spread in the school system, housing, workplace, and the “mainstream banking system.” For example:

School System – Most schools in predominantly black neighborhoods are sub-par. I had to move to an area with a very high cost of living just to get my daughter in a public school system that met MY standards. I chose the school, then I chose where I wanted to live. Now I pay more for rent than my mortgage, but this was a decision I made without hesitation because education is the #1 priority in my household. The school is excellent, the expectations are high, 70% of the faculty are PhD level, the student/teacher ratio is small, the equipment and resources are advanced, and the academic program is robust – this is non AP track. If your child meets the standards for the AP program, they are almost guaranteed acceptance into any college of their choice. Problem is, the school has less than 5% minorities. Unless parents have the resources to live in a comparable area or pay for private school, this disparity begins early and often continues throughout life.

Housing – I love my neighborhood, really I do. It’s beautiful, well kept, in a prime location, has an excellent school system, fabulous shops, very low crime rate, and easy access to the city. But why do so few black people live here? I’ll take a guess – because it costs too damn much! When BabyGirl graduates high school next year, I’m getting the hell out of dodge too. I believe minorities are intentionally priced out of certain areas. If it were more affordable, I’m sure more minorities would move here so their children would have access to better schools. But that may result in white flight, which would in turn, affect the quality of the school system. Then eventually, redlining would occur and change the dynamics of the surrounding area(s).

Workplace – The CSS has an old boys’ club with unspoken rules. Most management and executive positions are filled by whites. Those who hold positions of power often hire, groom, and recommend promotions for their own. This isn’t unusual. We’re attracted to people who look or act like us. Some blacks know how to play the game and some don’t – or refuse. Aside from the politics, our salaries and raises are smaller, promotions are less frequent, and we rarely hold top positions. We’re primarily found in blue collar or low/mid-level white collar positions. Getting to the top is recognized and celebrated as if it were a rare occasion…and it is.

Banking System – The “mainstream banking system” is a tool to build wealth, and by this, I mean savings accounts, credit accounts, business accounts, investment accounts, etc. However, minorities are more likely to be denied business loans, credit applications, mortgage loans, and more – unless it is a poorly structured loan package with a ridiculous interest rate. Other ways the mainstream system alienates black people are higher insurance rates based on zip code or credit score, fewer banks in close proximity, racial profiling based on appearance or name, etc. These are also referred to as the black tax, which we’ve discussed before.

Other stats from the related article linked above:

White families are five times as likely as families of color to have a bank account and access to responsible loan terms. Because of the lack of federally insured and regulated financial institutions on reservations and in inner cities, rural areas, barrios and Chinatowns, payday lenders and other shady financial dealers operating without government oversight have preyed on people of color, fueling the economic and foreclosure crises. African Americans and other people of color were more than three times as likely as white borrowers to be steered to high-interest loans, even when they qualified for a prime loan. A Harvard University study showed that in Massachusetts, a high-income African American was more likely than a low-income white borrower to get a subprime loan.

I will admit, minorities have less money in savings and investments. Which leads me to the next attributing factor…

3. Complacency

I’m going to keep it 100. Some people are just lazy MFs! For example: tired of struggling, choose to take the “easy” route and earn quick money. Tired of “the man,” use him/it as an excuse to stop trying. Accustomed to a life of nothing, there is little or no incentive to strive for more. Having a few dollars is “good enough,” no point in applying any extra effort. No one in the immediate environment “made it” – unless they “sold out” – so no trustworthy role models to emulate.

4. Misplaced Values and Priorities

This is more prevalent in recent generations. Our ancestors are probably turning somersaults in their graves over the choices we make today. For example: higher education is not a #1 priority, it is viewed as a financial burden or reserved for the privileged. Parenting out of wedlock is openly acceptable, single parents are the norm, and absent fathers are not shameful or accountable. Marriage is taboo. Men rely on women to lead the home. Debt is a way of life. Owning a nice car is priority over owning a home. Designer clothes and gadgets are preferred over saving.

SUMMARY

Yes, we all need more education in financial literacy. But I’d like to think that I’m financially literate, so that’s only a small part of the problem. This is proven by the fact that I own a home, have good credit, a good job by most standards, a little money in the bank, well read, well traveled, and educated – yet I am no exception to the wealth gap between whites and blacks. There are MANY other things that can be attributed to the problem.

Some factors, which have the greatest impact, are outside of our control. No matter how hard we try, these factors (#1 and #2) require black people to work 10x harder, be 10x smarter, and 10x more determined to succeed. Sometimes, even that isn’t enough to close the gap or level the playing field. But then, there are other factors (#3 and #4) that can be corrected by making better choices. These are the factors that the media and non-minorities focus on the most when “analyzing” the black community. I will not try to minimize the effects of these factors because they are substantial. Besides, I am a firm believer in personal responsibility and accountability. Made a poor decision? Live with it, learn from it, and move on! When you can do better, be better, exceed expectations! However, when the odds are stacked against you, I can not expect you to be my equal because it’s damn near impossible.