Category Archives: Personal Finance

Building Wealth In College: 6 Personal Financial Tips Before You Blow Your HBCU Refund


By William A. Foster, IV

“There are two types of (people) in this world; there are those with guns and the ones with butter. The guns; that’s the real estate, the stocks and bonds, artwork that appreciates with value. The “butta”; cars, clothes, jewelry that don’t mean shit after you buy it.” – Melvin (Baby Boy)

When I arrived at my HBCU many years ago, two decades ago now, it was true before, it was true then, and it is true now – you know on an HBCU campus when refund checks have been disbursed. New wardrobes show up and fashion shows commence across campus, “new” used cars show up with rims and sound systems, and in some cases trips to Jamaica for spring break are coordinated. A full range of African American consumerism is in full bloom. The problem of course is that majority of these refunds are part of a financial aid package that largely includes student loans. This means students are being handed thousands of dollars (with no financial aptitude) that will in their future life turn into tens of thousands of dollars of student loan debt to pay back. But Jamaica will be fun, right? Or in the words of the classic philosopher Riley Freeman (of the Boondocks) after blowing the food money their granddad left them “Now before you start hating, ask yourself – be honest, ain’t I clean though?”

The ripple effect is acute to put it kindly. HBCUs, although significantly cheaper, often find their students graduating with more student loan debt than their counterparts. A result of poor endowments, lack of family resources, and again, poor financial aptitude. Student loan debt, even more so than credit cards, maybe the easiest debt for a college student to obtain. It is also the cheapest unsecured debt that most of us will ever see or have access too in our lifetime – and there is the rub. There is good debt and bad debt. As simple as it can be put, good debt helps you acquire assets that generate income. Bad debt does not. Again, good debt, if used properly helps you acquire assets that can in turn pay off the debt and once paid off continue to pay you passive income. The best example of this I ever witnessed was a classmate of mine who had a part-time job while in school was using his refunds as down payments on rental properties buying one or two a year. By the time we graduated he owned 5-6 rental properties that were all cash flowing. Those rental properties will pay for the mortgages AND his student loans. Eventually leaving him with rental income and appreciation from the properties. Meaning when he takes that trip to Jamaica he could really afford it.

A few things to think about before we get into our tips. Upon graduation, do you expect for someone to give you $10,000 or more dollars? Upon graduation, how will you come up with the deposit for your first apartment? Upon graduation, will you have an emergency fund or savings of any sort? For most HBCU students, there is a resounding no to probably all of those questions, which is why refunds should be treated as close to an “inheritance” as most of us will ever see. If we are smart about it, this will give us the foundation to build transformative wealth.

The TIPS

TIP 1: Learn to say NO. Say no to yourself, to your friends, and for a lot of HBCU students – your family. The last part being the hardest for some. It is a poorly kept secret on a lot of HBCU campuses that a lot of students send portions of their refund checks  home to help their families. Unfortunately, their families are not likely to be helping them pay their student loans after graduation. Without learning to say no you are likely to succumb to your own consumer desires, friends or classmates peer pressure, and families dependency. Just like when flying, put your mask on first. In other words, make sure you establish your financial foundation before overextending yourself to help others. Financial security and stability should be a paramount concern. If you are unsure what that means, always ask yourself this question as you build wealth – if something happened and you could never work again – how long would you be financially okay?

TIP 2: Call a financial advisor and open a brokerage account. There is a misconception that that financial advisers are for the wealthy. This is simply not true. They are for whoever is willing to use them and the earlier you acquire one the more likely you are to make a long-term plan for wealth creation. Remember, you building wealth is in their best interest. If you need help finding a financial advisor, do your homework. There are vultures out there like in any occupation, but there are quality people in the profession as well. This is one time where Google is indeed your friend. A great place to also go – your HBCU’s business school. Just to understand what this has the potential for in the short-term. Imagine your refund is $2,000 a year and we will use the prior five year returns of the S&P 500. The returns on the $2,000 invested each August over the past five years would be worth $14,020 today. Which means the student would have increased their assets by 40 percent with a student loan interest rate that has been under 5 percent for over a decade. There are however downside risk and that should be explained to you by the financial advisor. If they do not explain this, fire them immediately and find a new one.

TIP 3: The financial advisor can help you with this one as well, but it is a specific type of account. Opening a Roth IRA. It is another type of brokerage account, but the difference is you will not have access to the money until you reach the ripe retirement age of 65. The beauty of this account though is you will never pay taxes on the money earned in it. Retirement is often something that African American are ghastly unprepared for financially. If you contributed $2,000 a year to the account during your five years in college and graduated at 22 you would have $10,000 in your account. If invested in the market, which has a historical annual return of 12 percent, and you simply contributed $50 a month going forward for the next 43 years that would give you at the age of 65 over $2 million tax-free.

