An Inexpensive And Easy Solution To Improving America’s Financial Health

An inexpensive and easy way to improve a country's financial healthKnowledge brings about wealth and power. If this wasn’t the case, you wouldn’t have families spending $20,000+ a year for their children to attend kindergarten through the 12th grade. If knowledge wasn’t so important, there wouldn’t be any private tutoring or a test prep industry. If education was no big thing, there wouldn’t be a tremendous amount of pressure for kids to go to the best universities that cost even more.

The very fact that people spend so much time and money learning is the main reason why I love to write about personal finance. Achieving financial freedom while doing something purposeful along the way is often the end game for those who focus on education. Yet, not everybody has the money, time, or connections to get the best education possible. Therefore, to be able to democratize access to knowledge is quite fulfilling.

If you learn nothing else from Financial Samurai about the stock market, real estate investing, asset allocation, early retirement, entrepreneurship, tax minimization, behavioral economics, or debt management, at least come away motivated to improve your finances based on the target income and net worth charts I’ve created.

Given Financial Samurai gets roughly 1 million organic pageviews a month, I’m able to test new hypotheses that may help different types of people in various situations. The latest problem I want to tackle is figuring out an inexpensive, easy way to fix the financial crisis in America. I’m thinking simple policy changes that will strengthen our country for generations to come.

Hypothesis: Those who read more about personal finance topics tend to earn more, be wealthier, and lead happier lives than those who do not.

To test this hypothesis we will first compare overall American income and wealth numbers by race with the income and wealth numbers of American personal finance readers.

We will then see if the racial makeup of American personal finance readers reflects the racial makeup of the overall population. Finally, we’ll then assess whether an overrepresentation by one race correlates with higher income and wealth and vice versa.

Key Assumptions:

* More education is better than less eduction.

* More reading is better than less reading.

* Access to the internet is available, low cost or free.

* Intelligence across races/ethnicities is more or less equal if you control for environment

* The larger the sample set, the more significant the data.

The Racial Makeup Of America

Racial Makeup Of America

Median Household Wealth And Income By Race

Let’s look at the Urban Institute’s calculation for average family liquid retirement savings by race. There’s a massive difference between White, African American, and Hispanic retirement savings.

For those wondering why Urban Institute refuses to include research on Asian Americans, I’ve asked why and they’ve said they don’t have enough data. Same response from Pew Research. When I dug further, they said Asian American income and retirement savings is equal or greater than Whites, so they don’t want to talk about it. Hmm, makes  you wonder what their agenda is.

Average retirement savings by race

Now let’s take a look at the racial makeup of America based on 2010 census data.
Now let’s look at the income by race data provided by the Census Bureau. Asian median household income leads the way at roughly 30% higher than White median household income. African American and Hispanic incomes are lower, which correlates with the retirement savings by race chart by the Urban Institute. A 100% difference between the highest income ($78,000) and the lowest income ($38,000) is significant.

Income by race in America

Racial Makeup Of Personal Finance Readers

If we believe financial education leads to more income and wealth, then we can hypothesize there should be an underrepresentation of Black and Hispanic personal finance readers, an overrepresentation of Asian personal finance readers, and a steady to slight underrepresentation of White personal finance readers, depending how much over/underrepresentation there is.

Based on my survey of roughly 3,000 votes, there is roughly a 30% overrepresentation of Asian readers (35% FS readers vs. 5% of US population), a 5.3% underrepresentation of African American readers (7% FS readers vs. 12.3% of US population), a 11.3% underrepresentation of Hispanic readers (5% FS readers vs. 16.3% of US population), and a 15.7% underepresentation of White readers (48% FS readers vs. 63.7% of US population).

Racial Makeup of Personal Finance Readers

Click to fill out the survey at the bottom

How can we explain the 15.7% underrepresentation of White readers? Because the total must equal 100%, we can do so by observing the underrepresentation and overrepresentation of the other races. Further, the data from the Census Bureau is lagging by several years.

A 30% overrepresentation of Asian readers on Financial Samurai is startling.  Perhaps some of this can be explained by my site’s name and the fact that I’m Taiwanese/Polynesian American. Everybody tends to gravitate towards people most similar to themselves. Just look around at all your friends, everybody in senior management at your firm, the people Presidents choose as their cabinet members and so forth. Homogeneity reigns supreme because we’re all biased for those who look and talk like us.

But since 70%+ of Financial Samurai’s traffic is from search engines like Google with traffic coming from all over the country and the world, and only 5 out of 1,397 of my article’s have titles with “Asia,” “Asian,” or “Chinese,” one can assume a smaller percentage of the 30% overrepresentation is due to the site’s name and my race. If my site had less than 10,000 pageviews a month, my site’s name and my background will have a bigger impact. But my site generates over 100X that and is therefore, statistically significant.

