Thursday, June 13, 2024

How Black Hoosiers can build generational wealth at any age: Different options to consider when you are trying to strategize for you and/or your family’s financial future

As Black individuals navigate avenues to secure financial freedom, exploring strategies and pathways becomes imperative.

Unfortunately, it is not easy when financial literacy is low among many U.S. adults.

On average, African Americans answered 38% of the P-Fin Index, which measures knowledge and understanding of sound financial decision making and management of personal finances.

“There are people who are financial advisors who can explain the differences in even insurance, for example, because that’s a big thing in our community. We’re not aware of even retirement accounts,” said Monica Warran, CEO of Face Finances.

“Something else that people don’t really think about are banking products. So, going to your bank and talking to them about a high-yield savings account or CDs, which is a way to invest your money, but it’s not as risky as the stock market.”

RELATED: From Financial Literacy to Legacy: Empowering Women for Equitable Communities

Warren grew up in a single parent household with her mother, and watching her mother pay off all the debt she and her father incurred to provide a better life for Warren taught Warren how to be a good steward of her money.

Face Finances, founded in 2019, provides services that include but are not limited to bookkeeping, taxes, payroll, cost analysis and budgets. The company currently serves around 78 clients; 97% of its clientele are Black.

Warren said that Black Hoosiers have to start somewhere and seeking out helpful resources is a great start.

She also understands that lack of knowledge does not come from personal ignorance.

“A lot of it comes from systemic racism. That’s why there is such a large wealth gap. We weren’t allowed to bank. We weren’t allowed to work in lucrative positions; to be allowed to invest. Home ownership is another big one,” said Warren.

“That has typically been a way to pass down generational wealth, but we all understand redlining and credit appraisals.”

CollegeChoice 529
A CollegeChoice 529 direct savings plan is a Section 529 plan offered by the Indiana Education Savings Authority. It is designed to help families save for college in a tax-advantaged way. A parent can start an account with as little as $10 and make investments as their child grows.

It also offers investment options to raise money over time to relieve the financial burden of college tuition costs.

Custodial investment or
Roth IRA accounts

Children have a lot of time to see money grow in a custodial brokerage or Roth IRA account before they reach adulthood. Investing is not just for adults.

Through the Under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act (UGMA/UTMA), a parent can open an account in their name and their child will automatically take full control once they reach 18 in the state of Indiana.

For teens with taxable income from a part-time job, a Roth IRA is ideal
The contributions a child makes will grow tax-free. Those contributions can be pulled out at any time, while the investment growth can be used for retirement or a home purchase.

According to NerdWallet, some of the best custodial accounts are Charles Schwab, Fidelity Investments and Vanguard.

High-yield savings accounts
A high-yield savings account, sometimes called a high-interest savings account, pays higher-than-average interest rates on deposits that grow money over time. That is because the Annual Percentage Yield (APY) can be as high as 5%, and for some banks, interest gained over time is reflected at the end of every month.

Banks that offer high-yield savings accounts include PNC Bank, BMA, Capital One, Discover, Lending Club and Citibank.

Cash value life insurance
Cash value life insurance policies have a savings component that accompanies universal life and whole life policies. Essentially, when you pay your premium, a portion goes toward funding the policy’s cash value.

That cash value earns interest over time at either a fixed or variable rate depending on the type of permanent policy. Once the policy accumulates enough cash value, the client can begin to access that money in various ways.

The policyholder can borrow from their life insurance in case of a medical emergency or if they want to put a payment down on a house.

The top companies that offer cash value life insurance policies are Mass Mutual and Life Guardian.

Life insurance trusts
A life insurance trust is created when an individual transfers the ownership of their term or whole life insurance policy to a trust. 

It is a legal agreement that allows a third party to manage the death benefit from a life insurance policy. A trust ensures that a policy’s death benefit is distributed to beneficiaries (loved ones) according to the deceased’s wishes.

In a landscape marked by historical disparities and systemic barriers, the pursuit of economic prosperity can offer a beacon of hope for future generations.

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