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Financial wake-up call: from advice on homeownership to unemployment, our economists offer strategies on how to secure your financial future. (B.E. Board Of Economists Report).

When Lori Porcher, 40, was laid off from her job as an account supervisor for an advertising firm just seven months after landing the position, it was a sharp financial blow to the Syracuse University graduate. But when her younger sister, Lisa, 36, was also handed a pink slip less than a month later, the two--who live together in an upscale apartment complex in the Washington, D.C., suburb of Alexandria, Virginia--were left scrambling for ways to make ends meet.

To survive the financial crunch, they pooled their resources, using money from unemployment insurance checks, savings accounts, and 401(k) retirement plans to pay the bills. They trimmed the fat from their budget by eliminating many creature comforts, such as extra cable channels and telephone features, and started eating at home rather than at their favorite restaurants. Both say that the layoffs haven't been easy, but having each other has made a big difference.

"We identify with each other's struggle and support [each other] emotionally," Lisa says.

The Porcher sisters are two of the 8.4 million people out of work as of March 2003, contributing to an unemployment rate of 5.8%, with 10.2% for African Americans, according to the Bureau of Labor Statistics. About one in five unemployed individuals had been without a job for 27 weeks or longer. And while the sisters are still jobless, they are working hard to find new positions. Given a U.S. economy that's going into its fourth year of a downswing, and hundreds of thousands of displaced workers eyeing the classified sections, the Porchers won't be alone in their search.

Since Sept. 11, people like the Porcher sisters have been traveling through a tunnel of financial despair. Along for the ride have been hordes of investors, carefully watching for the light at the end of that tunnel. But with a sluggish economy stubbornly refusing to show any signs of turning around, and a war in Iraq adding a new element of uncertainty to the stock and job markets, it's clear that it may be some time before that light has a chance to shine. In the meantime, investors have had to rework their financial game plans or risk stalling altogether.

Discussing solutions to these current financial problems, especially their impact on African Americans, brought the BLACK ENTERPRISE Board of Economists together in March at the New York offices of Earl G. Graves Publishing Co. Inc. Earl "Butch" Graves Jr., E.G.G. Publishing president and chief operating officer, led the discussion. The board participants included: Dr. Thomas D. Boston of the Ivan Allen College, School of Economics, Georgia Institute of Technology in Atlanta; National Urban League Research and Public Policy Director William Spriggs; Darrell L. Williams of Los Angeles-based Economic Analysis L.L.C.; Jessica Gordon Nembhard of the University of Maryland; Bernard E. Anderson of Philadelphia's Wharton School of Business at the University of Pennsylvania; and Gerald D. Jaynes, professor of economics at Yale University.

Ironically, at a time when many households have been hit hard by a poor economy, our economists agreed that purchasing a home is the best way, at this time, to chart a course toward wealth creation. They give tips on how to overcome the real and psychological impediments to home ownership, as well as reflect on how the war will affect African American households and businesses.


Though the Porcher sisters are remaining positive about their job hunt, African Americans have good reason to be concerned. William Spriggs says that during the technology boom, and before Sept. 11, college graduates over the age of 25--black and white--saw an unemployment rate of 2.7%. While the jobless rate for college-educated whites has remained stable, the rate for their African American counterparts has been steadily increasing. Last year, it was at 3.7%; now it's 4.7%. Spriggs says we have to be concerned that the figure doesn't reach 5%. Anderson agrees that in the past year the gap in the unemployment rate has grown across the board and manifested itself in a historic 2:1 ratio of unemployed blacks vs. whites.

Spriggs blames some of the nation's economic problems on the Bush administration. "When President George [W.] Bush took over, two years ago, we were projecting a surplus of $5.6 trillion. Now we're talking about a deficit of $2.1 trillion. When Bush took over, there were 2.5 million more people working than there are today. You don't lose $7 trillion just because of a hiccup in the economy. This is the effect of having a poorly conceived economic policy. We can't just be victims and think of economic policy as a spectator sport. We have to be more politically involved."

Boston agrees that everyone should be proactive. While you are employed, diversify revenue sources, form alliances, and prepare for down times. This is something that Lisa Porcher plans to do.

"After I get my next job, I'm going to save at least six months of living expenses as an emergency financial plan," she says.

Gordon Nembhard says taking steps to become a player in your local business and political sectors is the best way to have some impact on your community. She suggests starting your own business or forming partnerships with other local businesses. Lisa and Lori plan to work together on an entrepreneurial venture, but for now they are busy networking to make contacts for potential jobs.

Jaynes adds that this period of low interest rates is a good time to refinance your home to get a lower fixed mortgage rate and to pay off debts. Home refinancing can be used to develop a safety net by establishing a line of credit. This should only be used to live on for a few months if you lose your job. In addition, he recommends saving a little more each month, cutting back on expenses, lowering your debt burden by reducing the impact of high finance charges on consumer debts, and keeping your car a year longer. He also recommends investing in yourself so that you will become more employable. In other words, take a course and upgrade your skills.


One of the bright spots in this economy remains the historically low interest rates--something too few African Americans are taking advantage of. But David Cleveland is not one of them.

