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Black Investors Continue to Trail Whites in Building Wealth: Survey

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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.”

Trust Remains an Issue 

Trust in the financial services industry continues to affect stock market participation among Black Americans, according to the survey. 

While about one-fifth of both Black and white investors consider financial services institutions not trustworthy, only 35% of African American investors felt they were treated with respect by financial institutions, compared with 62% for white investors. 

In addition, Black Americans were much more likely to cite the importance of racial diversity in the employee ranks at investment firms. 

Only 21% of Black Americans work with financial advisors, compared with 45% of whites, but Wurster said the majority of Black investors who do work with an advisor say they feel like they are treated with respect by financial institutions. 

“I believe this is a clear call to action for our industry that these partnerships should be nourished, because they can be truly impactful,” he said.

The financial services sector is not alone in being largely mistrusted by Black Americans. They are much less likely to trust the coronavirus vaccine than white Americans, a hesitancy that analysts put down to a history of medical racism in the U.S.

Tightened Belts 

The pandemic affected Black and white Americans in different ways financially, according to the survey. 

Both groups reported a much greater focus on saving for emergencies than in previous years, but the economic fallout from the pandemic prompted Black Americans to take action in greater numbers than their white counterparts. 

Black Americans were likelier to cut spending on both extras and basics than whites, and they were three times likelier to report student loan delay or deferral. 

Despite these measures, a sizable minority of Black Americans — and significantly more than white Americans — were forced to take other actions to make ends meet:

  • Borrow money from their retirement accounts: 12% vs. 5%.
  • Dip into an emergency fund: 18% vs. 10%.
  • Ask family or friends for financial support: 9% vs. 4%.
  • Give financial support to family and friends in 2020: 18% vs. 13%.

“The pandemic has further exposed fault lines between the fortunes of middle-class Black and white Americans,” Hobson said. But notwithstanding persistent real problems, she said, Black Americans remain optimistic.

Asked to forecast their personal financial situation in 2021 compared with 2020, 60% of Black Americans said they felt their situations would improve, compared with only 40% of white Americans who felt the same way. 

This optimism, coupled perhaps with the unique circumstances of the 2020 market, created an opportunity for historically underinvested Black Americans to help one another learn more about investing, Hobson said. 

“Not only are Black Americans beginning to walk the walk, we are also beginning to talk the talk,” she said, noting that Black Americans are now much more likely to discuss the stock market with their families than in years past. 

These dinner conversations appear to be paying off. Black investors under 40 were more than twice as likely as older ones to report that they had discussed the stock market growing up. 

Overall, 49% of all Black investors said they were the first in their families to invest, compared with 39% of white investors.

(Photo: Shutterstock)