TIP 4:  Open a CD ladder at your bank or credit union. Every year when you get your refund, go to your bank (preferably a Black Owned Bank) and open a certificate of deposit (CD). Your freshmen year get a four year CD, sophomore year get a three year CD, junior year a two year CD, and so on. Assuming you are getting a minimum of $2,000 in refunds per year and it takes you like many students these days five years to graduate, when you walk across the stage you will have $10,000 to start off in the world with. This will not have the same impact as the previous tip, but is more for those who are a bit more risk averse. While you may not increase your assets by 40 percent, there is also no chance of you losing any of the $10,000 either. If you are not familiar with CD ladders, call your bank, visit the library, Google, and of course as always – your HBCU’s business school.

TIP 5: Start a business. When I was in undergraduate, I wanted to open up a jazz club, but learned very quickly and harshly that nobody wants to lend to just a good idea. Banks, the SBA, and others expected you to have some skin in the captain also known as a down payment of capital. It is also unlikely that you will be able to call home and have family fund your amazing idea. Often times, your refund can serve as the seed capital for your business. Remember, Michael Dell founded Dell Computers in his dorm room. You do not need to be a business major to start a business. You need an idea. It certainly is prudent to visit your HBCU’s business school and ask for guidance on things like setting up the proper paperwork. While there, you may have recruit an accounting student as your CFO and a marketing major as your CMO. Some HBCUs actually house the region’s Small Business Center that is funded by the SBA and they have a lot of free resources at your disposal to help you get on your way.

TIP 6: Create a real estate partnership. Believe it or not, there is still a lot of valuable real estate that is available to be purchased in and around HBCUs. It also protects HBCU communities from gentrification that we have and are seeing around HBCUs like Howard, Texas Southern, Prairie View, and others. If you can find three other like-minded class mates who are all willing to contribute their refunds that would be $8,000 a year and $40,000 by the time of graduation which would give the group buying power of $200,000 worth of real estate. Be it a single-family, duplex, or other kind of rental property. Your refunds could be the start of a real estate empire that in turn would pay off all of you and your classmates student loans and build wealth over the years. Definitely do your homework on this one. Take a real estate class from a reputable place, speak with a local real estate investor who maybe open to mentoring, and of course see what resources your HBCU business school has on the topic.

In the end, whatever you choose to do with your refund, make sure it counts. Remember, this is still debt – whether it becomes good debt or bad debt is ultimately up to you. Getting more financially educated whether you receive a little refund, a big refund, or no refund is vitally important for all HBCU students and their futures.

 

 

The Greatest Financial Literacy Video Ever (According To Our Editor)


“A wise person should have money in their head, but not in their heart.” – Jonathan Swift

By William A. Foster, IV

Anyone who knows me and has talked to me about money has been sent this video. As a financier who has been asked for personal finance help by family and friends along with once upon a time being a former adjunct professor whose primary job was to teach a prism of subjects for incoming freshmen at a local community college throughout the course, one of those being financial literacy, finding this video was like stumbling upon treasure.

Dan Griffin, CPA, in one hour could honestly change your financial life if you listen, take notes, and put into action everything he discusses. I have watched more financial literacy videos than I can count and this is hands down the best. It is not smoke and mirrors, nor him trying to sign you up for anything, or any of the quite frankly pompousness that I tend to come across with this new era of financial literacy experts that have cropped up as a niche industry. Are there credible people out there trying to teach financial literacy? Absolutely. Is it getting harder and harder to figure who is genuine and who is a pimp turned pastor turned financial advisor? Definitely. Dan Griffin’s video is the most basic financial “meal” imaginable, meat and potatoes. His voice throughout is never too high or low, but simply steady. Moving from one subject on the financial menu to the next and explaining them in depth while giving you additional information to look up on your own. Quite frankly, I have yet to see anyone come remotely close to this one hour.

If the wealth gap for African Americans is to be closed both individual and institutionally, then it starts with improving our basic financial literacy and that is what this video does. As a bonus, we have also added how you can legally get to a point where you are paying no federal taxes.

A Mother Of Three, Two Fathers, A Boyfriend, And 20 Dollars: The Harsh Reminder Of African America’s Financial Existence


Poverty is the worst form of violence. – Mahatma Gandhi

 

Warning: This story contains images with offensive language.

