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April 13, 2022 at 07:16 PM
What You Need to Know
- In both groups, the share of investors who own stocks has dropped significantly.
- One-quarter of Black participants own cryptocurrency, compared with only 15% of white respondents.
- Nearly half of Black and white investors surveyed reported investing in something they did not fully understand.
The investment gap between Black and white Americans has narrowed, according to the 2022 Ariel-Schwab Black Investor Survey.
This finding, however, comes against a backdrop of investor participation at historic lows for both racial groups. In 2022, just 58% of Black Americans and 63% of white Americans own stocks, compared with survey peaks: 74% of Black investors in 2002 and 86% of white investors in 2015.
Stock market participation is higher among younger Black Americans, with 68% of Black respondents under 40 now investing, compared with 57% of younger white investors.
Helical Research conducted the new survey online in January among 2,057 adults in the U.S. with $50,000 or more household income in 2021. The average annual household income of Black survey participants was $99,000, and for white participants $106,000.
Riskier Steps
The study found new, higher-risk investment options popular, especially among younger and first-time Black investors.
One-quarter of Black Americans surveyed own cryptocurrency, jumping to 38% among Black investors under 40. By comparison, only 15% of white investors and 29% of those under 40 own cryptocurrency.
Black investors were more than twice as likely to say cryptocurrency was their first investment. They were also twice as likely to rank cryptocurrency as the best investment choice overall.
Clear evidence exists of an education gap between Black and white Americans, according to the survey. Despite the headlines about volatility in cryptocurrency values, platform hacks and a lack of government regulation, Black investors are less likely than white investors to think that cryptocurrency is a risky investment.
Indeed, 33% of Black investors said investments in cryptocurrency are safe, compared with 18% of white investors who said this, and 30% believed they are regulated by the government, versus 14%.
The survey found these notions among 51% of Black investors under 40, compared with 41% of their white counterparts.
More Education Needed
Nearly half of all Black and white investors in the survey reported that they had invested in something they did not fully understand, a behavior even more pronounced among investors under 40.
Although both racial groups are entering the market without the information they need, Black investors are more likely to trust and make investment decisions based on less credible information sources, such as social media, according to the study.
One-third of Black investors said they had invested based on something they saw on social media, compared with 20% of white investors. This gap surged to 51% of Black and 36% of white investors under 40.
“The confluence of low stock market participation, appetite for risky investment options and alarming lack of knowledge about fundamental investing principles is a red flag about the critical need for greater investor education,” Mellody Hobson, co-chief executive and president of Ariel Investments, said in a statement.
“Many new and younger investors have never experienced market volatility like we’ve seen in the last couple years, and we have a responsibility to educate these new investors about the value of long-term investing to build wealth and achieve financial security.”
