Saturday, December 29, 2007

Dr Boyce on NPR - Black Family finances

As a finance professor, I see regular misconceptions in media about black people, black families and black wealth. America somehow has chosen to believe that the reason for wealth disparities in America is that African-Americans have simply chosen to be lazy and engage in the practice of bad money management. They also cite the fact that black families are not married as regularly and that this is a reason for poverty in the black community.

I could not disagree more.

The reason for the wealth disparity between blacks and whites is very simple: For 400 years (a very long time), America had a clear tradition of not allowing black people to pass wealth onto their children. As a result, all the big buildings in Manhattan, all the major media companies, and all the large corporations in America are owned, run and controlled by the white community. Period. Most wealth is inherited wealth and we were not allowed to inherit.

Black people choosing not to get married is no worse nor better than the fact that many families in America choose to get divorced. Honestly, I think divorce is far more devastating to the life of a child than not getting married. If one throws in the fact that non-custodial parents are obligated to pay child support, then the income gap, in a perfect world, should disappear. One can argue that two parents are better than one, but at the same time, 3 parents would be better than 2, and 4 parents would be better than 3. You could make this argument forever, and to use the one vs. two parent disparity as the fundamental basis to explain America's commitment to racial inequality is ridiculous.

Bottom line: Love is what matters, and if you look at the lives of Al Gore's son and kids in the suburbs who engage in just as much deviant behavior as kids in "the hood", you will see that a parent's decision to get married or not can be good for the child or bad, depending on the circumstances.

In other words: I get sick of people trying to say that black families are immoral or culturally inferior. Our culture is just fine thank you. Also, racial inequality and wealth gaps are due to one thing: historical discrimination. If you want to talk about creating a fair america, then you must first correct the huge imbalance created by racist ancestry. Trying to be fair from this point on (as Ward Connerly tries to argue) is like a lifelong crook stealing billions and then promising not to steal anymore. A fix must be applied to past wrongs before you can move forward in fairness.

I did this NPR interview on the topic not too long ago. It was done with Farai Chideya, a woman I had a huge crush on during my time in graduate school. Don't tell her I said that (haha!).

Friday, December 21, 2007

Getting screwed for the holidays - why my mother and I hate gift certificates

My mother, who is one of the wisest people I know, was talking to me the other day about gift certificates. We were having this discussion while debating what to get our needy-ass, yet loveable relatives for Christmas (only a couple of them are needy, most of them are loveable). Christmas is that overly commercialized holiday that seems to come every single year. I don't mind Christmas, but it seems that the word "Christ" has been removed in exchange for the last part "must". "I MUST have this", "we MUST do that", it's crazy!

At any rate, we were wondering if gift certificates were the best gift to give, since it avoids the awkward, yet inevitable reality that you are going to always end up giving something to someone that they just bought, don't want or don't need as much as something else. So, you have then graced your loved one with the burden of yet another trip to the pawn shop or the 50 mile long Walmart return line right after the holidays are over. They are also burdened with the guilt of having to pretend that they like your gift, even though they really don't. You know, those fake, awkward smiles that make your face hurt and stomach turn.

We both concluded in our scientific analysis (My Mama and Me Labs, Inc.) that gift certificates were better than regular gifts, since you can get what you want.

But I had to put the brakes on our ground breaking analysis....I then said, "Well, based on that logic, it would seem that money is the best gift certificate, since you can not only get whatever you want, but you can use it at any store."

That led us to wonder: "What exactly do companies give us in return for exchanging a hard earned $50 dollars that can be used ANYWHERE for their pathetic, multicolored little piece of paper that can is also worth $50, but can only be used in ONE PLACE?"


The companies typically give us nothing in exchange for the purchase of a gift certificate. It would be one thing if they allowed us to purchase a $30 gift certificate for $25. That would make our decision to limit the stretch of our money at least partially worth while. But when you give them $30 dollars that can be spent anywhere, they give you back the same $30 dollars that can only be spent at one place.

That's not all they do to screw us for the holidays.

