S1: This is a word of podcast from Slate. I’m your host, Jason Johnson. It’s April. Spring has sprung, flowers are blooming, and procrastinators like myself who’ve been planning to get started any minute now on filing their taxes are running out of time. And for African-Americans, navigating a tax system that historically has a workforce can come with extra challenges.
S2: For a lot of middle class black folks, a lot of people who have more complicated affairs, who may itemize their tax deductions, etc., they absolutely should have professional.
S1: Help surviving the black tax and thriving financially. Coming up on a word with me. Jason Johnson Stay with us. Welcome to a word, a podcast about race and politics and everything else. I’m your host, Jason Johnson. It’s tax season, a time when many of us are sorting through shoeboxes of receipts, searching kitchen drawers for forms, and generally freaking out about money management. It’s also a good time to talk about America’s financial systems, how they’ve been structured to work for some people and to work against others. The Black Tax is a name for the complex web of discriminatory social and financial policies that can make life more expensive for African-Americans than for whites. Everything from redlining to banking bias to the tax code itself. Here to help us sort through it is Lynnette Khalfani-Cox. She’s a personal finance expert and author of several books, including Zero Debt The Ultimate Guide to Financial Freedom. She blogs at askthemoneycoach.com and Lynnette Khalfani-Cox joins us now. Welcome to work.
S2: Hi there, Jason. Thank you for having me. It’s my pleasure.
S1: So I’ll start with this. What institutions, policies and financial systems can you just look at right off the bat and say, oh, yeah, that’s an example of a black tax?
S2: Well, certainly, if you look at the banking world, there’s been a historical legacy of discrimination at so many levels. And this this isn’t just me talking about it. We have folks at the Federal Reserve who have said things like black women, for instance, are three times more likely to be overcharged when they’re trying to get a mortgage. And, you know, we had the whole subprime lending boom that happened a decade plus ago in this country. But even the remnants from that are still profoundly felt by a lot of African-Americans to this day. You have institutions that will, you know, decline African-Americans for a mortgage at 2 to 3 times the rate that white folks get turned down for for mortgages. So the banking industry is one very clear area that we’re seeing where we know that there’s not only the legacy of discrimination, but persistent to this day discrimination.
S1: So, for example, I’m thinking let’s say you’ve got a black woman in her twenties buying a car. Does that mean that they don’t give her as good a rate? Does that mean that the that the bank doesn’t give her as good a loan? Does it mean the car dealer decides to charge a little bit more? How would that manifest in something that simple?
S2: Well, it’s not as overt and straightforward as saying, oh, I see a black woman before me, and now here I’m going to charge her an extra rate. There’s a lot that’s happened behind the scenes before she’s even gotten to the point to make that application for, say, a car loan. So it’s the fact that she’s paid far less than her white male counterpart. So her income will be lower. And then when she is about to have her credit pulled in order to get that car loan, she may have a higher debt to income ratio and therefore a lower credit score because her income is lower. Her credit will also have a lower score because her credit lines on her say credit cards will have a lower cap on them. So whereas a white male might have a credit limit on his credit card of, say, $20,000 because she has a lower income, she might have a credit card with only a $5,000 credit limit. Right. In a nutshell, before she even gets to the application process, there’s been a whole host of things sort of in the background financially. And the white male is going to have a higher score and a higher chance of getting approved for that same loan.
S1: So we’re like two years into this pandemic, I’m one of the people who still believes a pandemic is happening. Hello. I still have going to restaurants. And, you know, look, that’s had a huge and disproportionate impact on African-Americans. What are the ways that you have seen that COVID 19 has impacted sort of black finances and in particular sort of how black folks in America are filing and submitting their taxes?
S2: Well, one of the big things in terms of COVID 19 and the financial impact on the black community, we’ve seen a massive decline, frankly, in the rate of black business ownership and whether it’s access to PPE loans that were doled out left and right to majority business owners and to, frankly, even bigger businesses that folks thought had no business whatsoever receiving these loans, which were meant to keep afloat small business owners, or whether it’s the fact that black businesses tend to. Disproportionately service retail based and thus less able to do social distancing and have mitigation measures and things of that nature. We’ve seen a decline and we’ve seen a lot of black businesses go out of business and go under. So with the rate of homeownership, because some people were laid off from their jobs and we know black folks tend to be among, you know, last hired, first fired kind of thing. Right. And so when people lose their income stream, obviously it impacts their ability to make the mortgage payments, pay the rent, you know, to take care of housing. We’ve seen in recent data an even further erosion in the black homeownership rate in America, which is it’s now, you know, again, depending on who statistics you believe, the Census Bureau and H.R., the National Association of Realtors. ET cetera. 40 to 43 ish percent versus white folks having a homeownership rate of about 70 to 73%. So that 30% gap in the homeownership rate, that translates into an incredible amount of wealth. That means black folks haven’t been able to access that wealth that has accumulated because of the big runup that we’ve seen recently in home prices. Even just not being able to maintain or keep your home or to buy or acquire property in this current environment means that as black folks, we’ve been getting left further behind financially.
