By Thomas Lovecchio

Some high schools teach economics, finance, and accounting, but not every high school does. Every high school needs to. The lack of understanding basic financial concepts is nothing new amongst Americans, we have had this problem for a while and still are not properly addressing it. In the following post I will discuss what financial literacy is, why we lack financial literacy, the effect on financial security, and how to address this problem.

Financial literacy

Financial literacy is the understanding of finance and using that understanding to effectively manage finances. Financial literacy often starts with the proverbial child opening a lemonade stand and then later evolves to a job in high school, but regardless of the lemonade stand and part time job, what happens to children in-between is likely to be, not very much. Financial literacy is an invaluable asset to anyone, yet many people lack it. The difference between a roth and traditional IRA would stump many people, yet retirement, healthcare, and other plans/services are much more complex.

Financial literacy rates generally coincide with education and income levels. Low-income, minorities face different challenges when it comes to the many factors associated with financial literacy. The words defined contribution, defined benefits, 401(k), unmitigated risks could be foreign to even those in a higher education and income level, making it fair to assume that it would be foreign or even worse to low income minorities.

Why we lack financial literacy

A lack of financial literacy can be attributed to a lack of financial education. Financial policy making tends to be reactionary rather than proactive. Deceptive acts, a bubble burst, crisis, or economic downturn are followed by some piece of legislation. Legislators pass laws that will protect consumers, but do not, in conjunction with those protections pass legislation that will fully inform consumers. This is not an argument against consumer protection laws, rather a critique that those laws can do more to address certain issues, through financial education.

On the state level, states have not done much to address financial literacy. States are concerned about implementation issues, the effect on the department of education, schools, and course requirements. States are also sensitive to budget and underfunding issues that continually impact low income school districts.

The effect on financial security

A lack of financial literacy has led to a lack of financial security amongst minorities with respect to retirement savings. Most people have heard a story about someone back in the day who would work forty years at a company and then retire with that company. Today, that is not the case, people bounce from job to job and retirement plans have changed as the market and risks have changed. Due to the little, if any education that students receive on financial literacy they are already at a significant advantage when it comes to saving money and retirement planning. Retirement security goes back to the idea of after working with Company A for forty years, that individual will be financially prepared for their retirement period. More so, African Americans face different challenges than Whites regarding where their money goes, such as helping out the household or family costs. These challenges make it paramount that African Americans are educated about financial concepts so that they can effectively address the different challenges they face.

What we can do to address this problem

In Black Retirement Security In The Era Of Defined Contribution Plans: Why African Americans Need To Invest More In Stocks To Generate The Savings They Need For A Comfortable Retirement, Phillip Aka and Chidera Oku examine four reasons “as to why African Americans lag behind Whites in stock market participation” with regards to retirement security. These four reasons are: the view that the market is too risky, a fear of Wall Street and not trusting financial companies, the view that the market is too complicated, and not enough money to invest in the market. All four of these concerns would be addressed if schools had a federal or state mandated financial literacy education graduation requirement.

The view that the market is too risky potentially has some truth in it depending on the risk aversion of African Americans compared to Whites, but with many options throughout the market minority groups can take calculated risks for their retirement planning. Financial literacy would provide African Americans a better understanding of the market and how to evaluate certain risks with respect to retirement savings. For example retirement is a long term game, at some point in that game risks will have to be assessed and taken on so that they are in a better position for retirement. Without an understanding of the longevity of retirement plans, market risks, and reasonable risks African Americans will continue to be at a disadvantage compared to Whites in their retirement plans.

African Americans have shown a fear of Wall Street so they do not include stocks in their financial planning. History shows, for example predatory lending and redlining, have provided a basis for this fear of Wall Street and financial institutions. With this fear well known, Obama passed protection acts such as Dodd-Frank, but needed to do more to address financial literacy amongst African Americans. This reason also falls on Wall Street and financial institutions to gain the trust of African American’s back. I am sure someone once said we fear what we do not understand, and without a fundamental understanding of the market and Wall Street, this fear will continue to linger.

Lack of money to invest in the market goes against the advice that many people give to someone who wants to start investing. Generally, the best time to invest was yesterday due to the time value of money, so the second best time to invest would be today. Again, if someone does not understand how the investment process works or the amount of capital need to get started, they likely will not invest. Starting out simple with blue chip stocks that are trading at reasonable price levels as well as bond or treasury programs can provide initial investors with low risk or even risk free options. For example, the government has set up a savings program for people without a retirement plan that works on a weekly basis, they can even invest a dollar a week, and it is invested in a risk free Treasury security. A dollar a week, risk free, flexible option is a great way for initial retirement planning, but if African Americans do not know about this program then they cannot take advantage of it. This is where the access to financial information comes in.

African Americans have reasons that they do not participate in the market for their retirement savings. These reasons are leaving them at a disadvantage when it comes to retirement as compared with Whites. These reasons can be addressed through financial literacy education that should at least start at the high school level. By doing this, legislatures will be taking steps to help African Americans so that they are not at financial disadvantage. Some critics have said that not enough studies have been done and we do not know if this financial literacy education will work. This argument simply ignores logic. When print literacy development was introduced, students performed better. Logic dictates the same with financial literacy. Further, not enough studies have been done because not enough financial literacy education programs have been implemented and not enough time has passed to adequately assess any programs that have been implemented.


Financial literacy is the understanding of finance and using that understanding to effective manage finances. Since financial literacy rates generally correlate with income and education levels, low income minorities face more challenges when it comes to understanding finances and retirement savings. This lack of financial literacy is due to a lack of education and the blame can be shared amongst the states and federal government. Financial literacy education in high schools should be mandated due to its practicality and the impact it is having on African Americans.

A lack of financial literacy has led to a lack of financial security amongst African Americans and more specifically with retirement savings. Retirement plans can be simple or as complex as someone wants it to be, but without a baseline understanding of financial concepts, retirement savings will likely always be complex. On top of this complexity African Americans have other reasons as to why they do not invest in the market for their retirement plans such the view that the market is too risky, a fear of Wall Street and not trusting financial companies and not enough money to invest in the market. Federal and state legislators must take action and implement a financial literacy education requirement for high school students so that African Americans have financial security for retirement.




  1. Ja’net L. Miles, Focus On The Children, Help The Economy: The Importance Of Including Financial Education In Kansas Graduation Requirements, 24 Kan. J.L. & Pub. Pol’y 136 (2014).
  2. Anne Tucker, Retirement Revolution: Unmitigated Risks in The Defined Contribution Society, 51 Hous. L. Rev. 153 (2013).
  3. Philip Aka and Chidera Oku, Black Retirement Security in The Era Of Defined Contribution Plans: Why African Americans Need To Invest More In Stocks To Generate The Savings They Need For A Comfortable Retirement, 14 Rutgers J.L. & Pub. Pol’y 169 (2017).

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