How Discrimination Influences Financial Decisions

“Therefore, discrimination can create psychological barriers to taking on financial risk. Such barriers can also limit minorities from pursuing high-paying professions that are inherently risky. Overall, psychological barriers created by discrimination can be as important as actual barriers that propagate the wealth differences across demographic groups.”

For their analysis, the researchers used multiple datasets — including a 2004 Los Angeles Times poll that addressed gay issues; the National Longitudinal Survey of Youth, which surveyed participants about wealth, income, financial decisions and exposure to discrimination; and the Survey of Consumer Finances — and experimental data.

The research findings showed that the experience or fear of discrimination had these effects on investment decisions:

• LGBTQ individuals who reported discrimination or feared it were about 40% less likely to participate in the stock market
• African-Americans who felt it had been hard to get a good job because of discrimination were about 8% less likely to participate in the stock market, and allocated about 9% less of their wealth to equities
• Women who felt discrimination had made it difficult to get a good job were 4% less likely to participate in the stock market and allocated about 4% less of their wealth to equities

“Our work is related to the growing body of evidence that personal experiences affect economic decisions,” the University of Miami’s George Komiotis, a coauthor of the report, said in a statement.

“Studies like this make a strong case for increased financial education and perhaps policy implications in our country, as such financial behavior does impact the nation’s economic health.”