Unfortunately, the stats about poverty skew heavily towards people of color too, and suggest a vicious cycle that can be difficult to break. Long-standing discriminatory practices among financial institutions have played their role as well.
Here are just a few eye-openers, according to a CFSI report.
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Only 23% of African Americans and 22% of Hispanics are financially healthy, compared to 50% of white individuals.
At their current rates of income growth, it’ll take the average African American family 228 years to attain the same level of wealth as their white counterparts. It’ll take the average Latino family 84 years
1. Educate Yourself
This one comes first because it’s the most important. The simple truth is the less you know, the more susceptible you are to getting taken advantage of – especially when most schools don’t currently provide educational opportunities in financial literacy. So education is key.
For starters, make sure you understand:
Basic financial literacy
How credit works and how to build credit responsibly
Your options when it comes to financial products and institutions
Your rights when it comes to banking and financial products
More specific examples could include:
If you’re shopping for credit cards, make sure you know the available Annual Percentage Rates (APR) – AKA how much interest you’ll be charged if you miss a payment.
If you’re shopping for a loan, make sure you understand the amount of interest you’ll owe and other repayment terms, such as the length of the loan and your monthly payments. Lenders are obligated to provide you with the total cost of the loan and payment schedule
2. Change Your Mindset Towards Money
“When it comes to improving your personal finances and achieving financial wellness, it’s 20% skill and 80% behavior and mindset,” Bola Sokunbi from Clever Girl Finance says.
For many low-income workers, the hardest part of breaking the cycle of poverty is changing their mindset towards money. Their parents’ money habits and lessons may be deeply ingrained, strongly influencing their own attitudes toward money.
To start changing your mindset towards money, take a moment to assess where you’re coming from and where you stand right now with your finances.
Consider asking yourself these questions, for starters:
3. Leverage Community Resources
While changing your mindset is helpful, having a positive mindset can only take you so far. At a certain point, it comes down to opportunity. As comedian Trevor Noah says in his book Born a Crime:
“People love to say, ‘Give a man a fish, and he’ll eat for a day. Teach a man to fish, and he’ll eat for a lifetime.’ What they don’t say is, ‘And it would be nice if you gave them a fishing rod.’”
The next step to mindset change involves finding the tools and helping hands you need to be successful. That’s where the resources available in your local community can come into play.
4. Avoid Predatory Payday Lending
If you just look at the name, a payday loan sounds like a loan that’s just for one day, right? But the truth is, if you get caught in the cycle of payday lending, you could be paying for that loan for years to come.
In fact, about 12 million Americans use payday loans each year, and spend an average of $520 in fees to borrow just $375. I don’t know about you, but that math just doesn’t add up
5. Ask Someone you Trust
Sometimes, talking about money with a friend or loved one can feel awkward. But if you’re trying to better your finances, asking questions from those you trust can be the best way to help elevate yourself too.
If you have a friend or family member who’s good with money, see if they’re comfortable letting you pick their brain and learn from their insights and mistakes.
Ask them what they did. Ask them what worked and what didn’t. Ask them what products they used and what financial products they like (or don’t like). Ask them how they budget and how they decide what to spend their money on. You might be surprised what tips people have you might not have considered before.