Tag Archives: african american wealth

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.


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.



Poor African Americans 500 Percent Less Likely To Reach Top Than Their Poor Counterparts

To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships. – W.E.B. DuBois

Over almost the past 60 years, a period post World War II until now, African America has followed an almost unbridled strategy of fighting for access to institutions owned and controlled socially, economically, and politically by others. This while other communities like Asian, Latino, and Jewish Americas continue to build their own institutions. Everything from schools, business hubs, neighborhoods, and think tanks to name just a few. Except for the likes of Malcolm X and even Martin Luther King, Jr. before he was assassinated, the strategy of gaining access to other communities’ institutions as a definition of success, acceptance, and “equality” has gone largely unabated. There is plenty of data that could be examined to make a quantitative analysis of whether since World War II we have improved our social, economic, and political positions to assess whether we should continue down this proverbial path. Instead, we rely on qualitative analysis (if you can call it that) of how an event makes us feel. In fact, one could go so far as to say we are more interested in superficial progress than structural progress. We celebrate the Ruby Bridges access to another community’s schools and starting of the domino effect that has been crumbling our institutions ever since, but have never truly celebrated the building of the schools she was being educated at before then that were built by us and for us.

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A report from the Brookings Institution paints a grim picture for the reality of upward mobility in America for African Americans in poverty. Above in the two pictures, Brookings Fellow Richard Reeves highlights the chances of someone from the bottom quintile of American society reaching the top quintile if they are African American or European American. As you can see above, the chances for an African American starting from the bottom and rising to the top is 3 percent while the chances they remain stuck in the bottom quintile is over 50 percent. In contrast, an European American born in the bottom has a 16 percent chance of rising to the top and less than one-fourth chance of remaining in the bottom quintile. This represents a more than 500 percent better chance that an European American in poverty can rise to the top of the economic ladder than their African American counterpart. Clearly, all poverty is not equal.

The household and institutional wealth gaps are not getting worse, they are spiraling out of control to a point of potentially reducing African America to a  permanent underclass. Largely, due to the fact that African American social, economic, and political capital is not diversified nor circulates. Unfortunately, we are often trapped into conversations about symbolic changes and not substantive ones that could increase the probability for African Americans self-dependency. Scholar Theodore R. Johnson describes African America, “is a fragile state embedded in the greatest superpower the world has ever known.”

What are we not doing and what other groups are doing never seems to be a question we are willing to ask ourselves. Our efforts at best tend to revolve around gaining faux access and blaming others for not allowing us to drink from their cup. Or we give away what little we do control trying to show we are just as “American” as everyone else. HBCUs do this every time they give a “minority” scholarship to a non-African American on their campus when in actuality their African American students are the ones who need the scholarship as reflected in the median net worth of African America being dead last among all groups. Or when we stop celebrating our cultural events to not make others feel unwelcome or uncomfortable. However, anytime African Americans enter other groups environments we code switch or enter the double consciousness to survive because they are not going to lessen their cultural capital to make us feel comfortable. Again, what are they doing that we are not? They are investing in themselves and their institutions.

Why are the odds of making it out of poverty so drastic between two groups within the same economic quintile? Because one has access to a pipeline that is owned and was created for themselves and the other (African America) abandoned what it had built and now owns next to nothing. African America does not like the quality of its K-12 through college schools, but those with capital do not create funds to train and hire better teachers, build new libraries, improve technology, etc. African American unemployment is twice the national level, but we sit aside no money to create seed grants for budding entrepreneurs or deposit money in our own banks so that they can lend to African American owned businesses seeking to grow. This is why out of the 1.9 million African American owned businesses, only 100 000 have more than one employee. Yet, if you go to any Metro Bank, an Asian American owned bank, not only do you see their community faithfully walking in and out, but you will also see a plethora of Asian American owned businesses built up around it. Wherever they have their bank they set up a business development around it so when a customer takes money out of the bank they can walk right out of the door and into one of their community’s stores which in turns allows that store to pay back its loan so that its banks remain strong and other businesses can borrow and grow and employ those in their community. This is the lifting of all boats and why in short order Asians are on the heels of European Americans for highest median net worth and why Latino America has already surpassed African America in wealth. We are doing everything to invest in others and not ourselves.

We are poorer today than in 1915. Let that sink in a bit. In early 20th century, we owned 500 hospitals, 134 banks, 100 boarding schools, and more. Today, we have one hospital, 23 banks, and four boarding schools left. Our dependency on others has never been greater. Particularly, African America has become dependent on the government with 1 in 5 African American jobs in the public sector, the highest among all groups, naturally. If we want to reverse the trend, then we need only look at what our ancestors did 100 years ago coming out of slavery. Every other immigrant group has taken our blueprint and is rising to power. Unfortunately, until we quit trying to fight for “equality” and start fighting for power, then the probability of substantive and qualitative progress will have less odds than winning the lottery – twice.


