Magazine article The Futurist

Financial Literacy: A Tool for Economic Progress; More Access to Financial Information and Instruments Will Help Less-Well-Off Households and Businesses to Flourish, According to the Federal Reserve Chairman

Magazine article The Futurist

Financial Literacy: A Tool for Economic Progress; More Access to Financial Information and Instruments Will Help Less-Well-Off Households and Businesses to Flourish, According to the Federal Reserve Chairman

Article excerpt

In our economy, the three principal means for household asset accumulation are through home ownership, small business ownership, and savings. As important as these are for the individual, they also represent distinct and important benefits to the broader economy and, therefore, play prominent roles in the operation of our financial markets and the priorities of our public policy

BUILDING ASSETS THROUGH HOME OWNERSHIP

The choice to buy a home is a decision to plant a family's roots in a community with all the implicit incentives to make that community thrive. Where home ownership flourishes, it is no surprise to find increased neighborhood stability, more civic-minded residents, better school systems, and reduced crime rates.

Just as important is the effect of home ownership on a household's ability to accumulate assets. For most households, home ownership represents a significant financial milestone and is an important vehicle for ongoing savings. The Federal Reserve's 1998 triennial Survey of Consumer Finances indicates that home ownership represented 44% of gross assets for families earning $50,000 or less annually. Further, investment in residential property has been generally more stable than other types of investment, and it is perceived to be largely permanent.

With these important benefits, an increased rate of home ownership has been chosen by our society as a national priority, with many publicand private-sector resources devoted to achieving this goal. Indeed, measurable progress has been made toward this end, with the overall rate of home ownership reaching 68%, a new high, in the third quarter of last year. In assessing the opportunity for home ownership in under-served markets, the Census Bureau reports significant gains. The home-ownership rate for blacks and Hispanics, between 1997 and 2001, grew at more than double the pace for the general population. Additionally, the homeownership rate among households earning less than the median income increased more than three times the pace for households with incomes above the median.

INVESTING IN SMALL BUSINESS

Small business accounts for about half of private gross domestic product in our economy. It is an important vehicle for significant numbers of minority families to accumulate assets.

Recently released data from the Census Bureau, for example, indicate that, between 1992 and 1997, the number of minority-owned businesses grew more than four times as fast as the number of U.S. firms overall, increasing from 2.1 million to about 2.8 million. In addition, the Census Bureau estimates that during this five-year period the number of women-owned businesses increased 16%, to 5.4 million enterprises.

These data suggest that the increases in small business ownership and equity investment by traditionally under-served populations result, in part, from increased access to appropriate financing to fund the startup and growth of businesses. It is essential that the opportunity to start an enterprise is open to anyone with a viable business concept. We must continue to seek ways to promote the creation and expansion of viable firms by lowering barriers to funding and financial services.

To the extent that market participants discriminate--consciously or, more insidiously, unconsciously--capital does not flow to its most profitable uses, and the distribution of output is distorted. In the end, costs are higher, less real output is produced, and national wealth accumulation is slowed. By removing the noneconomic distortions that arise as a result of discrimination, we can generate higher returns to human capital and other productive resources. Investors and lenders need to understand that failure to recognize the profitable opportunities represented by minority enterprises not only harms these firms, it harms the lending institutions as well. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.