Ariel-Schwab Black Investor Survey Shows Black Americans Continue to Trail Their White Counterparts in Building Wealth
Ariel-Schwab Black Investor Survey Key Findings:
- 58% of African Americans are invested in the stock market; and, in the cohort under forty years old, that percentage jumps up to 68%.
- 25% of Black Americans own cryptocurrency; (only 15% of white Americans own cryptocurrency)
- 401(k) are no longer the entry point for many first-time investors.
- Risky investments very popular among younger Black investors
- Instead entering via cryptocurrency, individual stocks and mutual funds
- Black investors are more likely to trust and make investment decisions based on less credible information sources, such as social media
“The results of the 2020 Ariel-Schwab Black Investor Survey reveal that Black Americans are not benefitting from stock market growth at the same rate as white Americans at similar income levels”, according to the results from the Ariel Investment and Charles Schwab Black Investor Survey. “The deep-rooted gap in participation between the groups persists, with 55 percent of Black Americans and 71 percent of white Americans reporting stock market investments. This disparity, compounded over time, means that middle-class Black Americans will have less money saved for retirement and less wealth to pass onto the next generation than their white peers.”
In a year like no other, however, there is also evidence of growing engagement in the stock market by younger Black Americans, with 63 percent under the age of 40 now participating in the stock market, equal to their white counterparts, according to the Survey. The closing of this gap among younger investors is being driven by new investors: three times as many Black investors as white investors (15% vs. 5%) report having invested in the market for the first time in 2020. Twenty-nine percent of Black investors under the age of 40 were new to investing in 2020 compared to 16 percent of whites.
Beyond investing, the survey finds that Black Americans are less likely than white Americans to own almost every kind of financial vehicle, with the exception of whole life insurance, which is favored in the Black community. They are also less likely than white Americans to have written wills, financial plans, or retirement plans.
For Black Americans, disparities grow every month; while they save $393 overall per month, whites are saving 76 percent more, at $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. Black Americans are disadvantaged from the outset when it comes to building wealth,” says Hobson. She notes that while 51 percent of white Americans say they have inherited wealth, just 23 percent of Black Americans have.
Carrie Schwab-Pomerantz points out that more white Americans (44%) than Black Americans (33%) are focused on preparing for retirement as their most important financial goal.
“African American investors are getting into the markets late and taking higher risk as the markets have exploded upwards over the last few years”, says John Rogers, Co-CEO and Chief Investment Officer, Ariel Investments. “As cryptocurrency has gone up, [Black investors] have been joining that chase, the same way they did during when the internet bubble occurred..getting in late and chasing the higher risk investments.”
High risk investments are growing in popularity, especially among younger Black investors. “What I worry about is when you jump in [the markets] late and get crushed when the inevitable happens, then you’re going to be gun-shy about getting back into the markets.”
People are talking about cryptocurrency and they’ve heard the people have made a lot of money and got rich quickly, so they want to jump on the bandwagon. What’s happening is that they are hearing about it through word of mouth or on the social media front. Thus, more and more people are learning how crypto works or how they think it works, and are not understanding the risk.
Investor education is extremely important, states Rogers. “We must teach young people about the investing in stock market and the value of long term investing and not speculation.”
The most important thing is financial education. From the survey, “there is a lot of evidence that both black and white Americans don’t really understand what they’re investing in”, says Kelly Johnson, Portfolio Manager, Charles Schwab Asset Management. “For example, forty percent (40%) of both cohorts [Black and White investors] came in admitting that they do not really understand their investments.” Additionally, many new investors in the markets believe cryptocurrency and NFT are federally regulated and without risk.
References:
- https://www.aboutschwab.com/ariel-schwab-black-investor-survey-2021
- John Rogers and Kelly Johnson, (April 20, 2022), Ariel-Schwab Black Investor Survey segment, CNBC Squawk Box,