Holes in the safety net

African Americans have a growing interest in building wealth. The level of thrift is by no means where it should be but the interest is definitely building. Some community organizations sense that the time is ripe and they have developed programs to stimulate this interest.

The Organization for a New Equality has launched a major program of financial literacy. On Saturday, October 29 the Christian Economic Conference & Trade Fair will offer free workshops on home ownership, personal finance and entrepreneurship. Those really interested in improving their financial status are encouraged to acquire as much information as they can get about the process.

The concept of building wealth is not endemic to African Americans. During American apartheid the goal was always to improve the standard of living. It was then quite an achievement to provide good housing, new clothes and a well-stocked larder for the family. There was rarely enough for savings and investments.

Times have changed for African Americans since passage of the Civil Rights Act of 1964. With racial discrimination legally ended in employment and education, African Americans who were prepared took advantage of the emerging opportunities. The income of African Americans began to climb and it reached $679 billion last year.

Nonetheless, there is considerable concern about the economic well being of low- and middle-income black households. Wages have stagnated in recent years while housing costs and medical expenses have climbed. In this environment, credit card debt in America has increased to more than $800 billion. The immediate reaction upon reading this statistic is that Americans with more modest incomes are resorting to the use of credit cards to buy luxuries.

A recent study by the Center for Responsible Lending indicates that this is not the case. Among those with an income between 50 percent and 120 percent of the local median are using their credit cards as their safety net. Credit cards are used to pay for basic living expenses during periods of unemployment, or for medical expenses, house repairs or car repairs.

Even though lower income blacks tend to use their credit cards for essentials, that can still have dire economic consequences. African Americans in the study had a median net worth of only $5,988 compared to $88,651 for whites and $7,932 for Latinos. The lack of assets makes it impossible to resolve the extension of credit when personal income is inadequate to do so.

The usual outcome of such situations is personal bankruptcy. Bankruptcies rose from 616,000 in 1989 to over 1.8 million in 2004, and the number climbed even higher this month as those contemplating bankruptcy decided to file before the more restrictive law went into effect on Oct. 17.

For homeowners, one of the ways to resolve the problem is by refinancing their homes. This approach is fraught with danger especially if the new mortgage is at the higher sub-prime interest rates or if it is an Adjustable Rate Mortgage (ARM) which permits the interest to be raised at a later time.

The point is that everyone must become more knowledgeable about issues of personal finance. This is not something of importance only to the wealthy. And social planners must also realize that the traditional safety net programs are now inadequate.

Melvin B. Miller
Editor & Publisher
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