Investor deposits lessons in financial literacy, freedom for a new generation

by Wendi C. Thomas | November 30, 2017 2:03 pm

Despite persistent barriers to black wealth building, Memphis-based fund manager Floyd Tyler says it can be done—and it is

This article first appeared on MLK50: Justice Through Journalism.

Floyd Tyler grew up in the Orange Mound community near Lamar and Pendleton with five pairs of pants and five shirts in constant rotation. His Aunt Mae Ruby Williams, born during the Depression, served the same meals on the same days of the week: fish on Friday, hamburgers on Saturday, chicken on Thursday and Sunday. If a piece of fruit was bruised, she cut off that part and pronounced it good enough to eat.

If a piece of fruit was bruised, she cut off that part and pronounced it good enough to eat.

Maybe for Aunt Mae Ruby — not for Tyler.

“I didn’t know what having money looked like,” said Tyler, founder and president of PreserverPartners LLC in Memphis, which manages investments for pension funds, hospitals and individuals. “I was driven by the idea that I didn’t want to be poor when I grew up.”

Today, Tyler, 48, not only know s what financial success looks like, he helps people see and feel it for themselves by operating one of the few black-run mutual funds in the country, the Preserver Alternative Opportunities Fund. Tyler leverages relationships with top financial professionals all over the country, while benefiting from a local brand of generosity and a deep history of entrepreneurship in Memphis.

Aside from being home, it is auspicious Memphis is the place Tyler chose to set up shop because it is also where Martin Luther King Jr. made his last speech, squarely upping the stakes on blacks getting a fair share of the economic pie and firmly shifting the civil rights agenda into a new direction that threatened the establishment like never before. The quest for full economic justice carries on into the 21st century, taking a prominent spot on the Black Lives Matter policy agenda, for example.

“Income is the target indicator of social mobility in American society, however, it is the accumulation of wealth that makes or breaks it for American families,” says Shetal Vohra-Gupta, PhD, MSW, associate director of the Institute for Urban Policy Research & Analysis at the University of Texas at Austin. “Policies such as the Homestead Act, segregation, unequal wage policies, education funding distribution policies, lack of childcare policies and lending policies all worked to create an unequal playing field for black families.”

The fund is novel for allowing individuals to invest with as little as $2,000, a stake they can sell whenever they choose. Tyler started in 2016 with $10 million raised from nearly 300 investors. To start, he had to get approval from the U.S. Securities & Exchange Commission, acquire the proper insurance and pay certain fees in addition to raising funds to manage, according to Tyler. Often state regulators must provide some level of approval. Today, the fund is valued at $17.5 million and returned 11.75 percent over the past year, performing in the top 3 percent of its category, called “alternative assets.” Lest anyone think hunkering down in a city noted for its high poverty rate is a bad bet, Tyler says savers can be found everywhere, including the little ol’ lady who has squirreled away a half million dollars and doesn’t know what to do with it. And while that example is both generally true (think: Oseola McCarty) and emblematic, Tyler does have customers with that level of investment.

Tyler, a former University of Memphis professor with a doctorate in finance from Florida State University, can deftly parse the language of investments. But his vision comes down to helping people in the community that nurtured and educated him, as well as working people throughout the country, experience financial freedom and their piece of the dream. A divorced father of an 11-year-old daughter, Tyler was originally shuttled from public housing projects on Chicago’s South Side to his childless auntie’s loving if strict home. He totally gets it.

Investing in black financial savvy

Blacks, in particular, lag behind whites in investing in the stock market even when they have higher incomes, according to the Ariel Investments Black Investor Survey released in 2016. Blacks with higher educational levels, such as graduate school, are more likely to invest, though age doesn’t make as much a difference in participation as earning potential, according to the survey. In the wake of the 2008 economic downturn, African-Americans are as weary of the real estate market as other investors.

Of course, talking about investment portfolios is a difficult conversation among blacks who lack the disposable income of an average American, says Devin Fergus, the University of Missouri Arvarh E. Strickland Professor of History, Black Studies and Public Affairs. It’s hard to talk about investing more in mutual funds and 401Ks when you don’t have the income to think in those kinds of ways. The author of the upcoming “Land of the Fee,” (Oxford, 2018) can cite chapter and verse how structural racism (such as what happened with blacks and subprime loans) has made the idea of investing seem more like a dumb gamble than a smart move. He says, “You invest in things of critical importance like insurance and buying a home.”