S1: What’s the number one mistake that African-Americans make when filing their taxes every year?
S2: I’m not sure if there is. One thing is procrastination. Certainly, you know, sometimes I call it the ostrich syndrome. You kind of stick your head in the sand and you just wait. Even though we all know every year, you know, April is rolling around. So procrastination means that, you know, folks don’t have the time to amass all of their recordkeeping, to properly document things and to seek out those tax deductions and credits for which they might be eligible. Then it means that you perhaps might not get back as big a return, or again, you might not be able to claim everything, and you might owe Uncle Sam a little bit more than you should have otherwise. So that’s one thing. And I guess the other thing I would say, though, is avoidance when there’s a problem. So a lot of people in our community and frankly elsewhere, when there is a tax issue, we’re so scared of, quote unquote, the man. And in this case, like Woo, the man, Uncle Sam, we’re like, right. I don’t want to mess around. However, when there’s an issue, whether it’s, oh, my gosh, I’ve realized that I actually do owe or I had an obligation that was due. We tend to kind of avoid it or run away from the problem. So I’ve come across many, many, many people who have had years of unfulfilled tax returns. So it’s one thing to to owe and to be late. And you will get assessed a penalty for not paying on time, but then you get additional penalties if you simply don’t file. Right. It’s a mistake to just not file, even if you owe. Go ahead and file.
S1: We’re going to take a short break. When we come back, more on the so-called black tax and financial strategies for African-Americans. This is a word with Jason Johnson. Stay tuned. This is Jason Johnson, host of a Word Slate’s podcast about race and politics and everything else. I want to take a moment to welcome our new listeners. If you’ve discovered a word and liked what you hear, please subscribe, rate and review wherever you listen to a podcast and let us know what you think by writing us at a word at Slate.com. Thank you. You’re listening to a word with Jason Johnson today. We’re talking with money coach Lynnette Khalfani-Cox about the black tax and financial planning for African-Americans. Now, your sort of path to becoming a financial educator came from the fact that you ended up in a lot of debt. Everybody can have stories about how they get out of debt. But I’m curious, how did you get into debt?
S2: Right. So back in 2001, I had $100,000 in credit card debt alone. Wow. Yeah. Fortunately, I managed to pay it all off in three years. I never missed a single payment. And then I wrote a book about it, Zero Debt, as you mentioned, which became a New York Times bestseller. Mm hmm. The way that I got into debt was through classic overspending. And I now know that folks primarily get into debt for two different kind of sets of reasons. One is, they’re like me classic over spenders and poor money managers. They’ve never been taught how to appropriately manage money, how to manage credit wisely, how to navigate economic challenges. And then the other group of folks who are deep in debt are those who have suffered from what I call the dreaded D’s. They’ve had a downsizing, a divorce, a death in the family of perhaps the main breadwinner, disability or disease. And any time one of those, what I call dreaded D’s, happens to you, it can definitely throw your finances out of whack and force you into debt. In my case, I was spending more than I earned, which most black folks do. Right. And frankly, most Americans do. 75% of Americans owe somebody something. And I would worry about how I was going to pay for it later. And after a while, that kind of behavior caught up with me.
S1: One thing that throws black folk off in particular are deaths. Either one, somebody passes away and you’re the only brother or sister in the family who’s got enough money and you end up having to pay for all the funeral expenses. Or you find out the person hasn’t paid their taxes in years. What’s the financial advice? Because all too often in these moments of grief, folks don’t know how to handle the tax issues and anything else like that. And then you’re getting letters in the mail three months from now that says that Uncle Richard owed $400,000. And, you know, since you’ve now got the power of attorney, it’s on you.