If you have not heard by now, there is a text conversation (pictured below) that went viral among #BlackTwitter concerning a (assumed African American) mother of three who asked her boyfriend for twenty dollars so her three kids who were not his could go on a field trip since their fathers supposedly did not have it to give her and she did not have it herself. Needless to say people were appalled from every angle. Many men could not believe she was asking her boyfriend to pay for kids that were not his and many women could not believe the boyfriend would not give his girlfriend the money since it was in many opinions – JUST twenty dollars. The two fathers were largely spared much critique aside, but according to the mother neither had it to give her, which is what made her turn to the boyfriend in a last resort. That four (assumed) African American adults could not come up with twenty dollars seems almost unbelievable, but there is a reality that this may have been exactly the case.

The addage that men lie, women lie, but numbers do not maybe quite fitting here. One in four of all Americans have no money in savings according to a recent study by Bankrate.com. Although the study does not break out race, it is often seen in every statistical category about wealth and income that whatever cold America has, African America tends to have pneumonia. It is fair to say that the likely percentage of African America with no savings is possibly well over 50 percent, but the numbers and story does not end there. A few other economic statistics to note:

  • African American poverty is almost three times the size of the national rate at 22 percent versus 9 percent, respectively.
  • African Americans are still the only racial group making less than they did in 2000.
  • African American median income is $39,490, while America’s median income is $59,039 and Asian America’s median income is $81,431.
  • Average savings account balance for African Americans is $1,000 versus white America’s $7,140 and Hispanics $1,500.

Now, put that last statistic against the average rent in the U.S. as of 2016, which is $1,050 and in essence African Americans exist in a perpetual negative financial existence. That none of those four individuals potentially had twenty dollars to spare is the harsh reality of most African Americans, a situation that becomes even more acute among low-income and working class African Americans whose education and job choices may leave them in a constant state of uncertainty financially. This is to say nothing of the impact that the children’s potential deficit of exposure and beneficial experience the field trip would have provided them, a serious issue worthy of its own exploration when it comes to the development aspect of African American children.

For many of us, the number could change to 50, 100, or 200 dollars and we would find ourselves in a similarly uncomfortable conversation. It also speaks to the lack of support system around this mother and her children from her own family who may also be facing financial angst. There are a lot of layers to this story that much we can be for certain. We can certainly explore the systemic issues and lack of financial aptitude that face our community and the like, but what we should not be is quick to judge any of the individuals in this situation without truly understanding the full breath of our community’s reality.

 

Personal Finance Tips From Warren Buffett


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The HBCU Money™ staff also adds some commentary to the subjects of Mr. Buffett’s quotes to provide more depth and better understand the points.

  • EARNINGS: There are three different types of income. Earned, passive, and investment income. Guess which is taxed the highest? The one you go to work for. Passive income (e.g. rental property, limited partnerships, intellectual property) if properly managed can be taxed at near zero income. Investment income (e.g. dividends from stock ownership) falls under 0, 15, or 20 percent based on taxable income. More importantly, these incomes are not based on you leaving the house or your boss liking you.
  • SPENDING: It is not how much you make, but what you do with what you make. There is nothing wrong with having nice things, however, in an era where people do things to project a social media lifestyle, keeping up with the Joneses, Smiths, and everyone else has become even more problematic. Use personal finance tools like Mint.com or others to help you track your spending and give yourself a grade on a month by month basis.
  • SAVINGS: Why is it so hard? Wages have been flat for a long time that is for sure, but we must play the hand we are dealt. The question is does pride get in the way of many people saving.  Most people’s biggest expense is housing, yet how many are willing to take on a roommate or two for a year or two to save? Saving must become a habit that can start small and snowball with time with discipline. Find a friend and compete with them if that helps, but find the thing that pushes your button to do it.
  • RISKS: Are you 50/50 about a coming raise and decide to buy that car you always wanted or put that foreign vacation on the credit card? Then you just failed at risk management. Risk is always about understanding the pros and cons of any financial decision and finding ways to mitigate that risk. You bought the car? Okay, so you Uber and add extra income until you get the raise. If you do not, then keep Ubering. Again, risk management is vital to one’s long-term financial planning.
  • INVESTMENT: When do you need a financial advisor? When you are rich you say? Think again. The moment you have a job you need a financial advisor and probably not just one. Checks and balances (risk management). Is your only investment account your retirement account? There are multiple financial investments to consider from owning stocks, owning a stake in a small business, to even owning land. All of these make up the ingredients that is your financial pie. How one distributes them is up to your own risk tolerance, but you have never eaten an apple pie using only apples. No one thing is going to make you wealthy or preserve it.
  • EXPECTATION: This is something that we must reflect on within ourselves and from those around us. We expect to be wealthy, but is our behavior matching it? Are we surrounding ourselves with likeminded people in our pursuits? We can not expect to be financially sound and surrounded by those who want to go to the mall every weekend. Are we patient with our investments? Or do we chase “get rich quickly” schemes because we have not educated ourselves properly to have the proper expectation of savings, budgeting, investing, and the TIME it takes to accomplish those goals.

