There is a broad, concerning reality when it comes to financial planning for minorities. Over the last ten years, studies have found that Black, Hispanic, and Indigenous communities tend to experience lower rates of financial literacy.
In terms of reasons for this occurrence, there are quite a few, from a lack of awareness that certain financial planning is even needed, to accessibility limitations to planning resources and more. Now more than ever, it’s critical that we start closing the financial planning gap. If we don’t take the necessary steps to fix this, minority community members will not only lose money during their own lifetimes but their children will be impacted after their deaths as well.
Bridging this financial literacy gap begins with spreading awareness and accessibility to financial planning tools and resources, therefore we’ve curated a list of financial planning tips to empower minority communities.
Manage and eliminate debt as much as possible.
While most Americans are burdened with debt, especially high-interest credit card debt, there is an imbalance when it comes to Black and Hispanic Americans. As a group, the credit scores of Black Americans are well below the national average, while Hispanic Americans scarcely match the average.
One of the best ways to improve credit scores is by eliminating as much debt as possible. Commit any extra money each month to paying down your debt. Many financial experts recommend using the debt snowball or the debt avalanche strategies. The debt snowball strategy advises that you work from the smallest debt to the largest, while the debt avalanche recommends working from the debt with the highest interest rate to the one with the lowest. Both methods provide a clear, reliable plan to eliminate your debt.
Down the road, debt becomes a major pain point in the estate planning and settlement processes. If debt remains unpaid upon death, then it becomes the executor’s responsibility to pay it.
Plan for taxes.
While you should always talk to a financial advisor about your specific tax plan, there are things everyone should know — especially since certain minorities are more likely to pay higher tax rates.
To start, tax planning should be considered all year long, rather than just when April comes along. One way to do that is by figuring out how to reduce your taxable income; one of the most common methods is by making contributions to an HSA or retirement account such as a 401K or a traditional IRA.
Keep in mind that your beneficiaries could lose a significant amount of money due to unpaid taxes after your death. Legal structures like trusts can allow your beneficiaries to bypass probate and take possession of your assets immediately upon your death, potentially reducing tax obligations. Consult a skilled financial planner to learn the best options available in your area.
Establish a will.
While a will is not 100% of the work to prepare for the transfer of wealth, it’s the best first step. Caring.com’s recent survey showed that two-thirds of Americans still do not have wills. Even worse, minorities are about 10 to 15% less likely to have wills than their white counterparts.
The biggest reasons that people don’t have a will are usually a lack of urgency or the belief that they don’t have enough assets to warrant a will.
The truth is that if you own any costly assets – such as a house or even expensive memorabilia – you need a will. The will should encompass all of your assets and provide clear instructions for your final arrangements. List all of your property, including real estate, bank accounts, businesses, and even digital accounts. If you have dependents, name guardians for them. As you go through this process, it’s important to consult with an experienced financial advisor.
Certain minority groups also might have more cultural or religious beliefs to consider that differ from what the law mandates. The law might dictate that a spouse or dependent is entitled to certain claims against the estate, while you might have other ideas due to a belief system. Take these into consideration when creating your will.
Choose an executor and create an estate plan.
Create a full estate plan, including the appointment of an executor, to settle your estate, funeral arrangements, and the organization of your assets.
When choosing an executor, many place the responsibility on their children, but that can be different for certain minority communities. For example, only about 15% of LGBTQ couples in the United States have children, so they often choose their spouse or partner.
Your executor should be someone whom you trust implicitly. Make a point of having a conversation with them and give them enough time to consider the commitment.
In some countries, estate planning is not required – or even thought about – because of local customs. But if the decedent owns property in North America, it can be a harsh awakening when intestacy laws (laws that apply to an estate without a will) apply and distribute the inheritance completely against one’s wishes. An experienced estate planner should be consulted in all countries where property is held. While it might be time-consuming and even costly, it is in the best interest of the estate planner as well as the beneficiaries.
Financial security is achievable for everyone, no matter your skin color, sexual orientation, or anything else. Following these tips can help us even the playing field and secure everyone’s wealth in life and in death.