S2: The first thing I should say to folks is that you have to do stuff now. The optimal time to handle your financial affairs is certainly before something happens to a loved one. Mm hmm. A lot of times we’re behind the gun where we are acting and reacting to a stressor to the fact that someone has passed away. And now we’re kind of passing the hat around just to bury the person. Right. Just to try to handle either tax issues or other financial matters. But first, we need to understand our rights. So one of the things I would tell people is that you don’t have to pay someone else’s tax bill. Sometimes people are say like, oh, my God, this person, my daddy, I credit card debt, or I was named the executor of the estate or an aunt or somebody owed X liability. You don’t inherit someone’s debt. Oh, only if you were a co-signer or if you had an obligation for the debt as well. So if you were also, you know, on a credit card or on a car loan or on a mortgage with them or something like that, then yes, you would assume and you would have personal liability for that. Or Yes, if you’re managing the estate affairs and there may be taxes due on the estate, if you inherit property, for instance, then yes, there may be taxes, do things of that nature. But just overall, it’s not like, oh, they owed money, so now they died. And I have to I have personal liability. It doesn’t work that way. So the first thing I would say is actually to get some outside help because it’s overwhelming emotionally. And most people don’t have, frankly, the financial acumen or expertise or experience to be able to handle some of these matters. There’s low cost pro-bono help that’s available through, say, the ABA, American Bar Association estate planning attorneys who might offer pro bono services, etc.. You want to also get the financial documents that you need in order. Right. It might not be somebody’s first instinct to go say, Oh, my God, let me get an estate planning attorney on the back end after someone’s passed away. But that person might be able to give you some insights to help you to know your rights if there’s anything at stake. Because come on now, Jason, let’s be real. Sometimes you throw $50 in the middle of a family and we’re fighting over $50 to start arguing. Over finances, especially if the person has died without a will.
S1: Right. Right.
S2: So the very first step, I would say is. Understand financially what is at issue. Did the person have a will? Did the person have any life insurance? Did the person have any credit cards? Outstanding. Any credit card debts? How, you know, what were their retirement assets, if any? Did they have a41k? Did they own any stocks or bonds? You need to start the record keeping and the asset information, that gathering process.
S1: We’re going to take a short break. When we come back, more with money coach Lynnette Khalfani-Cox about overcoming the black tax. This is a word we Jason Johnson. Stay tuned. You’re listening to a word with Jason Johnson today. We’re talking about the black tax and financial planning for African-Americans with money. Coach Lynnette Khalfani-Cox one of the things that’s been really popular have been these sort of shows about scam artists, right? You’ve got your tender swindler, you’ve got your inventing, and you have the stories of of, you know, Fyre Festival and everything else like that. Americans and black folk, like everybody else, are sort of obsessed with these interesting sort of scam stories. How does this happen when you’re giving financial advice? What are things that black folks in particular should look out for when it comes to scams? What are some specific scams? I’m not talking about the generic. I’m an African prince sending you an email. Right. That that maybe caught grandma 1997, but that’s not really working anymore. What are some honest to goodness scams out there now that tend to target black people financially that we need to be aware of?
S2: Jason You don’t even know.
S1: What I’m asking. I’m excited about it. This is I’m learning a lot.
S2: I actually wanted to write a book called Scams against Minorities. Wow. The level of financial scams that target African-Americans and other folks of color are enormous. Let me just start with a little a couple of insights here. One is affinity fraud is huge. Affinity fraud is when somebody that, you know, trust or that looks like you is scamming you. Folks who are African-Americans look like you talk like you maybe go to your church, church.
S1: Or temple or.
S2: Absolutely. And that gives them a little bit of access because it provides that that veneer of trust and that affiliation that you just think you let your guard down. It could happen from somebody in your sorority or fraternity. It could happen to somebody who happens to be a member again, your same faith based community. It could happen to somebody who went to your college, your HBCU. So I know that is hard to to digest and to think like hang people will just be legit out of your trust trying to run scams just like that. Yes, they really do. And they trade on that. So you need to be aware of that. I’m my husband’s from the Bronx, so he’ll tell you in a minute. He’s like, I’m from New York. I don’t trust nobody. Okay? I feel people come to us all the time. They approach us with deals with, you know, with things, Oh, you should invest in this. And he’s like, Nah, fam, no, you like, no, you know, so nine out of ten we’re going to be turning down, you know, so at a broader level. MM. Are we being scammed when we have a preponderance of payday lenders within our communities? How much of a scam is that on the African American population where you have the typical interest rate being, you know, 400% right. I won’t call it an illegal scam because obviously it’s.
S1: You know, legal. Yeah.
