The Political Economy of Education, Financial Literacy, and the Racial Wealth Gap

Abstract

uch of the framing around wealth disparity, including the use of alternative financial service products, focuses on the poor financial choices and decisionmaking on the part of largely Black, Latino, and poor borrowers, which is often tied to a culture of poverty thesis regarding an undervaluing and low acquisition of education. This framing is wrong-the directional emphasis is wrong. It is more likely that meager economic circumstance-not poor decisionmaking or deficient knowledge-constrains choice itself and leaves borrowers with little to no other option but to use predatory and abusive alternative financial services. To make this point, what better indicator of economic circumstance is there than wealth? Wealth serves as a primary indicator of economic security. Wealthier families are better positioned to finance elite, independent school and college educations, access capital to start a business, finance expensive medical procedures, reside in neighborhoods with higher amenities, exert political influence through campaign financing, purchase better counsel if confronted with an expensive legal system, leave a bequest, and/or withstand financial hardship resulting from any number of emergencies (Hamilton and Darity, 2009). Wealth provides This article examines the mismatch between the political discourse around individual agency, education, and financial literacy, and the actual racial wealth gap. The authors argue that the racial wealth gap is rooted in socioeconomic and political structure barriers rather than a disdain for or underachievement in education or financial literacy on the part of Black Americans, as might be suggested by the conventional wisdom. Also, the article presents a stratification economic lens as an alternative to the conventional wisdom to better understand why the racial wealth gap persists. (JEL J15, Z13)

Racial Differences in the Returns to Financial Literacy Education

“…Consequently, while financial literacy education does in fact increase financial literacy, most of the variation in the difference in financial literacy is due to other factors. This finding supports the Hamilton and Darity () proposition that investing in financial education alone is an insufficient method to reduce the financial literacy gap and subsequently the wealth gap. The majority of financial literacy knowledge is gained through returns to other variables, such as, but not limited to, income, age, gender, and college education.…”

“…According to Charles and Hurst (), the gap in median net worth between black and white households was approximately $67k, whereas more recently Hamilton and Darity () report the gap at more than $93k. To calibrate this, racial wealth gap governments and educational institutions have invested in the provision of financial literacy education.…”

Americans misperceive racial economic equality

“…Although past studies find similar patterns of overestimation when examining markers of general economic inequality (19) and social mobility (17), these data reveal that perceptions of current societal racial disparities in economic outcomes are wildly discrepant from reality. One implication of the present findings is that policy discussions about the detrimental effects of economic inequality, as well as potential ways to reduce it, are unlikely to contend with the racial economic gaps that are contributing to these overarching economic trends (37,38,41). That is, solutions for persistent racial economic inequality might never enter discussion if policymakers and the public believe these racial divides are already closing.…”

“…Specifically, our results highlight the limitations of economic policies, such as higher tax rates for millionaires and loan forgiveness for college students, that reduce some of the economic inequality between the wealthiest 1% and the rest of Americans while leaving income and the extraordinary wealth gaps between racial groups largely intact (37,38,41,42). In this regard, especially given the shocking level of ignorance regarding racial wealth inequality observed in the present work, policies designed to reduce racial gaps in wealth accumulation, including stricter enforcement of housing antidiscrimination laws and/or practices that promote access to home ownership among Black Americans and other racial minority groups, universal living wage, if not job, guarantees, and the implementation of "baby bond" trust programs stand as far superior economic policy solutions than those born of concern about general societal economic inequality (38,41,42).…”

The Financial Services Environment and Schools' Savings Rates in the San Francisco Kindergarten to College Program

“…CSAs or their proxies are also associated with accumulating wealth (Elliott, Lewis, and Johnson ; Friedline, Johnson, and Hughes ; Loya, Garber, and Santos ). Importantly, the children who reap the greatest benefits from CSAs are those at greatest risk for institutional marginalization: children of color and lower‐income White children (Azzolini et al ; Beverly et al ; Friedline, Elliott, and Nam ; Hamilton and Darity ; Sherraden et al ). For instance, race and income inequalities in CSA account opening and saving are reduced or nearly disappear when CSAs are opened automatically (Beverly et al ).…”