Cleveland, 25, achieved his dream of homeownership while overcoming several obstacles, some of them psychological. Working as a communications officer and dispatcher for the security police at St. John's Hospital in Detroit, Cleveland was able to parlay an annual salary of $23,000, and help from mortgage assistance programs, to buy a house. Prior to becoming a homeowner, Cleveland, the sole breadwinner in his family, rented a two-bedroom apartment for $700 a month. But instead of looking for a larger rental to accommodate his wife, Ojhair, and their two daughters--Gabrielle, 4, and Destiny, 2--Cleveland decided to invest in a home.

"I didn't know I could buy a home at my age," he says.

But when his older brother, Derrell, a computer repair technician, bought a house in 2001, it motivated Cleveland to try. He found a real estate agent, applied for a bank loan, and was quickly pre-approved, given his good credit standing. Cleveland also found that he was eligible for two $2,500 grants from Bank One and Shore Bank Mortgage. His out-of-pocket down payment and closing costs amounted to a mere $1,300.

On March 29, 2002, Cleveland and his family moved into their $85,000 three-bedroom brick bungalow. Now, Cleveland makes a monthly mortgage payment that's just $80 more than what he paid in rent.

"I feel good every time I pay my mortgage because I know I'm investing my money," he says.

Cleveland says he now has the confidence to look ahead to real estate investment. "I'm not going to stop here, I'm going to keep this home as an investment and eventually move up to something bigger." Currently, homeownership among African Americans is 47%, while for Caucasians it stands at 74%. These figures, which include African Americans in upper-income brackets, show a disturbing disparity because for most Americans, their home is the primary determinant of their net worth.

In order to take the first step to owning a home, many African Americans, like Cleveland, must overcome the psychological obstacles to homeownership. "For many of our people, especially the middle-class, there is a historical memory of discrimination, risk, and stories passed down of people being cheated in a house sale," says Gordon Nembhard.

But there are also real barriers that blacks face when buying a home, such as accumulating a down payment while inundated with debt.

"Blacks come out of college or graduate school with large loans, and that has [negative] implications for credit and when they [can] begin saving for a down payment," says Anderson. On the other hand, Caucasian home buyers can come up with the cash through parents, in-laws, or trust funds.

However, changes over the last two decades--such as greater access to private subsidies, grant programs, and FHA and VA loans--have made these barriers a bit easier to hurdle. Those changes, coupled with the Community Reinvestment Act, which has reduced redlining in lending, have given African Americans increased opportunities to realize the American dream of homeownership.

Williams and Boston offer this advice when house hunting: Get yourself into position to buy a house by managing your finances and learning how to build your credit profile, which may mean correcting credit reports. Once you are psychologically ready to take the first step, find a good real estate agent. Shop around for good mortgage rates keeping in mind that it may be wise to get a 15- vs. 25-year mortgage. Boston also cautions against being too quick to sell your parents' home if it's located in the inner city because you want to be ahead of the gentrification curve. Anderson projects that low interest rates will hang around for at least the next six months, so this is still a very good time to buy.


The BE economists agree that the greatest impact of Operation Iraqi Freedom is likely to be on the price of oil.

"My concern about the war revolves around the increased estrangement of the United States from its European trading partners, coupled with increased terrorist activity in the West. This can contribute to foreign disinvestment in our economy," Spriggs says.

Jaynes asserts that although a lot of money will be spent on the war, "much of this will be 'export spending' and focused on rebuilding Iraq. Only a few big construction firms with the ability to bid on a $900 million construction contract will benefit there."

Even though some board members, like Anderson, don't think that the war will have a major impact on the job market for African Americans--because African Americans are concentrated in less cyclical service industries like transportation, communications, and financial and health services--Navy wife Tomasita Jasey will tell you that it has made a significant impact on her family's finances, as well as her heart.

When her 30-year-old husband, Aviation Boatswains Mate Kevin Jasey, shipped out aboard the USS Tarawa from the San Diego Naval Base in January, he left his 29-year-old wife and three children--Eldaliz, 4, Keyon, 1, and Kianna, 2. As a result, Tomasita was forced to take over the family's finances and other household responsibilities that would otherwise be shared.

Kevin's Navy salary of $1,650 a month is the family's only income. Tomasita has to stretch his paycheck to take care of the basics--food, clothing, and shelter. This has been especially difficult for her because the Navy made an administrative error and stopped Kevin's direct deposit pay from December 2002 to February 2003, when the error was corrected. Tomasita has had to rely on MOMS (the Military Outreach Ministries) to help keep her two youngest children in diapers.

She hopes that after graduating from a nine-month training course as a medical assistant, she will be able to contribute to the family's income. But in order to be certified, she has to complete an unpaid internship, which would mean paying childcare of $150 a week while she studies. On top of the financial burden, there's the fear and loneliness while she waits for Kevin's return. But even though they are thousands of miles apart, they keep in contact through the Internet.

Clearly, these are difficult economic times and the light at the end of the tunnel appears to be getting farther and farther away. But the BE economists don't recommend slowing down. In fact, they suggest keeping a steady pace that will allow workers and investors an opportunity to position themselves for improvement, both economically and politically. Of course, this may require going a step further than just casting a vote. A letter to your congressman or state legislator, or even a visit to their offices, may be in order.

Looking ahead to 2004, the BE economists say that presidential candidates should be required to reveal their plans to revitalize the economy and create jobs. They should also be asked what financial policies they plan to pursue to build wealth in African American communities, and how they intend to reduce racial inequality at all levels.
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Author:Ruffin, David C.
Publication:Black Enterprise
Geographic Code:1USA
Date:Jun 1, 2003
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