Personal Finance Has Failed to Reckon With Inequality

(Bloomberg Opinion) -- When well-known personal finance author and personality, Dave Ramsey, said in an interview on Fox News that he didn’t believe in stimulus checks, because “if $600 or $1400 changes your life, you were pretty much screwed already,” social media erupted with responses of rage. 

His statement felt like a summation of the traditional, often shame-based approach to personal finance. It highlighted how much the industry upholds the bootstrap narrative — that anyone can live well if only they try hard enough. There’s little recognition of the roles that luck and privilege play when it comes to financial security and well-being.

This doesn’t sit right at a time when the pandemic has left nearly 81 million American adults reporting it’s very difficult for their household to cover usual expenses and millions behind on housing payments or still unemployed. If the personal finance industry truly wants to make a difference in people’s lives, it needs to reckon with the deep-seated issues that allow some people to build wealth while making it harder for others to do so.

Acknowledge advantages

Those of us bestowing personal finance advice can start by honestly reflecting on our own financial journeys. This means focusing on the advantages we’ve had along with the obstacles we’ve had to overcome.

“For white folks like myself, it can often be challenging to consider that part of the reason you're successful — in addition to hard work — is privilege,” says Tori Dunlap, a millennial money coach and founder of Her First $100K. “I may have worked hard and made good choices, but I also had good choices to make. We must acknowledge both privilege and hard work in our community.”

Having a loan from one’s parents, getting college paid for (getting to go in the first place), landing a well-paying job, and having a partner who can cover or split the bills are all significant helping hands that allow some people to take risks — for example, by investing in Bitcoin or starting a business — without compromising their financial security. Yet these advantages tend to be downplayed or left out of popular “blueprints to success” that are meant to be easily replicable.

“People may believe that if they were to acknowledge the privileges they've had along their journey, that it will somehow discredit their accomplishments,” says Cindy Zuniga-Sanchez, founder of  Zero-Based Budget Coaching LLC. “I don't think anyone asks that experts, bloggers, influencers acknowledge systemic oppression so that they can dismiss [accomplishments]. People just want a level of candor, awareness, and the opportunity to be ‘seen’ when it comes to content related to money.”

Understand systemic inequality

Another critical step is for us to understand existing financial inequalities in the U.S. — many of which have been exacerbated by the pandemic — and consider how they should modify the advice we give. This means acknowledging not everyone begins at the same starting line and that life can be more expensive for those who have been discriminated against.  

For example, look at the racial wealth gap. According to Federal Reserve Board data from a 2019 survey, the median wealth of Black families in America was $24,000 in 2019 compared to the median wealth of $188,200 for White families. The same data show that 73% of middle-aged White families own their home compared with 51% of middle-aged Black families; and that 30% of White families reported receiving an inheritance, while only 10% of Black families and 7% of Hispanic families reported the same. 

These racial disparities are deeply rooted in U.S. history, from the scourge of slavery to the 1921 Tulsa Race Massacre to more insidious forms of segregation like redlining, a practice in which banks denied mortgages to mostly people of color to keep them from buying homes in specific neighborhoods. The financial losses that Black Americans and other minority populations have suffered have made it far harder for them to create and sustain generational wealth. 

When it comes to proffering financial advice, structural gaps such as these can’t be ignored. Failing to recognize the complex ways the deck is stacked will result in advice that may be effective for some, but ultimately leave many others feeling isolated and frustrated.

“It's much sexier to sell people on the idea that anyone can reach any level of wealth than it is to say ‘actually the deck is stacked in various and complex ways’,” says Kara Perez, founder of Bravely Go, an inclusive financial education company. “But I do believe it is possible to say ‘this and that can be true, here's how’ as an educator. I also think we as consumers need to understand not everything will speak to us on a personal level all the time and that’s OK.”

Step aside (sometimes)

In the eight years I’ve been working in personal finance, there has been an explosion of new voices that has helped diversify the industry. Social media has made it easier to get financial advice from someone who mirrors your lived experience (though I always recommend vetting any expert's suggestions against multiple sources). 

Kevin L. Matthews II, founder of Building Bread, a financial education company, suggests that personal finance experts can more effectively help people impacted by systemic oppression by bringing in other experts who may have more experience in dealing with those issues firsthand. 

There are myriad ways to pass the mic and amplify others. It could be doing a social media takeover and having someone else interact with your community. It could be spotlighting people, books, courses and resources in your newsletters. It could be taking the time to be mindful about who you’re quoting in articles, books and blog posts.

Advise with empathy

One common character within the personal finance world that I’d love to see die out is shame. It’s high time we replace it with compassion. 

“Shame just doesn’t work,” says Stefanie O’Connell Rodriguez, host of the podcast Money Confidential. “While researching an OpEd on this subject, I came across a lot of studies around the effectiveness of the compassionate care approach in medicine. I’d love to see [that] in personal finance.”

Approaching money matters with empathy would help defuse controversial subjects, such as student loan forgiveness, which tend to elicit reactions like, “I paid thousands in student loans without any help, so why should they get help? Do I get something for paying it back like I was supposed to?” Moving away from “me versus them” attitudes will ultimately make it easier for more people to establish financial security and start building wealth.

Personal finance experts can also use their influence to help their communities, says Julien and Kiersten Saunders, co-founders of richandregular.com. “[We’d] like to see less boasting about their investment returns and business growth and more celebration of the problems they've solved in the communities with their gains.”

Ultimately, I’m bullish on the future of personal finance. This reckoning doesn’t have to be a contentious battle between the old guard and the new “Finfluencers” on social media. Instead, this can be a collaborative process of moving from an archaic shame-based system to an empathetic approach that more people can benefit from.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Erin Lowry is the author of “Broke Millennial,” “Broke Millennial Takes On Investing” and the forthcoming “Broke Millennial Talks Money: Stories, Scripts and Advice to Navigate Awkward Financial Conversations.”

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