Financial health is far less common than it should be. Longstanding structural inequities have made it even more elusive for women and people of color. Creating an equitable future requires upending private practices and public policies that create, sustain, or intensify inequitable barriers to financial health.
To get there, we need the same interconnected ingredients to help all individuals gain financial health, regardless of income:
- Equitable, antiracist financial systems
- Access to safe, affordable financial products and tools that support saving, spending, borrowing, and investing
- Culturally relevant financial capability programs that match tools to goals
AFN has resources and insights to help grantmakers invest in the best approaches for supporting financial health.
Through background information, case stories, and key investment considerations, AFN’s Investing in Financial Coaching with a Racial Equity Lens helps focus on financial coaching with a racial equity lens as an important strategy for helping people of color achieve equitable outcomes.
The Debt Series
AFN’s series of 3 briefs focused on the effects of debt on asset building — Majoring in Debt: Why Student Loan Debt is Growing the Racial Wealth Gap and How Philanthropy Can Help, Set up to Fail: Fines, Fees & Financial Insecurity and Medical Debt and its Impacts on Health and Wealth: What Can Philanthropy Do to Help?
Why It’s Important
AFN members see promise in nurturing the development of a reimagined, more equitable financial system along with tools that foster financial health in women and Black, Indigenous, Latinx, and Asian communities by providing:
Increased opportunities to access affordable loans and credit
Increased savings to absorb economic shocks
Approaches to make debt more manageable
Access to capital and technical assistance for women and entrepreneurs of color
Opportunities to build confidence in managing finances
Amplified future orientation and wealth-building goals
Grantmakers are concerned about racial, ethnic, and gender wealth gaps and their impact on financial health. Even when accounting for factors typically associated with better financial outcomes (e.g., increased income levels, reduced spending), Black, Indigenous, and Latinx people lag behind in wealth and financial health. Despite efforts to provide equal opportunity, the wealth gap continues to grow.
The systemic reasons for these persistent gaps are many: bias in the tax incentive system, barriers to accessing capital or affordable credit, less intergenerational wealth transfer, higher debt burdens, disproportionate fines and fees, bias in property assessments, and discrimination in housing and employment. These practices layer on a legacy of legally sanctioned structural racism that denied economic mobility to Black, Indigenous, Latinx, and Asian communities. Financial health interventions that fail to take this context into account will struggle to address clients’ specific challenges.
Philanthropy is nurturing the nonprofit sector’s efforts to foster financial health in diverse communities. Innovators use an equity lens to identify responsive solutions. For example, social lending circles formalize traditional peer lending circles to help financially excluded communities meet short-term credit needs and build credit. In the process, these borrowers become active participants in the financial mainstream. With financial coaching, lending-circle participants increase credit scores, pay down debt, and achieve financial goals.
Growing numbers of funders are investing in addressing inequitable structures and systems. The Annie E. Casey Foundation launched the Southern Partnership to Reduce Debt (SPRD), a multiyear, multistate effort to close the racial-ethnic wealth gap and bring financial security to households of color. SPRD focuses on pernicious debt: public-sector fines and fees, medical debt, student loan debt, and high-cost loans (e.g., payday loans). The partnership elevates research on disparities and supports state and local policies to protect families from bad debt, expand access to debt reduction products, and eliminate wealth-stripping practices.
Investing in financial health is crucial at both the micro and macro levels. Financially empowering people in inclusive ways will further racial and gender equity. Investing in breaking down infrastructure and systems barriers will help support financial health in families, communities, and the economy.
Financial security is consistently out-of-reach for too many people in America. 40 percent of Americans do not have enough savings to cover a $400 emergency. People need access to responsible and appropriate financial products, resources and services to achieve financial security, then resiliency, and ultimately prosperity.
Sarah Keh | Prudential Financial