A call to save

Deneen D. Stewart

This month, 130 million Americans will begin receiving tax rebates in the mail, thanks to the economic stimulus package that recently made it through Congress. Individuals making less than $75,000 should expect $600. Families with incomes under $150,000 will get $1,200, plus $300 per child.

What’s the best way to spend that money? Don’t spend it at all. Save it.

If you’ve already stored away some cash, adding a few hundred more dollars means an even greater return on your interest rate. And if you don’t yet have a financial safety net, you’ll have a quick-and-easy way to start one.

This tax rebate comes at a great time for black America. Despite tremendous gains in income and education over the last few decades, our community still isn’t saving nearly as much as it should.

Look at retirement.

Less than half of all black workers have saved for their golden years, according to the U.S. Treasury Department. Only about a quarter of us have even tried to figure out how much money we’ll need to retire.

Those numbers are all the more depressing in light of the fact that Americans are increasingly on their own when it comes to saving for retirement.

For starters, employer-sponsored pensions are drying up as more and more businesses switch to 401(k)s and other individual savings vehicles. And Social Security — which four in 10 black retirees depend on for all their income — is generally expected to go through some major financial upheaval by 2020.

Of course, savings aren’t just for your golden years. A nest egg enables you to make a major purchase — like a house or a new car — without going into debt. And it can soften the blow of economic downtimes, like a layoff or medical emergency.

Yet few black families have a sufficiently-sized nest egg.

According to the recent edition of the National Urban League’s annual “State of Black America” report, the typical black household has a net worth of only $6,100. That’s about 11 times less than the average white household. And only 57 percent of blacks are invested in mutual funds or own stocks, versus 76 percent of whites, according to a study from Ariel Mutual Funds and Charles Schwab.

Why are so many of us so financially ill-prepared?

In part, it’s because of our public education system. In school, few children are taught the basic financial skills needed to make long-term savings decisions.

But parents are also to blame. In the black community, it’s often considered taboo for parents to discuss their personal finances with their children and, as a result, a lot of black children do not develop sound money management skills.

In order to prevent this from happening, parents should begin by teaching their children the difference between “needs” and “wants.” They should also encourage their children to save their money, rather than spend it. Try opening a high-yield savings account for your children and encourage them to deposit a portion of their allowance on a regular basis. In doing so, your children will be able to see their money grow, which will enable them to develop a “positive” savings attitude and will allow them to continue on the path to financial wealth for the rest of their lives.

Merrill Lynch has been administering financial literacy tests to thousands of high school seniors since 1997. Across the board, average scores have declined each year. In June 2006, a whopping 80 percent of black students failed the test, scoring about 10 points lower on average than white students.

This financial literacy gap is only closing among students whose families make over $80,000 a year. That’s partially because well-off parents are inclined to instill in their kids the same sound financial advice that got them to where they are.

Public officials and private citizens alike need to ramp up their efforts to teach kids the value of savings.

Black America has made great financial strides over the years. But far too many of us have overlooked the importance of long-term saving. At the end of the day, getting ahead financially is quite simple — it means spending less and saving more. The upcoming tax rebate provides a perfect opportunity to get started.

Deneen D. Stewart is general counsel and secretary of ING DIRECT USA.