Companies also get over on the fact that many of us never use the gift certicates anyway! According to Needham, Mass.-based consulting-firm TowerGroup, over $5 billion dollars in unused gift certificates allow corporations to fill the stockings of their stock holders. And believe me, they aren't giving that money to charity.

So, my mother and I both came to the grim conclusion that gift certificates, from a financial standpoint, are not very good gifts. Cash is the best gift certificate there is. It's the thought that counts, and my mother and I put quite a bit of thought into our decision. We hope our relatives appreciate it.

So this year, everyone we love is going to get a card with cash in it. That's the same gift that makes every third grader smile (Remember when that old relative you never talked to sent you that ugly card every year that always had cash in it? Don't pretend like that WAS NOT the first card you opened!). Perhaps the third graders are onto something, since this gift can make adults smile even more.

Monday, December 17, 2007

Study: The wealth gap widens between black and white families

According to the Associated Press, the income gap between black and white families has grown. A new study that tracked the incomes of 2300 families over the past 30 years has made the conclusion.

Some attribute the growth in the income gap to be due to the increase in the numbers of women in the workforce. This trend has increased family incomes for both blacks and whites, but it has had a greater impact on whites for two reasons: white women earn more and black families are not married as regularly.

"Overall, incomes are going up. But not all children are benefiting equally from the American dream," said Julia Isaacs, a fellow at the Brookings Institution, a Washington think tank.

Isaacs wrote a report that looked at incomes of parents in the last 1960s and 1970s, and then followed their grown children 30 years later. The reports found that about two-thirds of the children surveyed grew up to have higher family incomes than their parents had 30 years earlier.

The reports found that 2/3 of their children had higher incomes than their black parents. While both white and black children had higher incomes than their parents, white children benefited more than black ones.

"Too many Americans, whites and even some blacks, think that the playing field has indeed leveled," said Marc Morial, president and CEO of the National Urban League.

It has not, he added.

"We are like fingers on the hand," Morial said of black and white Americans. "We are on the same hand, but we are separate fingers."

Most interestingly, middle class black children were not as likely to have received wealth from their parents as middle class white children.

My interpretation: middle class is an income measure, not a wealth measure. Black families, even when the income is just as high as whites, tend to have lower wealth. That is due to the fact that most black families had no wealth to pass to their children. So, even a relatively well-to-do middle class black family is more likely to be saddled with debt.

Saturday, December 15, 2007

Keeping Debt in Perspective

I thought this story was a reminder of the psychological toll of debt. A man who was over $200,000 in debt killed his ex-wife and their two children. Friends of the man claim that he was not capable of such violence, or didn't appear to be. The event ended with the man killing himself.

He was a school teacher and PhD candidate. On his Myspace page, he described his children as "two amazing little human beings".

Obviously, the man had some mental problems to work through. Additionally, I am sure that the stress of debt is part of what pulled those mental problems to the surface.

But my advice to you is to keep your debt and financial challenges in perspective. Not that anyone would do something as terrible as what this man did, but the stress of debt can be very real for all of us. I recommend that you understand one important principle of money management: Your most valuable assets are not financial. Your love, life, health and family mean a great deal more. So, it was this man's focus on his financial assets that led him to destroy his most precious assets. That's very sad to me.

Click Here to read the story.

Thursday, December 13, 2007

Financial Tip of the Week - Wisdom from a EuroHater

When I did a summer research visit with the Center for European Economic Research, one of my German colleagues came to me and asked: "What's wrong with Americans?" Taken aback by his statement, I said "Everything and nothing.....but you sound like a Euro-hater." Of course he didn't know what a "hater" was, but I do believe that some people around the world are jealous of American prosperity. At the same time, there is something to be said about the fact that we learn our financial habits by watching episodes of Vh-1 and "Lifestyles of the Blingingly Geto-fab" (Ok, that's not a real show, but you get the point). In other words, we stink when it comes to managing money, like a whole country full of MC Hammers.

