Expert helps blacks on road to fiscal fitness
Published: Sunday, August 1, 2004 at 6:01 a.m.
Last Modified: Saturday, July 31, 2004 at 11:27 p.m.
George B. Thompson is preaching the gospel of fiscal fitness.
Standing in front of about three dozen men and women of color in the Los Angeles Urban League's headquarters, he declares that credit cards are like crack cocaine.
``It's an illusion. They make you think you can do things that you can't do. They're bad for you, but they give you a temporary high,'' he says. "You know it's wrong . . . but you do it anyway."
Thompson, who is black, says African-Americans, as a group, are lagging behind the population at large when it comes to managing their money. The Los Angeles financial adviser, who is also a Christian minister, tells those seeking his counsel that they must break addictions to debt, stop spending more than they make and start planning for retirement.
"Twenty years from now, things are going to be twice as expensive as they are today,'' he said. "What are you going to do? Go into a grocery store and say, `Hey, I'm underprivileged. Could you lower the price of bread?' That's not going to happen. You need a plan."
Thompson is on the front lines of an effort to economically empower African-Americans. The 35-year-old financial adviser is working under a just-launched partnership of the Urban League and Citigroup Inc.'s Citibank, a New York-based financial institution that gave $900,000 to the effort.
During the next three years, this partnership plans to produce seminars in six cities, including Los Angeles, Chicago and New York, with the goal of educating hundreds of black professionals about better ways to handle their money.
Money doesn't come with instructions,'' said Lisa Barrett, Citibank's regional director. ``We believe we share the same passion. We are going to spend time with young people, telling them how to manage their money so they can be empowered and in control of their financial lives.''
Statistics show that many African-Americans need help managing their finances and taking advantage of investment opportunities, said John Mack, president of the Los Angeles Urban League.
The National Urban League's latest annual ``State of Black America'' report showed that only 33 percent of black families have savings accounts and fewer than half own homes. That puts
African-Americans at a significant disadvantage to the overall population, in which most families have savings accounts and homeownership is enjoyed by nearly 69 percent.
Affluent African-Americans are also less likely to invest, compared with others in their income peer group, said Carla A. Foster, vice president of Charles Schwab Corp. in San Francisco. In an annual survey of individuals earning $50,000 or more, Schwab found that stock ownership among whites consistently hovers around 80 percent, while only about 68 percent of affluent African-Americans own stocks.
``We have the legal right to buy a home, but if you don't have the wherewithal, that's a hollow right,'' Mack said. ``We want to make sure that not only are the doors open but that people in this community are prepared to walk through those doors.''
Thompson cites credit scores as one of the primary factors that can derail plans to buy a home or start an investment program. These scores reflect the borrower's payment history.
He said he knew of African-American borrowers who had let charge accounts fall into collection over relatively paltry amounts of $50 or $100.
That's tragic, he said, because once a consumer's credit rating is marred by being put on collection status, the consequences are severe. Landlords require bigger deposits or reject applicants outright. Banks charge inflated interest rates for loans. Insurers boost premium costs, and employment prospects can be dimmed.
Thompson's solution is simple: Get rid of debt. Those who attend his classes create plans to pay off their debts, even mortgages.
One tactic he suggests is making the minimum monthly payments on all but one loan, such as the highest-cost credit card. Add $100 to the minimum payment on that card until it's paid off.
When that credit card is paid off, apply the minimum monthly payment that went to it, plus the extra $100, toward paying off the next card, until it's down to zero, too. And so on, until all debts are wiped away.
Getting rid of these interest payments leaves the consumer richer and able to use cash to invest in things, such as rental properties, savings accounts and mutual funds, Thompson said.
Sound impossible? Thompson believes almost anyone can set aside more money to pay bills and invest. Cutting out daily indulgences, like $5 for coffee and a muffin at Starbucks and $8 to $10 for a restaurant lunch, can really add up.
"Let's say they spend $9 a day, seven days a week. That's $270 a month," he said.
If this individual invested that money instead, he would have $1 million in 35 years, Thompson noted. (That assumes this investor earns 10 percent on his money, which is about the average annual return on big company stocks, according to Ibbotson Associates, a market research firm in Chicago.)
``A lot of the investment clubs that I have are brown-bag clubs,'' he said, speaking of the small investment groups that he addresses. ``They bring their lunch and then we invest the savings.''
Simple things, Thompson stressed, can make just about anyone richer.
Anyone can attend the free Urban League-Citibank money seminars, he added. But sign up early. It's first come, first served. Consumers can get more information about the seminars through local Urban League offices. Other Citibank-sponsored programs can be found at www.financial education.citigroup.com.
Los Angeles Times staff writer Kathy M. Kristof welcomes comments and suggestions but cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, Calif. 90012, or e-mail kathy.kristof@ latimes.com.
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