Amid a government shutdown, uncertain national economy and rising prices on consumer goods, economic experts note financial literacy is important for all Americans to navigate the current times and beyond.
Spending less than one earns is the soundest financial principle, but that alone is not enough to develop long-term assets without additional steps.
Treasurer Dereck E. Davis, Maryland’s second African-American treasurer, has emphasized financial literacy education as a priority of his office since his December 2021 swearing-in.
“I firmly believe that financial education cannot begin too early, as it builds the foundation for responsible decision-making and strategic financial planning in the years ahead,” Treasurer Dereck E. Davis told The Informer. “These skills are essential for strengthening our families, ensuring a better quality of life, and creating a more secure financial future for our state.”
Avoiding Debts
- Research available tax credits.
There are tax credits for paying student loans, paying interest on a mortgage, or paying up to $2500 of student loan interest annually. Independent contractors can write off qualified business expenses such as electronics and furniture on their income tax. Further, when paying down debts, try to prioritize debts with higher interest rates.
- Set up an emergency fund.
A flat tire, a missed paycheck, or a broken washing machine can happen at any time. Having an emergency fund makes it easier to address these problems without going into unnecessary debt at high interest.
Robin Hood, an electronic trading platform, reports that 41% of Black adults report having emergency savings, compared to 60% of white adults.
- Avoid gambling, sports betting, and other high-risk investments.
Less than 5% of sports bettors turn a long-term profit, and gambling is highly addictive, according to Boyd’s Bets.
In addition, high-risk investments can also be dangerous. A Federal Reserve report reveals that more Black consumers own cryptocurrency, an asset that can rapidly change in value, than stocks and mutual funds, which are more secure for long-term growth.
The value of cryptocurrency can fall to nothing in a matter of seconds, a phenomenon known as a “rug pull”. Investors with large concentrations of crypto can mass-sell, leaving remaining investors with worthless coins and few consumer protections.
- Avoid high-interest loans.
Advanced pay loans, now legalized in Maryland, allow over 200% interest rates. The high interest rates make loan repayment difficult, often necessitating further debt and creating a debt cycle. Bank loans and credit cards both offer lower interest rates than advanced pay loans.
These high-interest loans disproportionately target Black communities and low-income users, according to a 2024 report by the Maryland Department of Labor.
D.C. Attorney General Brian Schwalb filed a lawsuit in 2024 against EarnIn, which offered payday loans at 12 times the legal interest rate in the District. The lawsuit alleges that over 1 million loans were approved without required licensing.
“EarnIn lures in hard-working, cash-strapped workers with the false promise of free instant cash advances and then charges them unlawfully high interest,” said Schwalb. “This predatory business model is illegal. Especially at a time when the cost of living is already too high, my office will always have Washingtonians’ backs. Today, we’re suing to hold EarnIn accountable and to put money back in District residents’ pockets where it belongs.”
- Unsubscribe from marketing emails.
Marketing emails are sent to encourage extra sales and leave your e-mail inbox filled while giving a permanent sense of Fear of Missing Out, also known as FOMO. Unsubscribing from emails is an easy way to declutter and avoid unnecessary purchases.
- Keep realistic expectations.
Remember that a significant percentage of social media content is a combination of product advertising and personal highlights. Comparing one’s daily life to others on social media is a very quick way to overstretch budgets and unnecessarily raise expenses.
JP Morgan Chase advises that some debts can be viewed as investments while reminding consumers to be cautious when taking on debts.
“Not all debt is created equal. It’s possible to invest for the future while you’re paying down debt,” read a September 2024 financial advice column written by JP Morgan Chase in The Informer. “A good practice is to pay down any high-interest debt before starting to invest, but you can consider investing if you’re paying down low-interest debt.”
How to Save
- If receiving a tax refund, file taxes as early as possible.
A tax return is money that could be invested or spent to pay off debt or purchase necessities.
- Use coupons.
A penny saved is a penny earned. Coupons are mailed monthly for various grocery chains, and allow shoppers to price-compare between available options. Even fast food chains offer coupons through their apps.
- Open a high-yield savings account.
The interest rate in a traditional checking account is often below 1%, meaning that interest on that account is lost to inflation annually. While most extra funds should be spent to pay off debt or to boost retirement savings, an emergency fund in a high-yield savings account (HYSA) can generate more than 3% interest annually.
- If responsible, get a credit card.
Improving credit will improve lending terms for housing, cars, and bank loans. However, the high interest rates mean that missing even one payment can start a downward slope.
The cashback rewards, travel miles, and other perks enjoyed by diligent credit card payers, are funded by the interest payments of credit card holders who don’t pay off their monthly balance.
- Get life insurance.
For just a few dollars a month, ensure that family members have the resources to stay afloat in the event of an unfortunate circumstance.
Some options for life insurance include New York Life, Liberty Mutual, and North Carolina Mutual, the largest Black-owned life insurance company in the nation.
- Protect assets with a will and/or trust.
Wills and trusts ensure that assets are properly and quickly assigned to beneficiaries after loved ones’ death. Without proper planning, resources that could be used to pay for funeral costs or other immediate expenses could be inaccessible.
For state Sen. Cory V. McCray (D-Baltimore)— who recently published The Apprenticeship That Saved My Life, detailing the importance of the trades as an opportunity for economic uplift— financial literacy and implementing such tools as those listed above can improve overall outcomes in African American communities.
“When we teach financial literacy, we don’t just change one life,” said McCray, “we shift the trajectory of entire neighborhoods by creating households that are stable, informed, and invested in their future.”