Generating Wealth

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When the Consumer Federation of America, BET.com and the Fannie Mae Foundation hosted a press conference in Washington, D.C., last November to discuss data culled from the Federal Reserve’s recent “Survey of Consumer Finances,” the discussion resonated with one particular finding about African-Americans: Household wealth among African-Americans has risen sharply. By 2001, the survey showed, net wealth among African-Americans had increased 221 percent to $19,000 from $6,000 in 1989. Meanwhile, the net wealth of the average U.S. household rose 33 percent, from $65,000 to $86,000. What also was revealed, however, was that African-Americans needed to invest more for long-term wealth accumulation. That requires sound knowledge of financial principles, a clear idea of goals and financial discipline, all of which, financial experts say, they try repeatedly to reinforce with varying degrees of success.

Blair Smith, vice president of SmithBarney’s Target Market Initiative for African-Americans, says the typical African-American is conservative in his or her approach to financial matters, which limits the scope for true wealth building. “African-Americans tend to stick with real estate and insurance and have a natural hesitation to get into real estate investment trusts (REITs) or college savings, trusts and estates,” he says. Through the Target Market Initiative, he hopes to encourage African-Americans to broaden their financial horizons. “The focus of our initiative is preserving legacy. Having money and keeping it are two different things. Folks need to start thinking about making money and passing it on to their children, who, in turn, can pass it on to theirs,” says Smith, who holds an M.B.A. from Columbia University Business School.

He urges African-Americans to “gravitate toward luxury items that appreciate in value, rather than to those that depreciate.” For example, “purchase houses where you can get the most equity, buy art and quality jewelry instead of cars, which depreciate as soon as you leave the lot, or ‘bling bling’ jewelry,” he says. Most important, ask for information. “I cannot stress enough the importance of getting financial questions answered. People have to get over the fear of asking questions and start investing at an early age,” he says.

Angela Bledsoe, a financial advisor with AXA Advisors, says certain attitudes and practices among African-Americans leave them financially vulnerable. “We should develop a pattern where we are living below our means instead of living above our means. This is where we can begin to build real wealth,” she says. “It’s not how much money you make, it’s how much you put aside.” Bledsoe, who graduated from Florida A&M University with a degree in business administration, advises “mapping out future goals, such as when you want to purchase real estate, when to have children, where to send them to school and when you want to retire.” By being clear about your goals and timeline, it’s “much easier to reach them and live a less stressful and more balanced life,” she says.

Moreover, she notes, “it’s important to develop three diversified investment portfolios to meet your future goals: one for short-term goals with a target of a year or less; another for intermediate goals that range from five to 15 years; and one for long-term needs, chief of which is retirement.” Your investments, she says, should be based on your time frame because “the longer the time frame, the more aggressive you can afford to be depending on your comfort level.”

Bledsoe criticizes the prevailing attitude among African-Americans toward long-term financial comfort. “We rely heavily on our company to take care of us, so many do not put in place the proper financial mechanisms such as investment assets in addition to and outside of the 401(k), life insurance and disability insurance, etc.,” she complains. African-Americans need to be more keenly aware of the work force and understand the shifting dynamics, she insists. “It’s very rare these days that people retire from one lifetime job. Because of the changes in the economic environment, it’s important to protect ourselves,” she warns.

Noting that African-Americans too often prevaricate about estate planning, failing to have one in place that includes a will, health-care proxy or power of attorney, she urges action sooner than later. “Stop procrastinating, seek professional guidance and operate your finances like a business,” she emphasizes. An especially painful mistake for many is the failure to revise the names of beneficiaries after a divorce or other, similar life-changing development, she adds. She advises against procrastinating when it comes to acquiring real estate. “Traditionally, African-Americans wait because they believe that they may not stay in a particular location long enough. Years later they find themselves in the same location with escalated real estate prices.”

Bradley Simmons, owner of Bestrow Realty Inc. in Harlem, rents commercial space to African-Americans but is passionate about steering them toward home ownership as an investment strategy. “We are basically spenders. We think we have to have the best, but we need to save our money, attend home-buying seminars, check out local real estate boards and ask questions about the value of owning real estate,” he advises. Because of overspending, African-Americans are often plagued by bad credit and are unable to obtain financing, says Simmons. He notes that many African-Americans, for example, do not qualify for mortgages because of poor money management, and therefore could not take advantage of the spectacularly low interest rates on 30- and 15-year mortgages in the past two years.

Even more disturbing, he says, those who manage to buy a house often end up in foreclosure because they fail to plan for unexpected expenses. A little known fact, he says, is that home owners faced with foreclosure can sell their house in two months through Premium Mortgage Insurance, which is offered by most banks to home buyers whose down payment is less than 20 percent of the cost of their house.

Simmons argues that home ownership should be a priority for every African-American. “If MTV showed people owning houses and having several acres of land, or going to their summer homes while driving a regular car instead of having a fleet of cars, then more people would buy a house instead of a flashy car,” he says. “For African-Americans, it’s all for show. Back in the day, guys were buying BMWs and Benzes and parking them in front of the projects. It made no sense!”

The time has never been better to buy a house, he says. “The stock market is volatile and real estate is a viable way of having something you are invested in. It is an alternative to supplement your retirement plan, a solid safety net that can provide shelter from generation to generation.”