As a result, Fergus says, blacks, particularly potential investors, tend to be conservative in social issues, such as notions of gender identity, and investing. This conservative streak is tied to decades-long beliefs about sure things vs. the ephemeral and goes back to post-slavery when the Freedman’s Savings and Trust Company was established at the same time as the Freedmen’s Bureau. Formerly enslaved folks now working for the Union Army would need a place to deposit their (small amounts of) money, and provide access to capital and financial services. Eventually the bank faced closure due to mismanagement and lack of oversight. Despite making abolitionist Frederick Douglass president in a desperate effort to project accountability, the bank failed.

“This is really about the afterlife of slavery in terms of investment,” said Fergus, noting that during Reconstruction, the public conversation among the 4 million formerly enslaved African-Americans was whether to prioritize buying land over pursuing social policies that guaranteed a piece of the American Dream. “Blacks have always been tied to the question of land ownership, so it’s not surprising it resurfaces every now and again.”

Fergus says conventional black thinking is connected with “linked fate,” a term coined by Michael Dawson, John D. MacArthur Professor of Political Science and the College at the University of Chicago. This concept describes a phenomenon where blacks view their prospects as being tied to those of other blacks. So, Fergus explains, a black man with a high net worth may consistently vote for Democrats who promise to do more for blacks than voting Republican, a party whose policies are aligned with his economic interests.

When asked whether the stock market or home improvement was the better investment, blacks consistently chose home improvement, though the number of people prioritizing investing is growing, the Ariel survey said. Whites are split in their preference. Importantly, the survey said, workplace retirement plans are a “key entry point” for African-Americans to get into investing.

The differences are more acute than the survey suggests, according to the Rev. Jesse Jackson Sr., who has visited Memphis recently to join the chorus of folks demanding a fair share of city contracts for blacks. He contends that blacks are free but not equal: “If you spend more than you have and vote less than you have, that’s a formula for disaster. If you spend less than you have and vote all that you can, that’s the formula for success — that’s power.”

Part of Tyler’s job is exposing people to greater financial literacy through talks, workshops and social media messaging. Tyler finds that a large swath of African-Americans, many of whom have solid middle-class jobs, don’t know how money investing works. Those who do are often over-invested in homeownership. And, in fact, homeownership is not simply an investment, “it’s shelter,” Fergus says. During the recent great mortgage breakdown, whites who walked away from their properties were often simply leaving investment properties. But blacks who found themselves “underwater,” where they owed more money on their mortgage than their home was worth faced the worst possible outcome — losing the only place they had to lay their heads at night.

However, Tyler says when considering the litany of things that extract wealth from African-Americans, such as paying more for goods and services, the freedom investing could provide gets little attention.

The Ariel survey backs him up: More blacks (53 percent) than whites (41 percent) felt the market is stacked against small investors, while 59 percent of whites and 47 percent of blacks said the stock market offers a fair opportunity for all to profit over time. Those feelings are consistent across gender, age and income levels among African-Americans. And yet, more blacks cite saving for retirement as a critical goal.

Situating a money-management firm in a city known for its high poverty rate may seem counterintuitive. After all, 30 percent of the population is poor, while blacks and Latinos are more heavily impacted with poverty rates reaching 34 percent and 45 percent, respectively. While acknowledging structural barriers that contribute to poverty, Tyler also sees opportunity for education and transformation through wealth building wherever one starts the process.

“What people are lacking is information. I didn’t grow up with people talking about stocks and bonds,” he says. “I didn’t know what a mutual fund was until I was 23 in graduate school. Those conversations weren’t had because of exposure.”

The result is a lack of the generational wealth transfer that white counterparts expect, Tyler said. He started thinking about what would become PreserverPartners when he was still in the classroom teaching finance. He knew part of exposing people to investment plans was a matter of trust and relationships, especially for the uninitiated.

“It’s important to have people in the community you can trust, who don’t take advantage of you,” said Tyler, who has a small team of four. “We try to be the voice of reason.”

Tyler is onto something with generational wealth. If black incomes keep growing at the current pace, it will take black families 228 years to attain the same level of wealth as whites, according to Prosperity Now, a Washington, D.C.-based organization working to helping Americans achieve financial stability.