Feel free to peruse my most popular articles and see for yourself. The most popular articles relate to retirement savings, investing, and earning more money. These topics are relevant to all races.

As Black and Hispanic Financial Samurai personal finance readers appear underrepresented and correspond with Census Bureau-provided lower income and wealth figures, and as Asian readers appear overrepresented and correspond with higher income and wealth figures, it seems clear there’s a correlation between higher income/wealth and reading personal finance articles.

Savings survey of personal finance readers

Savings survey of personal finance readers with a median age of 34-39 are much higher than the median American household savings of ~$17,000 – $50,000 depending on survey

The Solution To Improving The Financial Health Of Our Country

Read more personal finance sites. It’s that simple.

Anybody who started reading Financial Samurai since its 2009 beginning has probably crushed the average American in terms of wealth creation because we’ve been talking about investing in the stock market, bond market, and real estate market all this time.

Even as the stock market marched to new record highs, you could read articles talking about investment ideas at the top of the market to let you make even more money. You would have likely also started building your passive income portfolio to give yourself more options versus others who just rely on a day job income.

If you bought property in SF, NYC, Denver, Vancouver, Toronto or most big cities in 2012 with a 20% downpayment, your equity is up over 300%. Meanwhile, the S&P 500 is up over 70% during the same time period. You could have also learned to save a lot on mortgage interest expense by not taking out a 30-year fixed mortgage as we enjoy a permanently low interest rate environment.

The same cannot be said for everyone who disagreed with my 1/10th rule for car buying. You can literally read hundreds of comments from people who missed out on investing in this massive bull run because they had to drive a $50,000 truck that equaled 100% of their annual gross income.

Yes, we can hypothesize that those who are already financially savvy care more about financial information than those who aren’t. But we should also conclude that over time, those who read personal finance websites tend to get richer than those who do not. How can this not be the case with all the motivation and knowledge gained?

To teachers and school administrators: Choose a handful of personal finance sites or main stream financial sites for your students to follow. Hopefully the sites you choose tell stories that make personal finance more interesting and applicable to real life.

To government officials: Make it mandatory for every student to attend and pass a basic personal finance course before they graduate from high school or college. You can’t count on parents to teach all the fundamentals of personal finance when they haven’t been taught themselves. There is no downside to empowering our youth to learn about the pitfalls of credit card debt, how to write a check, and the importance of compound interest. Why should learning chemistry be more important than learning how to be responsible financially? Finance is a part of our everyday lives.

To personal finance writers: Don’t compromise on quality. Money is too important to be left up to pontification. Find an expert in his/her field to guest post if you don’t know the ins and outs. Be open and honest about your wins and losses. Tell stories that are applicable to real life situations.

To those who want to help others: Spread the word about your favorite sites, especially to those who you think need the most help. There are personal finance sites written by every single race, age, and gender if you feel more comfortable reading articles by someone who looks and talks more like you. There are over 100 reasonably high quality sites that will entertain, educate, and motivate you to improve your finances. Here’s a directory of over 1,000 personal finance sites that are free to consume.

Educational attainment by race

Correlation between education and income/wealth

Education Will Improve Financial Health

You don’t have to be rich to get a great education because access to information is now free. I wish I was reading personal finance sites back in 2007. If I did, I wouldn’t have over-leveraged myself into a vacation property that ended up losing half its value a couple years later. I wish I read even more about entrepreneurship. If I did, I would have started this site years earlier and left the salt mines of Corporate America sooner.

Soak up as much information as you can and share your favorite articles with as many people as possible. Personal finance sites aren’t going to eradicate poverty. But imagine if every single person in the country read a personal finance article at least once a week. I’m absolutely positive we’ll see a tremendous improvement in our finances over the next generation. Once you have your finances sorted out, you can focus your attention on more important things such as family, health, and happiness. And when your finances are really good, you can even spend your time and money helping other people!

To sign up to receive FS posts in your e-mail every time they are published, click here. Frequency is 2-4X a week. To sign up for my private newsletter that has more nuanced information, click here. Frequency is every 1-2 weeks.

For those who have the joy of going back to school, share this no-brainer idea. I’d love to hear what your school administrators or teachers think. My mind is hardwired to come up with solutions. And this one is a no-brainer.

Readers, why do you think the government and schools don’t do more to highlight free personal finance sites to help our country get financially healthier? A good personal financial site makes financial education more entertaining and applicable to real life situations. If you don’t believe in my hypothesis and solution, please share why. 

The post An Inexpensive And Easy Solution To Improving America’s Financial Health appeared first on Financial Samurai.

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