Historically, people of color have been under-represented as investor of stocks and bonds in taxable brokerage accounts.

Due to decades of federal, state and local policies that advantaged white communities and systemically marginalized Black, brown and Indigenous communities, wealthy households in the United States are disproportionately white.

All levels of government have created conditions for the racial wealth gap through discriminatory and often blatant racial policies that favor white families over families of color.

A large disparity in stock ownership between racial/ethnic groups exist in the United States. Nearly two-thirds of American households have some form of investment, typically through taxable brokerage accounts, IRAs or employer-sponsored retirement account like a 401(k). About one-third (35%) said they owned stocks, bonds or mutual funds outside of retirement accounts in a Pew Research Center survey.

Although a sizeable number of households report owning investment accounts, people of color, particularly those who identify as African American or Hispanic/Latino, are underrepresented as investment account holders.

While African American and Hispanic/Latino adults make up 12 and 16 percent of the U.S. adult population, respectively, they comprise only 10 and 11 percent of households with taxable investment accounts, according to the FINRA study. Taxable investments include investments in stocks, bonds, mutual funds or other securities outside of retirement accounts.

Moreover, white families make up 65 percent of families but own nearly 90 percent of corporate stocks, nearly 90 percent of private business assets, and more than 76 percent of real estate holdings. Black and Hispanic families, in contrast, own 1.7 and 0.5 percent of corporate equities respectively, less than 2 percent of private business assets, and under 6 percent of real estate holdings.

FINRA Foundation’s National Financial Capability Study findings confirmed the presence of a persistent investment racial and ethnic divide: African American and Hispanic/Latino respondents were largely underrepresented as taxable investors and overrepresented in households without any investment accounts. Few had investments outside of a retirement account and many had no investment accounts whatsoever.

One encouraging trend was that the proportion of those owning a taxable investment account increased by 18 percent for African Americans over the six-year study period. However, gender differences, particularly among respondents of color, were more troubling, even when controlling for demographic differences. While the gap between white women and white men was relatively minor, with white women 6 percent less likely to own a taxable account than white men, across the six-year period, African American women and Hispanic/Latina women were 14 percent less likely than their male counterparts to own a taxable investment account. Similar gender gaps were identified among Asian American respondents.

The racial/ethnic composition of investing households indicates sizeable gaps between some communities of color and white respondents throughout the six-year period studied. Focusing on those with taxable investment accounts, African American and Hispanic/Latino adults are underrepresented relative to white respondents, although for African American respondents, the gap seems to be closing.

Still, understanding the role that race and ethnicity play in the likelihood of owning a taxable investment requires consideration of other key factors. Many people of color face obstacles that can hinder their capacity to invest. For example, income, wealth and educational disparities, stemming largely from structural racism, create barriers unique to this population.

The study examined households with taxable investment accounts; households whose only financial investments are in retirement accounts; and households without any investment accounts over the course of six years, from 2012 to 2018.

There was a large disparity between the investment account ownership of some communities of color and that of white adults. African Americans and Hispanic/Latino respondents were underrepresented among households with a taxable brokerage investment account and overrepresented among households without any type of investment account. Among African American and Hispanic/Latino respondents, nearly half reported not having a taxable investment account, while only about a quarter reported having taxable investment accounts.

The legacies of systemic racism and racial barriers are deep and complex. The data highlights that inequities across many areas, whether it be education, healthcare, criminal justice, or financial inclusion, are more pronounced for people of color and those from minority backgrounds.

Increasing the representation in taxable brokerage accounts of African Americans and Hispanic Americans may serve as a major factor to narrow a significant racial and ethnic wealth gap. It could enable people of color to benefit from market returns and close the wealth gap.

References:

1. https://www.pewresearch.org/fact-tank/2020/09/25/few-in-u-s-owned-stocks-outside-of-401ks-in-2019-fewer-said-market-had-a-big-impact-on-their-view-of-economy/
2. https://itep.org/investment-income-and-racial-inequality/
3. https://www.finrafoundation.org/sites/finrafoundation/files/bridging-the-divide_0.pdf
4. https://itep.org/investment-income-and-racial-inequality/

FINRA Foundation’s National Financial Capability Study examined investment account ownership over a six- year period across households of differing racial and ethnic backgrounds.