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African-Americans Invest More Conservatively Than Whites: Study

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The top 5% of African-Americans is moving closer to the top segments of white Americans in terms of wealth and farther away from the rest of African-Americans, according to a new report published by Credit Suisse in collaboration with Brandeis University’s Institute on Assets and Social Policy.

Afircan-Americans also tend to have more conservative portfolios than whites, the researchers found.

The report said that in 2009, the top 10% of African-Americans accounted for 67% of the wealth held by all African-Americans, compared with 51% for the top 10% of white Americans, up from 59% and 46%, respectively, in 2005.

Researchers focused mainly on data from the 2010 Federal Reserve Board’s Survey of Consumer Finances. The survey included some 6,500 households, of which 790 were African-American. The top 5% of African-Americans comprised 48 families.

Researchers found that the top 5% of African-Americans had a net worth of $357,000 or more — equal to approximately the 72nd percentile in the wealth distribution for white households.

The net worth for the top 5% of white Americans was 6.5 times that of the comparable African-American group — and was almost eight times higher when comparing both groups at the median across all wealth levels.

Even with a significant gap relative to the wealthier white Americans, the report found that the wealthy African-American had been very successful relative to the average American.

The median net worth for the top 5% of African Americans, $739,000, was 47 times greater than the median wealth for all African-Americans and six times greater than the median for white households.

The report said that among African-Americans in the top 5%, financial assets — usually the more volatile portion of assets — accounted for 35% of total assets relative to the 42% for the white comparison group.

This showed a more conservative asset portfolio, with a lower proportion of financial assets. Wealthy African-Americans owned less in stocks and bonds and more in CDs, savings bonds and life insurance.

As for non-financial assets, two main differences existed between the top 5% of African-Americans and the white comparison group.

African Americans had 9% equity in business assets versus 37% for the white comparable group, but they had a 41% investment in real estate outside the primary home, compared with 22% for the white group.

According to the report, this more conservative approach of the top 5% of African-Americans to investing was understandable in the context of the constrained social mobility trends of the African-American population and lower levels of overall economic security.

The report cited research showing that only 24% of the African-Americans who were in the top quartile in 1984 were still at the top in 2003, versus 60% for white Americans.

The research also found that 81% of the wealthy African-Americans in the study had debt, compared with 70% for the white comparison group. However, the mean and median debt levels and the actual monthly debt payments of the top 5% of African Americans were typically lower than for debt holders among the white comparison group. Still, debt repayments accounted for a larger portion of income. Leverage — measured as debt to total assets—was slightly higher than for the comparable white American group.

The report said several explain the success of the top 5% of African-Americans and the gap with the comparable white group.

Education, homeownership, employment, business ownership and portfolio allocation show some marked difference with the comparable segment of the white American population.

“This study identifies distinctive investing behaviors within the African-American community and a number of potential drivers of these behaviors,” Pamela Thomas-Graham, Credit Suisse’s chief marketing and talent officer and head of new markets, said in a statement.

“The findings may also reflect what we know from adjacent data, which is that African-Americans are generally underserved by banking institutions. The Commerce Department, for example, has published data showing that minority business owners receive loans less frequently, at significantly smaller sizes, and at worse rates than non-minority business owners.”

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