Need in depth help on all of the above?

Watch this staff recommended Youtube video by Dan Griffin, CPA entitled “Saving & Investing Basics: A Guide for Young Adults” here.

Be sure to also read HBCU Money’s “Recommending Reading for African American Financial Starters” here.

Moms, Daughters, and Money: A Mother’s Story Of Teaching Her Daughter Personal Finance


“Money is the opposite of the weather. Nobody talks about it, but everybody does something about it.” – Rebecca Johnson

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Children never cease to amaze me in the way they analyze their world and my daughter is no different. So one day when she says to me, “Momma, how did Tee Tee get rich?” I was driving at the time and almost swerved into the other lane from laughing so hard at my daughter’s question. “Uhh, honey your Tee Tee is NOT rich, who told you she was?”

According to my colorful child with her rose tinted glasses, she understood that my sister was “rich” because she would buy her anything and everything she wanted no questions asked. My daughter continued to explain to me that she was the only person she knew who had two birthday parties a year (my sister also throws her a birthday party), and always gives her “pocket money”.

What my then six-year-old child did not understand, along with most adults was that she needed to save money in order to buy things she wanted and participate in the activities she deemed of value. From as far as I can remember, any money my daughter received went into a traditional piggy bank. I would catch her at times pulling out the money and counting just the bills. The highlight of her piggy bank “audits” would be when she came across a $10 or $20 bill. Trips to the bank to handle our monthly deposits were nothing more than a comedy show. My daughter wanted to talk with the manager to make sure no one would confuse her money from other people’s money.  She “knew” what her money looked like she would often tell the bank associates. They would offer her the Dum Dum lollipops in the candy bowl.  She would take them of course, but then asked if they would put an extra dollar in her account. They thought she was adorable and cute, but she was dead serious.

Trying to explain money and the importance of managing it properly would be a daunting task when it came to my daughter.  She takes everything literally, so I had to be mindful of what I said to her.  So I started my journey about teaching her about money with what I thought was the most important thing to do: Pay yourself first.

I first explained to her that she should save a minimum of 10 percent of any money she receives. We broke everything down in pennies to make it easier for her to grasp the concept or so I thought. I told her there are one hundred pennies in every dollar and that required her to save at least ten cents for every dollar.  Since her allowance is $5 a week, she is required to save $0.50 a week. According to her however, it would take much too long to buy anything with only saving $0.50 a week. Thankfully, she decided she should save more instead of pressing me for a higher allowance – for now. That is when the discussion of wants, needs and wishes came up.  Maslow’s hierarchy of needs: Physiological, Safety, Love/Belonging, Esteem, and Self –Actualization. My daughter’s hierarchy of needs:  Entertainment, Entertainment, Love/Junk Food, and then back to Entertainment.  

It was important to me as a mother to nurture my child to be well rounded.  I started off when she was very young about the importance of charity and her responsibility in her community by allowing her to join me in my various community activities: soup kitchens, neighborhood clean ups, etc.  She would be my “guest” speaker when I met with my high school mentees. I wanted to infuse in her social responsibility without being esoteric; also modeling how and where her money should be spent.  So how do you get a child of a 70’s baby to understand money: Play a round of Monopoly!

When I sat her down to play, I allowed her to be the banker.  I wanted her to understand that it’s a huge responsibility having to “pay” the players the correct amount of money and to stand “guard” of players who needed to borrow money from the bank. (I do not know about your household, but we gave small loans out to keep the game going at times).  Although she was excited about her responsibility as the banker, all she really wanted to do was roll the dice. It frustrated her to no end to have to stop and pay players $200 every time they passed GO, if they wanted to purchase a property, or any other transaction where the game had to pause to handle money transactions. She quickly said, “I don’t want to have to deal with money, I just want to save it and spend it only when I have to.”  Oh, out of the mouth of babies.

Fast-forwarding three years to the age of 9, my child has become a hoarder of money.  Unfortunately, I may have played an unintentional role in that.  My intentions were to teach my daughter the importance of saving money for the future. My daughter’s interpretation became I will save all of MY money while you spend yours.  She is so obsessed with how she can make money she has thought of schemes to outwit the tooth fairy and actually wants to resell her braces back to her orthodontist when her treatments are complete.

We continuously talk about money.  She is sensitive that our lifestyle has changed over the course of the last year. The largest impact of that change is not being able to visit her “Tee Tee” several times throughout the year.  The cost of an airline ticket for a minor to Michigan is not in my budget anymore, however, she could use some of her savings to visit.  When I asked her if seeing her aunt was a want, need, or wish, she looked me dead in the eye and said “I wish to see my Tee Tee, but I NEED my money”.  Oh, out of the mouth of babies.