The reason for my colleague's question came a peculiar fact that we unearthed during our research: Americans earn far more than Germans do, we pay far less in taxes than Germans do, but Germans SAVE FIVE TIMES MORE MONEY than Americans do. That led me to a moment of intense pause and reflection - like when Florida Evans suddenly realized that James was dead. I could no longer refer to my friend as a Eurohater....for his comments were right on point.

When I came back to the US, I listened with a more sensitive ear to my friends who swore that it was IMPOSSIBLE for them to save....they don't earn enough, their bills were too high, they will start saving when they get older, blah blah blah. All of these explanations are the reason for the pending retirement crisis in America (baby boomers are relatively broke, so get the spare bedroom ready), and the mortgage crisis (people defaulting on loans after buying a home big enough for King Tut and P Diddy).

Let's start with the basics for our financial tip of the week....ANYONE CAN SAVE. It's all about your personality and preferences. Essence Magazine, Black Enterprise and some other outlets reached out to me for financial secrets. I think they wanted some magical formula that only finance professors know about how to accumulate wealth. The first thing I told them was this: Saving and managing money is 95% psychological - make your mind right to get your money tight. The second thing I did was quote my grandmother, a woman who never went to college and never earned more than $20,000 a year, yet always remained financially independent, and has perfect credit to this day. She told me that "If you have the mind of a spender, you will always be broke. If you have the mind of a saver, you will always have money. When spenders get more income, they spend more. When savers get more income, they save more. A higher income only makes you a bigger version of what you already are inside." After sending thousands of students to Wall Street, learning tons of ridiculous theories and having far more education than any human being would ever want, I ended up going full circle and realizing that my grandmother's wisdom is one of my most cherished commodities.

So, here are my quick tips for those who want to start saving. Like Pookie in New Jack City - it's never too late to turn over a new leaf:

1) The actor Will Smith told me that when he gave his family his spare time, after spending all his time building his career, he always found that there was no time left. That was why he was divorced. He then realized that his family was a priority and that he should structure family time as a key part of his schedule. He is now happily married. Lesson: to be happily married to your finances, don't just save money that is leftover....there won't be any. Make savings the first bill you pay.

2) Find a way, today, to have 10% of your income automatically deducted from your paycheck and put into a special account. If your boss were to give you a 10% paycut, you would find a way to survive, so you can find a way to survive with 10% of your cash going into savings. Your financial security is the most important expense you have.

3) Try to put the money someplace where it is not convenient to get it. These are what they call "illiquid assets", or things that are tough to convert to cash. It's sort of like wanting to save a glass of water and freezing it into a block of ice. You can still get to the water if you're really thirsty, but it will be a pain in the butt to do so (why do you think they call money "liquidity"?). So, the water is there when you need it, but you can't just open the fridge and take a swig. Convenience and easy access are key enablers of compulsive activity (translation: if the temptation is right there in front of you, then you're really gonna wanna do it......That's how babies are born out of wedlock).

Monday, December 10, 2007

In Search of the Perfect Computer

This holiday season I've been in search for the perfect computer. While my full-time job provides me with a laptop, I also have a side hustle that is blossoming and needs a computer of its own. I know the cheapest and best prices are at this time of the year. If you can't find a computer during the holidays, you just aren't looking!

My search started on Thanksgiving morning and I anxiously flipped through the pages of all of the advertisements. Because my computer will travel with me daily, I really wanted to find a smaller screen that was less than 15 inches. The majority of the computers on sale were 15.4 inches. So this was my first dilemma. Do I go with the larger screen in order to save money or be patient and hope the smaller screens will also go on sale? I didn't have much time to think about it because Black Friday was right around the corner. I found a computer on sale Thanksgiving evening at CompUSA. It was a quality computer at a price I couldn't beat. So I got my game plan together and was ready to purchase it. As I drove up to the store, I saw a very lengthy line wrapping around the building. Although all of those people were probably not in line to get a laptop, there was a very good chance that by the time I made it all the way through, there wouldn't be any left.

At this point I had not only to think about the price of the computer, but also the value of my time. Was the money I would be saving equivalent to the hours upon hours I would be standing in the cold? Time is money and money is time. When I weighed my options, I came to the conclusion that although it was a good deal, it really wasn't worth my time. So I left.

