Building wealth takes more than skill at selecting winning stocks or scouting for the highest yields on savings. First and foremost, a certain mindset underlies financial security.
And many African-Americans must change their attitudes in order to establish greater security, and in the process win more opportunity and full inclusion in society. That’s the message of a recent book, “Money Talks: Black Finance Experts Talk To You About Money” (John Wiley & Sons, Inc.).
The author, Juliette Fairley, was in Chicago recently to talk about her book, which includes advice from 20 successful African-American professionals in financial fields on how people in the black community can assume better control of their personal finances. Money, of course, is synonymous with power. The black community has been especially missing out on its share of both during the strong bull market in stocks in recent years.
Four of the 20 professionals profiled in the book are from Chicago. The Rev. Jesse Jackson, founder and president of the Rainbow/PUSH Coalition writes a foreword to the book. Soon, the black community in Chicago may be hearing more about personal finance from the pulpit, because the Rainbow/PUSH Coalition Financial Ministry is conducting seminars to teach black ministers more about the value of stock investing, investment clubs and other financial matters.
While each of the 20 experts interviewed in the book has his own specific suggestions on how African-Americans should alter their habits to consume less and invest more, a few maxims are often repeated. The following points are what Fairley describes as a “prescription for progress” for African-Americans:
– Make a conscious decision to curb consumption. In America, nearly everyone, regardless of race or ethnicity, is seduced by materialism. But many African-Americans, contends Fairley, are especially prone to overspend to compensate for a childhood of lack and deprivation.
Fairley says one of the experts in the book, Barbara Bowles, president and CEO of the Chicago-based mutual fund The Kenwood Group, says it best: “Buy what you need and invest the rest.”
Acknowledging that, overall, African-Americans earn less than other groups, Fairley says that by making investing a top priority, they should still be able to find funds to save. One of the professionals Fairley profiled, Glinda Bridgforth, president and CEO of Bridgforth Financial Management Group of Oakland, Calif., suggests keeping a diary of every expenditure.
In the book, financial planner Bridgforth counsels: “One of the most important things I’ve found when working with clients is that often they will modify their spending behavior automatically when they see in print the total amount of money they are spending in different areas.”
– Start a systematic savings plan. Once some dollars earmarked for savings can be wrung out of the monthly budget, it’s best to have those dollars regularly deposited into a 401(k) plan or a mutual fund, IRA or any type of investment that will provide for automatic deductions from a paycheck or checking account.
Many employers offer 401(k) retirement plans and will match the savings you contribute from your paycheck up to a certain limit, notes Fairley. Because of employer matching, the 401(k) is probably the best place to start systematic savings. If an employer doesn’t offer a 401(k) or similar plan, Fairley suggests finding a mutual fund without high sales charges or a “no-load” fund that will automatically transfer money from your checking account to the fund each month.
“You can do this with as little as $50 a month in some funds,” says Fairley.
– Invest in stocks to reap better returns. African-Americans tend to favor ultraconservative investments such as bank savings accounts, which offer low returns compared to stocks.
“They work very hard for their money, and don’t want to lose it,” Fairley said. “And they don’t have money to lose.”
While principal placed in stocks is never guaranteed, risks are balanced by the possibility of robust returns. Maceo Sloan, one of the professionals profiled in the book, is chairman and president of Sloan Financial Group. He advises: “We have a tendency to put money in CDs, which is the worst place to put it. We should be invested in the stock market. If you take any 10-year period, the stock market has outperformed the bond and CD market. And over the last 50 years, the market has averaged a 10 percent-a-year return.”
African-Americans don’t have to completely abandon bank savings accounts, says Fairley, but when savings build to a significant level, say $1,000, it would be wise to then place that money in a higher yielding investment, such as stocks.
– Look for low-cost ways to invest. While owning stocks is key to building savings, it’s counterproductive to pay big fees to brokers, says Fairley. Ideally, African-Americans should bypass expensive broker fees by investing directly whenever possible. Fairley recommends calling a toll-free phone number (800-774-4117) for free literature on 350 companies and mutual funds that allow investors to buy shares directly, not through a broker.
– Start saving for a child’s college education as early as possible. Saving for college is something African-Americans are doing better than other groups. Frank Savage, chairman of Alliance Capital Management International, is one of the book’s experts, and he cites a study by his firm that found that 53 percent of African-Americans are putting money aside for their children’s college education compared with 46 percent of whites. African-Americans start saving when their children are at an average age of 6.7 years old, compared to 9 years old for whites.
But that still is not young enough. “Ideally, you should start as soon as the child is born,” says Fairley.
College savings funnelled into stocks early in a child’s life should increase significantly in value by the time a child is 18 years old.
– Become a shareholder activist. “Call or write the investor relations department or even the chairman of the company or companies you buy stock in, and ask for their position on diversity issues,” Fairley said.
In his foreword, Jackson writes: “Through a process of research, education and negotiation, we’re monitoring the hiring, promotion and purchasing practices of Fortune 1000 companies. We are not looking for charity, but rather parity.”
The book lists five things to do as a “shareholder activist.” In addition to inquiring about a firm’s diversity position, Fairley advocates asking about the number of African-Americans on staff, attending board meetings, voting on company issues whenever possible and organizing other shareholders to request that an African-American be appointed to the board of directors.
– Establish ownership. Most of the experts profiled in the book are homeowners, and many are business owners. Much of their wealth came not just from thrifty habits but from equity in a thriving business and from owning a home that escalated in value.
– Involve your family in making financial security a top priority. “Share your financial situation with your family rather than hiding it. If things are not going well, be honest. You might have to tell your child, `I can’t buy you that because of finances,’ ” Fairley writes. Eventually, she says, the family will benefit immensely from such forthrightness.
One of the experts, Harold Doley Jr., chairman of Doley Securities, sums up: “Investing can afford you a different lifestyle, a more secure life, and many of the things that you need to make life better for yourself and your family.”
