Financial Literacy & Investments
President Abraham Lincoln established the Freedman's Bank on March 3, 1865, as part of the Freedman's Bureau. As the Civil War drew to a close, the United States Congress and President Lincoln recognized the need to aid newly freed black men and women in their transition to freedom. To support the land grants and other elements of the Freedman's Bureau Act, a Freedman's Bank was established to help newly freed Americans navigate their financial lives. Call it the financial literacy program of its day.
During its existence, The Freedman's Bank maintained some 37 offices in 17 states, including the District of Columbia. The bank had over $57 million in deposits (adjusted for inflation) and 70,000 depositors. Five weeks after the creation of the Freedman's Bank, President Lincoln was assassinated.
Seven years later, In June of 1872, the U.S. Congress voted to close the Freedman's Bureau permanently. However, the bank remained operational, and in 1874 Frederick Douglass was asked to run the Freedman's Bank as its D.C. branch relocated to a new home across from the U.S. Department of Treasury in a grand building that cost $260,000 to construct.
THE HALF HAD NOT BEEN DISCLOSED
When Frederick Douglass arrived at the bank's new location in Washington D.C., he wrote:
"The whole thing was beautiful. I had read of this bank when I lived in Rochester, and had indeed been solicited to become one of its trustees, and had reluctantly consented to do so: but when I came to Washington and saw its magnificent brown stone front, its towering height, its perfect appointments, and the fine display it made in the transaction of its business, I felt like the Queen of Sheba when she saw the riches of Solomon, that 'half had not been told me.'"
However, when Douglass came on as the bank's director, he found rampant corruption within the bank and risky investments across industries made with depositor's savings. In a desperate attempt to stabilize the Bank, Douglass invested $10,000 of his funds, but sadly, later that year, in June of 1874, the bank failed against the backdrop of the political forces that undermined Reconstruction.
LEGACY
Before it failed, the Freedman's Savings Bank had 37 branches operating in 17 states and the District of Columbia and lost a total of 3 million dollars. In the District alone, over 3,000 depositors—both individuals and cultural institutions—lost their savings. While the Freedman's Bank's failure was tragic and left many African Americans with feelings of distrust of the American banking system, the bank's records are a rich source of documentation for black family research for the period immediately following the American Civil War. The records from twenty-nine branches of the Freedman's Savings Bank, including those of the Washington D.C. office, still survive today and are searchable at the National Archives.
What makes these records so important are the thousands of signature cards that contain personal data about the individual depositors. In addition to the names and ages of depositors, the files can contain their places of birth, residence, and occupations; names of parents, spouses, children, brothers, and sisters; and, in some cases, the names of former slave owners. These records of the individuals, who lived through the transition from slavery to freedom, are the keys that allow their descendants to unlock the mysteries of their largely undocumented family histories.
Within these records are stories that reveal struggle, sacrifice, courage, and determination, stories that must be told to our children and left for future generations.
Suppose Abraham Lincoln understood the importance of financial literacy, investments, and the positive impact on people and their ability to build thriving communities. Why do we continue to ignore it?
Even though African Americans make a significant economic contribution in the United States, their financial wellness lags behind that of the rest of the country. Numerous economic indicators highlight this disparity, such as median household income, net worth, and the likelihood of carrying student-loan debt. The reasons behind these financial wellness gaps are complex; accordingly, a report conducted by the TIAA Institute highlights new insights from the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index).
The P-Fin Index measures eight critical areas of personal finance knowledge: earning, consuming, saving, investing, borrowing and managing debt, insuring, comprehending risk and uncertainty, and go-to information sources. According to the report, African-American adults answered 38 percent of the P-Fin Index questions correctly, compared to 55 percent of white adults. African Americans scored highest in borrowing and debt management but scored lowest on questions relating to insuring. African Americans scored comparatively low on inquiries related to comprehending risk, investing, and identifying go-to information sources. The report states that low levels of financial literacy in insuring and understanding risk are especially troubling. "Risk and uncertainty are inherent in financial decision-making, and individuals face a range of choices regarding events to insure and how to structure their coverage," the report states. "Poor insurance decisions can leave an individual under-insured for some risks and over-insured for others, as well as overpaying for coverage."
There are demographic differences in financial knowledge among African Americans. For example, financial literacy is more significant for those with more formal education, those who received financial education, and those with higher incomes. Men and older individuals also tend to have greater financial literacy than women and younger adults. The gap in financial knowledge between African Americans and whites can be partially attributed to underlying demographic differences between them. However, the differences cannot account for the entire gap as financial literacy is still lower for African Americans than whites in each demographic subgroup reported in this study.
The connection between financial literacy and financial wellness is well-documented, which is true among African Americans. For example, those with higher financial literacy tend to save for retirement, have non-retirement savings, and manage their debt better overall. They are also less likely to be financially fragile. Financial wellness depends on how well individuals navigate the myriad of financial decisions faced in the ordinary course of life. Financial literacy is knowledge and understanding that enable sound financial decision making and effective management of personal finances. As such, financial literacy contributes to economic well-being.
Through our curriculum, we have narrowed our focus to what we call the "Four Cornerstones of Financial Literacy,”
Budgeting to create savings
Debt Reduction & Asset building
Building a good credit rating
Consumer protections & financial institutions
Addressing these need to know items:
How to track where my money goes and make money choices that get me to my goals?
How to make a spending plan that will get my bills paid on time and allow for saving?
How to find thrifty ways to spend my money for my goals, not keep up with neighbors?
How to set aside money for non-monthly expenses and emergencies that come up?
How to teach the children in my life about earning, spending, saving, and giving?
How to make a system to keep my financial papers and records where I can find them?
How to read my paycheck stub and know how many exemptions to claim for taxes?
How to file my taxes and claim tax credits and refunds to build my net worth?
How to create an income plan to manage what I make now and find ways to make extra?
How to make a debt plan to prioritize what I owe and get it paid off faster?
How to keep my savings safe and use essential investment tools to make my savings grow?
How to build wealth and net worth by reducing my debts and building assets?
How to get and understand my credit reports and start to build or re-build good credit?
How to know my insurance coverage (health, home, car), and how to get claims paid?
How to get a free checking and savings account at a bank or credit union?
How to be a safe consumer and where to find free consumer protection and legal help?
How to spot predatory financial practices and how to report fraud or identity theft?
We believe teaching young people the answers to the above questions will establish a solid foundation for building healthy financial futures.