Friday morning I'm up at the crack of dawn waiting for Apple's website to post their Black Friday prices. Apple computers rarely go on sale. I really wanted a MacBook, but struggled with whether I was willing to pay the extreme price. Apple said the sale would be posted at midnight Pacific Standard Time (PST). I assumed that's two hours behind Eastern Standard Time so I click on at 2:00am. Oops, I was wrong, PST is three hours behind so I have to wait another hour. Once I get through, I am highly disappointed to see the sale prices are same ones I receive as an educator. Just more wasted effort. By now I realize folks are starting to line up at the Best Buy and Circuit City stores. I flip through their advertisements one last time. I remind myself that I want a quality computer and not just a mediocre one that will only last a short time. I decide to sleep in.

It is now December 10 and I still have not purchased a laptop. Although I continue to look online at various prices and flip through newspaper advertisements, I haven't found a deal that's a steal. So, I've come to the conclusion that I'm not going to be a scrooge any longer and I'm going to purchase the Apple computer. It honestly is the one I want. Although I may not be saving the $100-400 off a random laptop, I know I'll be getting a quality product that has all of the features I desire. This holiday season, I learned that although a bargain is great, sometimes you have to spend a little more for peace of mind and quality that will last!

Thursday, December 6, 2007

Avoiding Paris-Hiltonitis When Managing Your Money

There’s nothing wrong with a little shine in your life, especially since you have worked hard to get that degree. But shining too hard can have you rolling on 24s to bankruptcy court. Whether you earn 10 dollars per year or 10 Million, you are a financial slave if you are not saving, investing and letting your money grow. As I like to say, “To ‘floss’ at 23 is human, but to floss till you’re 90 is divine”.

As a Finance Professor and your personal Financial Physician, let me give you a list of rules to live by, so that your grandkids will be riding high on the hog after you have cooked up the pork chops. A mind is a terrible thing to waste, and you are wasting your mind if you have not used it to build, invest and teach in your community:

Rule #1: The easiest way to stay poor is to never own anything. Renting an apartment will help your landlord get a house, not you. Buying cars helps the auto dealer get a new limo, not you. The candy apple paint on their new Mercedes is being peeled right off your black butt. Get on the other side of that deal! Buy a house as quick as you can, buy stocks, buy bonds, own ASSETS. Don’t believe the hype about having a high paycheck; It means nothing if you don’t own anything.

Rule #2: The quickest path to getting pimped is to always work for someone else. Don’t just try to find a job, put yourself in position to CREATE a job. Start your own business as soon as you can. Remember: when you are working for someone else, they are usually earning 10 dollars for every dollar they pay you. Now THAT’S pimpin. Get with the GRAND hustle, not the BLAND hustle by using the PLANNED hustle to start your own business.

Rule #3: Save at least 10% of your money every time you get paid, NO EXCUSES. You should pay yourself first by having the money come right out of your check. A person who saves $200 per week starting at the age of 22 and invests that money in the stock market for a 10% return every year will have roughly $43,000 by the time they are 32, $434,000 by the time they are 52, and $1.6 million when they are 65. That’s enough money to help Flava Flav get a new girlfriend.

Rule #4: Create multiple streams of income. Your salary should only be one. I don’t care if you sell comic books, Avon or rotten fish. Remember the words of the rapper TI: “If the grapes don’t sell, I dry em up and sell raisins.” Side hustles provide job security, in case your boss hands you the pink slip. If you are smart, you can hand the pink slip to your boss.

Rule #5: Love is creepy sometimes, so watch who you hook up with. Merging your money with someone is like having sex with them: it can be an amazing experience, or it can leave you burned and bitter. Whether it is marriage or starting a business together, only merge your money with someone who cares about your best interest. In other words, don’t waste your life with losers.

Read my lips and follow these tips, and your future will have so much shine that Stevie Wonder will need to put on his sunglasses. Now that’s pimpin.

