Over the next two decades, experts estimate a $68 trillion wealth transfer from baby boomers to younger generations. As the industry anticipates how heirs will use their inherited wealth, it enlivens a deeper conversation about racial disparities in wealth between White families and Black and Hispanic families.
76 percent of millionaires in the United States are white, while 8 percent are black and 7 percent are Latino — indicating a significant gap in the distribution of wealth and opportunities for wealth accumulation.
So for historically marginalized communities, the first question is not “What do I do with my newfound wealth?” but “How do I collect it?”
The financial services industry has invested to help individuals better understand how to access capital and how to use it to grow, manage and transition wealth. By introducing this financial literacy lens to youth in underserved communities, real progress can be made in leveling the economic playing field and closing the pervasive racial wealth gap. Tapping the capital markets and investing for the long term are key differentiators between those who accumulate wealth and those who don’t.
Educating Americans on how to participate in the capital markets, build wealth and ensure their financial security requires an early start in life and meeting them where they are, literally. Young people spend an average of six to eight hours a day in school, making it an excellent place to start financial education. Yet only 17 states guarantee at least one semester of a personal finance course for high school students. How can we go further and empower these students to learn, apply, and practice their financial skills?
A curriculum-based investment simulation is a proven resource used by schools and nonprofits to educate young people about capital markets in a language they understand. For example, the SIFMA Foundation’s stock market game has been used by teachers to reach more than 20 million young people and has been shown to improve students’ standardized test scores in math, economics and personal finance. Through a new, digitized investment experience, SMG InvestQuest, even more people will have access to the same lessons about the importance of diversification and long-term investing from the comfort of their own home. From an early age, children are more likely to develop the budgeting and financial planning habits needed to be successful over the long term.
However, education is only part of the solution to a much larger problem surrounding the opportunity gap facing underserved youth. Reducing barriers to participation in the capital markets makes a world of difference, as we’ve seen with the advent of no-minimum accounts, no-fee and no-fee investments, fractional shares, and 401K auto-enrollment programs in the financial sector. These affect capital market participation. Financial services companies are also well positioned to provide young people with a pipeline of workforce to explore careers in finance. Whether through internships, job shadowing, guest speaking, or partnerships with schools and nonprofit groups, there’s no shortage of opportunities for industry professionals to support and mentor students who otherwise would not have access to financial professionals.
By creating opportunities for young people from all backgrounds to learn more about careers in finance, industry professionals are building a more skilled, diverse workforce. The industry as a whole is benefiting from a more financially confident and empowered generation able to make informed financial decisions – leading to home ownership, maintaining creditworthiness, higher creditworthiness, lower debt and sound investment allocations to help people secure a comfortable retirement.
So when we think about the largest transfer of wealth in US history, let’s take a close look at how wealth can be transferred more efficiently for future generations. How can we connect with the underserved and historically underrepresented communities who are denied access? If we are to close the wealth gap then we need to ensure it is accessible to all and that includes financial education early in life to seek, understand and activate positive financial opportunities such as investing. To the extent that we do it in the industry—and do it well—this new generation will not only build and transfer wealth successfully and more efficiently, but we can all play an active role in closing the racial wealth gap in the United States .
Melanie Mortimer is President of the SIFMA Foundation, which focuses on youth investing and financial education.
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