2014′s 25 Highest Paid Hedge Fund Managers – No African Americans, Again

Wealth will set us fucking free, okay? ‘Cause wealth is empowering, wealth can uplift communities from poverty, okay? – Chris Rock

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On May 6th, Institutional Investors’ released its 13th annual ‘Rich List’ highlighting the top 25 earning hedge fund managers. The 2014 list saw a combined earnings of $21 billion, an increase of 50 percent from the prior year, but still comes in as only the fourth highest total in the list 13 years. This year’s list required a minimum earnings of $300 million also a 50 percent increase over last year’s minimum, had an average earnings of $846 million per manager, and saw four hedge fund managers clear the $1 billion earnings mark. The back to back champion is David Tepper, founder of Appaloosa Management, earned $3.5 billion in 2013. To put in perspective just how much he earned, Lee Hawkins reported in 2007 that all African American professional athletes in the NFL, NBA, and MLB combined earned $4 billion. A look at more recent numbers show that the top ten earning African American athletes earned $383.2 million, meanwhile the top ten hedge fund managers brought in $15.7 billion or the athletes earned $0.02 for every $1.00 the hedge fund managers earned.

A few of these hedge fund managers also left their mark in college philanthropy. Paul Tudor Jones and his wife donated $12 million to the University of Virginia according to Philanthropy.com to “create the Contemplative Sciences Center to explore the intersection between modern science and the classical medical and contemplative traditions of Tibet.” Leon Cooperman and his wife made a $25 million donation to Hunter College for their library renovations and to seed a scholarship fund. David Tepper donated $67 million to Carnegie Mellon’s business school in 2013 and Kenneth Griffin, ranked number five on the Rich List, donated $150 million to Harvard College for scholarships, the largest ever donation in the school’s history. These four donations alone in the past 12 months are equivalent to over 12 percent of all HBCU endowments combined. The $254 million between these four donations if they were their own HBCU endowment would rank tied for third among HBCU endowments and equal to almost half of Howard University’s total endowment. Yes, just these four donations.

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The key thing to remember about all of these hedge fund managers is they founded and own their company. Yes, it is finance and investments, but it is also understanding that entrepreneurship and risk taking is what gets rewarded in this economic system. Far too many of us are still thinking in terms of labor and not enough of us are thinking in terms of ownership regardless of the industry. We want to graduate and get a “good” job. Nor does the business if you decide to start one have to be some social business that changes the world. The president of Hampton University owns a bottling company. It is not sexy, but it does employ a great deal of people and allows him and his wife to be financially generous to Hampton time and time again.

Our intellectual capital continues to be poorly distributed as a community. It often seems the only thing that little African American boys and girls believe they can do is entertain others. We are either singing and dancing or chasing a ball of some sort. The lack of hedge fund managers (among a great many other professions) continues to highlight our perplexing relationship to finance. We like the perks of consumption which requires money, but adverse to the real building of wealth and the vehicles like hedge funds that can create paradigm shifts. It is clear we are playing the game, unfortunately we seem to currently be playing it to lose.

When Being a Couch Potato Pays Off

By Kendra Briscoe


While most people are doing their best to stay ahead of day-to-day expenses given today’s economic turmoil, an investment portfolio is more important to a sound financial future than ever.  If leaving your nine-to-five to play on Wall Street is not an option, maybe you should look into passive, or couch potato, investing.  Taking the couch potato approach may demand a large amount of money or time to set up the initial investment vehicle, but once it takes off, there should be very limited maintenance necessary.

Passive sources of income include rental property; dividend bearing stocks or mutual funds; savings accounts and CDs; and bonds.  These investments are designed to pay off in the long term and require the investor to believe the investment is strong enough to survive market flutuations.  It is also recommended that more than one avenue of passive investing is explored to ensure that if one stream of income collapses there are still other potentials for investment income.  For the average person, passive investing will not lead to great wealth.  It can, however, be a steady stream of income over an extended period of time, and a nice supplement to your working wages with very little daily work.

Highest Passive Earners: U.S. Cities (below)

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Let’s say you decide to purchase rental property.  In the beginning you will likely use some of your resources, shellings out a substantial amount of money to purchase the property and maybe fix it up.  After the property has been rented, however, you should have very little to do besides depositing rent checks (and the occasional home repair) to make a profit on your investment.

Adding the right stocks to your investment portfolio takes time consuming research, especially if your goal is to add these stocks as passive, long term investments that you “set and forget”.  Adequate knowledge of stocks you own will help you balance the risk/reward and better stomach temporary losses. If you are interested in getting into the stock market, I suggest starting with “Recommended Reading For African American Financial Starters”, which is featured on HBCU Money.

The 2008 Ariel/Schwab Black Investor Survey concludes that because wealth is a newer concept to African Americans they tend to tie their money up in lower risk investments, such as real estate and bonds, in an attempt to retain their riches.  This may explain why 20% more European Americans than African Americans invest in the stock market.   In essence, African Americans who invest the same amount as their European American counterparts can expect to see less return over time.  According to Mellody Hobson, president of Ariel Investments, “Investors should remember that the stock market has averaged about 10 percent per year over the long-term.”  Savings accounts, CDs, and bonds may guarantee a certain percentage of return, but these returns can be more than doubled by wisely investing in stocks.

Passive investing requires some type of significant contribution on your part, whether time or money.  Once the initial work is complete, though, you will be able to sit back and relax knowing that your money is working for you while you are working on other things.