What You Need to Know
- African American participation in the stock market stands at its lowest level in the Ariel-Schwab survey’s two-decade history.
- Trust in the financial services industry continues to affect stock market participation among Black Americans.
- Signs of younger investor engagement offer hope.
Seventy-one percent of white Americans reported stock market investments, but only 55% of Black Americans did so, according to a survey released Thursday by Ariel Investments and Charles Schwab.
Indeed, African American participation in the stock market stands at its lowest level in the survey’s two-decade history.
Ariel–Schwab noted that the deep-rooted participation gap between the two groups, compounded over time, means that middle-class Black Americans will save less money for retirement and have less wealth to pass on to the next generation than their white peers.
“Black Americans are already behind the eight ball, and it is disheartening to see that at current savings and investing rates, the wealth gap will continue to expand, endangering our futures and leaving our families exposed,” Mellody Hobson, co-chief executive and president of Ariel Investments, said in a statement.
However, evidence emerged in the survey of growing engagement in the stock market by younger Black Americans. Sixty-three percent of those younger than 40 said they invested in the stock market, equal to their white counterparts.
The survey found that new investors have closed this gap among younger investors. Three times as many Black investors as white ones said they had invested in the market for the first time in 2020, and 29% of Black investors under 40 were new to investing in the last year, compared with 16% of whites.
“These findings are encouraging for younger Black investors, but there is much work to be done to ensure that Black Americans have access to the resources they need to stay engaged and successfully investing for the long-term,” Rick Wurster, executive vice president at Schwab Asset Management Solutions, said in the statement.
Helical Research conducted the online survey in December among 2,104 American adults with $50,000 or more household income in 2019.
401(k) Plans and Beyond
401(k) plans have become an important gateway to investing for many Black Americans in recent decades, with 63% of Black investors surveyed having first invested in the stock market through a retirement plan.
At present, 53% of Black Americans and 55% of white Americans own 401(k) plans, but amounts saved show meaningful differences. Specifically, white 401(k) plan participants invest $291 per month toward their retirement accounts, compared with $231 for Black plan participants.
Beyond investing, the survey found that Black Americans were less likely than white Americans to own almost every kind of financial vehicle, with the exception of whole life insurance, which the Black community favored. They are also less likely than white Americans to have written wills, financial plans or retirement plans.
For Black Americans, disparities grow every month, according to Ariel–Schwab. While they save $393 overall per month, whites save 76% more, $693 per month.
Even Black Americans who earn more than $100,000 a year consistently save or invest considerably less than their white counterparts at the same income level.
“These differences are not new,” Hobson said. “Black Americans are disadvantaged from the outset when it comes to building wealth.” She noted that 51% of white Americans say they have inherited wealth, while only 23% of Black Americans have.
Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, said in the statement that 44% of white Americans versus 33% of Black Americans are focused on preparing for retirement as their most important financial goal.
“For so many Americans, the 401(k) is the first step to becoming an investor,” Schwab-Pomerantz said, adding that “it’s incumbent on employers and all of us in our industry to help 401(k) owners save more throughout their earning years.”
One key way to do this, she said, is to provide access to educational resources and tools. “Financial literacy is a great equalizer, and a life skill that everyone needs.”