Credit Card Crunch Squeezing Minorities?
As I was making my daily rounds of reading blogs and financial news, I came across this article that talked about the credit card crunch really squeezing minorities. I hadn’t thought about the credit card crunch from the race perspective simply because I thought of national debt as everyone’s biggest concern right now. However, the writer of this article raises an interesting point and one that I would like to discuss here – provided it doesn’t turn into a big racial debate.
In the article, the author states that around half of all Caucasian households with credit cards are in debt, while the number of African American and Hispanic American households in debt is near 80%. Furthermore, he states that for every $1 a Caucasian family saves, an African American or Hispanic American family can only save 18 cents.
I’d like to know where he got his data from, first of all. I haven’t seen any of these projections and I’m pretty good at keeping up with them. I’m not suggesting that they don’t exist, mind you, just curious as to his source. I’d also like to know the reason ‘why’ these numbers exist. He cites a great racial divide in economics, but there’s a lot that goes into that. As a woman in the business world, I understand the glass ceiling and the struggle to climb the corporate ladder. Those are things that minorities struggle with as well. However, I have to wonder if a part of the problem is a lack of financial education in the communities.
Before anyone starts an uproar about what I just said, let me make it perfectly clear that I’m not suggesting anyone is uneducated in general. I’m simply saying that in my banking days, I’ve seen a lot of people of every nationality walk through the doors without any idea how a bank or a credit card works. It becomes a matter of what they learned from their parents and their schools, which is often dismal at best. And that’s just speaking in generalities of people, not specific to any one group.
So, there has to be a reason for the disparity between minority households and their Caucasian counterparts. Lack of job opportunities play a role, to be sure, but these are large number differences and I have to wonder if there’s more to it than that. I mentioned before there may have been a lack of financial education in the communities. People who have no idea how a credit card works can fall into the trap of paying outrageous interest rates and fees pretty easily. A lot of people take on the perception that because they have a credit card they actually have money. It’s a financially uneducated view and they simply need to be instructed on why that’s not necessarily the case. However, I think it’s entirely possible that the situation is attributed to multiple reasons – some directly related to their financial education and some more socioeconomic.
I want to hear what our readers think. If there’s a way to help at the community level then I want to know about it. As a financial educator, I’m always looking to understand the world of finance a little better and to help others achieve that same end, so if you have ideas or thoughts on the subject please share them!
Why do you think there’s such a difference between Caucasian households and minority households? And, do you think there’s anything we can about it at the community level?
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I don’t think you really have enough data for more than a guess. I’d like to see source of income cross referenced to debt level – I suspect that would be very telling.
I will say this much – I don’t think race plays more than a superfluous role. The actual problem is probably poverty. I don’t mean by poverty simply lacking funds but the myriad of socio-economic factors – very often complicated by various dysfunctions (here I would include your education theory as well as lack of job holding skills, lack of job skills, drug and alcohol abuse, depression, et al) – which serve to maintain the status quo. I am also not including the transitory poor (those who fall into poverty for whatever reason but then move back into a higher income bracket) but rather endemic poverty.
Race, in my opinion, relates mostly from the proportions of impoverished minorities but the fact that so many are not endemically impoverished (or do not remain so) argues against race as a determining factor. Culture, not race, is probably the stronger influence maintaining endemic poverty (economic variations don’t seem to affect the endemic populations very much if at all as evidenced by the small variation in welfare figures when allowing for transitory poverty* which points more to culture than race). Those factors that lend themselves to maintaining endemic poverty (here I would, controversially, I know, include welfare itself as presently administered) probably also lend themselves to poor financial management (note that poverty is not necessarily an indicator of poor financial management skills – and there will be some that manage a budget well but have little skill beyond that) hence the disparity in credit / debt problems.
*based on personal observation and not a recent research of actual figures. I believe the point valid but will concede that I could be proven wrong.