S2: A license to operate. But sometimes they don’t, you know, talk about the extent to which even credit based scams affect us. You know, let’s tell our listeners, you know, it ain’t cute to use your little nieces, your eight year old nieces. Right. Security number, because you want to have a Verizon cell phone or something, you know, or ruin your credit. Now, you want to go ahead and take over somebody else who has a clean credit history. And, you know, kind of who better than a a child or a teenager or some young adult who has not yet established credit. But the scams range from the folks that know you to the folks who don’t, who are preying upon typically your need or greed. So a lot of the scams play into the fact that you’re needy in that moment. So you said, Jason, that, okay, we ain’t falling for the Nigerian, you know, prince scam, but my God, you would be shocked at the number of people who actually do fall for that stuff. Still to this day, it’s it’s a little more artful. It’s a little more sophisticated than that. I’ve had family members recently who were this close to being scammed because somebody texted them, people created a fake profile, duplicating, you know, me or texted my family members, cousins. I had a cousin who and this was just in 2021. Okay. Yeah, a cousin who she just happened to call me and say, okay, I’m here at Mart now and I was going to go ahead and send you the gift card. And I was like, What are you talking.
S1: Oh my goodness.
S2: She was like, Why don’t you text me? You told me to get the gift card and to send it to you that you need. And I was like, Girl, now, you know? So. So there’s a lot of email and text based, you know, scams. And again, as African-Americans, we tend to overindex on social, you know, black Twitter, you know, but then somebody, you know, DMing, you somebody is using social media as an access point. So be mindful of what you’re putting out there on social media. I also happen to be a money expert for AARP.
S1: Hmm. Okay.
S2: One of the things that I know from dealing with folks who are 50 plus is that they are also targeted by a lot of scams.
S2: But I’ve also come to know that people most often are victimized by financial abuse and financial fraud by somebody that they know. Right. By somebody that they’ve trusted. It could be a caregiver. It could be a family member. It could be somebody that lives with them. So we need to also watch out for our parents, our grandparents, about the people in their circle and in their lives, especially because throughout the pandemic, people have had to use digital means a lot more to communicate. But it also makes it faster and easier for folks to be separated from their money.
S1: This is the thing that’s sort of been on my mind from the very beginning, especially because you’re a financial advisor. You know, I know plenty of people who they have financial advisors, you know, who do their taxes for them. And you build a relationship with a financial advisor and he or she is going to like, yeah, I know what your stuff they’re going to be able to tell you. Did you forget about this this year? Because they know you and they know your finances. But a large number of people out there, even folks doing well, upper middle class, college educated, more advanced, they’re doing their taxes on their own. If if if somebody is out there and they’re doing their taxes on their own and they’re using one of these online programs or something else like that, what would you tell people who are trying to do it themselves in this tax season?
S2: If they are younger, if they have a less complicated financial situation? I think that that’s fine. But certainly for a lot of, you know, middle class black folks, a lot of people who have more complicated affairs, who are property owners, who may itemize their tax deductions, etc., they absolutely should have professional help. And this is not a tax season issue. This is really a financial issue year round. Overall, the wisdom of the crowd can be beneficial. So there’s a reason that folks who have money have a team. They won’t just have, say, a stockbroker or a money manager or financial advisor or a certified financial planner. They will have a tax expert in there as well. Certainly, that’s what my husband and I have done. We have a team and that team approach is actually, I think, one of the reasons that we’ve been able to, you know, continue to grow our net worth, continue to grow and knowledge and get the best advice about what we should be doing. And certainly from a tax standpoint, if you’re not sitting up there reading the tax books in the tax code and come on, y’all, you know you’re not. Why wouldn’t you get that expertise and that help? And a lot of people act like, oh, my God, it’s going to be so ridiculously expensive. It’s actually not. Mm hmm. Sometimes when people tell me you can’t afford to get an expert, I say you can’t afford not to.
S1: Lynnette Khalfani-Cox is a personal finance expert and author of several books on financial planning and strategy. You can find her advice at askthemoneycoach.com. Thank you so much for joining us on A World Today.
S2: Thank you, Jason. Again. My pleasure.
S1: And that’s the word for this week. The show’s e-mail is a word at Slate.com. This episode was produced by Jasmine Ellis. Alicia montgomery is the executive producer of podcast. It’s late June Thomas is senior managing producer of the Slate Podcast Network. Our theme music was produced by Don Will. I’m Jason Johnson. Tune in next week for Word.