Inheritances and family support are key factors here: Thirty-six percent of households benefited from inheritances vs. 7 percent for African-American families, with the size of the inheritance making a critical difference by a 10 to 1 margin, according to Credit Suisse’s report on the wealth patterns of the top 5 percent of African-Americans. Blacks are more likely to apply their inheritance toward sustaining living expenses than investing in future wealth.

“Inheritances, or family support, help explain 5 percent of the widening racial wealth gap over a generation and that every $1 received by white American families added $0.91 of net worth versus just $0.20 for an African-American family,” according to the report.

Time to act like a free people

Tyler’s daughter has owned Disney stock since she was a baby, partly because she loves the brand but mostly because he believes financial literacy lessons must start early. Instead of toys as gifts, Tyler early on requested friends and family to gift her with stocks, then he matched the value with additional stock purchases. And Tyler’s firm hires college interns to expose them to the ins and outs of the investment business, making sure his hiring decisions reflect demographics of the wider community. In the past five years, his firm has hired six interns, four of whom are black.

Tyler makes sure his financial savvy intersects with the city’s political and civic minds by participating on local boards, such as the Methodist Healthcare Foundation and the Memphis and Shelby County Community Redevelopment Agency, with an eye toward alleviating poverty and providing opportunity to residents. But he says many Memphians give away their power to elected officials who don’t consistently champion equality of access. Tyler notes it’s not enough to have elected two black mayors and some black city council members; those representatives must stay focused on economic opportunity and inclusion.

He recalls the words of Dr. Martin Luther King Jr.: “If a city has a 30 percent Negro population, then it is logical to assume that Negroes should have at least 30 percent of the jobs in any particular company, and jobs in all categories rather than only in menial areas.”

Noting that the 30 percent figure would more likely be 60 percent today, Tyler said: “That does not happen by happenstance.”

Memphis residents, especially black ones, must insist their dollars and effort are valued by the business, civic and political classes. That process can start at the small level by hiring other black people to cut the grass or fix broken sinks since blacks are more likely to hire other blacks when others won’t. That can mean putting some, not necessarily all, dollars in a black bank.

Tyler gives the side-eye to large companies with locations and a significant customer base in urban communities but no senior executives, board members or purchasing policies that are consistent with true diversity and inclusion. Residents of those communities bear some responsibility for neglecting to demand better:

“I don’t mean to offend anybody, but sometimes we don’t act like we are a free people,” Tyler said. “We can do that in terms of how we spend money and the businesses we support. Some businesses don’t support our community in a real way, but we spend our money with them. That’s not what free people do.”

When Tyler moved from his divorced mom’s home in Chicago’s housing projects at age 7 to live with his frugal auntie, he would grow to become a resourceful kid capitalist. He recalls playing in Aunt Mae Ruby’s front yard and buying treats from the “Candy Lady” to sell at marked-up prices to the kids at school. Like so many children of the Great Migration intent in keeping the family bonds tight, every summer he traveled to Chicago to visit his parents on the Greyhound bus, just one way he became instilled with a sense of independence and drive early on. Invariably on those trips, little ol’ ladies on the bus would ply him with hamburgers on meal stops providing a through line of love and safety he respects today in his service to hardworking folks.

He says empowerment comes with financial independence: “I’m a proponent of independent thinking; trying to get to a point in your life where you make decisions for yourself — nobody owns you.”

Where do we go from here?

Keep up with the conversation on personal financial literacy and public policy with these interactive online tools

  • Take your turn navigating fiscal and monetary policy by playing the The Brookings Institution’s The Fiscal Ship.
  • Keep up with the wealth gap with the Institute on Assets and Social Policy Racial Wealth Audit resources.
  • Dive into this interactive graphic at Inequality.is to understand wealth inequality.
  • Ready for retirement? Try these calculators at TIAA, AARP and Bankrate.com.
  • Dig into the Prosperity Now Scorecard to see outcome rankings based on income, credit, banking, savings and more.

Deborah Douglas is a Chicago-based journalist who teaches at Northwestern University and grew up in the Memphis area.

Wendi C. Thomas

Wendi C. Thomas

Wendi C. Thomas is a social justice activist and award-winning journalist from Memphis, Tennessee.

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