Tuesday, December 4, 2007

Black Enterprise Report - How to start an investment club

I did this interview when I was at the Frasernet Conference in Atlanta. George Fraser, a networking guru, is a respected friend of mine. I will never forget that weekend, for that was also when I had a chance to meet some of my other friends for the first time: Cornel West, Michael Eric Dyson, Julianne Malveaux, Al Sharpton and a few others. Since that time, I've had chances to interact with them many times. Julianne and Michael were my greatest inspirations in the 1990s, for they were the ones who taught me what it means to be a black scholar. The problem at this point is that I am still not sure if my university truly understands or appreciates what black scholarship is all about.


Sunday, December 2, 2007

Three Very Bad Reasons for Not Saving Money

I was talking to my uncle, who is not exactly Donald Trump. He earns a pay rate that is not indistinguishable from minimum wage, lives in an apartment that requires rent by the week, and spends a little too much time in the bottle. I love him anyway, even if I can only take so much of him. But during those moments when we do have a chance to talk about his future, we sometimes discuss his financial planning, or lack thereof.

My uncle tends to give really good excuses for not saving money, and sometimes even a lie or two. They are loveable lies, not the kind that would make you stop talking to him. What is most interesting, however, is that my uncle sounds a lot like many other Americans I’ve spoken with when it comes to finding creative reasons for not saving money. “Broke-as-a-joke-itis” is a disease that is plaguing America (the richest country in the world) and causing nearly all of us to think that we are too broke to save. Most of us aren’t saving anything, for we are learning our investment philosophies from Paris Hilton and Vh-1.

I will only break it down for you with one quick fact: During my Research Scholar Visit with The Center for European Economic Research, I found that Germans pay more in taxes than Americans, earn far less than Americans, but save five times more than Americans. So, when it comes to saving, we really suck. Here are some of my uncle’s excuses for not saving. They might not be much different from your own:

“I don’t make enough money to save”

This is probably the silliest excuse for not saving, but one of the most popular. What if your income suddenly dropped 20%? You would find a way to survive, or you’d find a way to make more money. Either way, you would not die. So, all of us have enough money to save if that is what we really want to do. I recommend an immediate financial amputation: cutting your disposable income right now and putting the residual in your savings account. I promise you won’t die, starve, or go insane. What is also funny is that for most of us, if we were earning 20% more than we earn right now, we would still say that we don’t have enough money to save. That’s like increasing the level of the water in a pool every time you grow a couple of inches. You will always be struggling to swim.

“I save whatever’s leftover”

Some of us pay all of our bills, spend like we want to, and then save almost by accident. I have 3 words for those who try to save whatever is leftover after all their spending is done: wrong, wrong, wrong. The fact is that if you wait until you are done paying for everything else before you start saving, you will always run out of money right before the saving begins. Saving should not be something you do with your extra money, it should be something you do with your priority funds. The extra money is what you use for spending on items that are not necessary for your survival. Going through life without savings is like having no health or auto insurance, so saving is one of the most essential tasks in your life.

“I save through my home ownership or retirement plan”

Home ownership and retirement plans are important, but they are not what we call “liquid assets”. Think of it like this: if you are on the street dying of thirst, would you rather have a glass of cold water or a big block of ice? What if it’s cold outside and you can’t melt the ice to drink from it? You might die of thirst right in front of a big block of frozen liquid. That’s what its like to have a highly illiquid asset as your primary source of saving: you can’t get it on short notice when you need it.

If you were to take a drink from the block of ice in the middle of winter, you might have to pay someone with a blow torch to unfreeze it for you. That’s no different from someone paying interest on a home equity loan in order to get cash for emergencies. Whenever you translate wealth from one form into another, you are always going to pay.

When it comes to saving, Nike said it best: Just do it damnit. Ok, they didn’t say the last part, but you get the point. The fact is that if you are always looking for excuses not to save, they will always be available to you. But when you are truly committed, your whole life will change. Take that step today.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with your partner in ways that feel good”. He is a regular guest in national media, including CNN, FOX, BET and USA Today. For more information, please visit