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Black Americans are less likely to participate in the stock market and therefore are missing out on retirement savings benefits they could be accruing. However, there is growing interest among Black Americans in participating in the stock market and evidence that young Black Americans are beginning to close the investment gap, according to the Black Investor Survey 2020 conducted by Ariel Investments and Charles Schwab.
The goal of the report was to study the similarities and differences between middle-class Black and white Americans with regard to savings and investing to see what influences and underlying beliefs may impact investing and saving, understand the influence of the pandemic on investing trends, assess attitudes about financial security, and determine shifts in attitudes and behaviors over time. The survey of 2,104 adults with a household income over $50,000 was conducted in December.
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Investing participation gap smaller
While the survey found overall participation in the stock market among both Black and white Americans was lower than any period during the past 20 years, the gap between participation among Black and white Americans was smaller last year than it had been during other surveys over that same period.
The survey found that about 55 percent of Black Americans have investments in the stock market, compared with 71 percent of white Americans. In 2015, 67 percent of Black Americans were invested in the stock market compared with 86 percent of white Americans.
Younger Black Americans appear to be driving that shift. The report found 63 percent of Black Americans under the age of 40 participate in the stock market, on par with their white counterparts.
Older Black Americans, on the other hand, were less likely to invest in the stock market than white Americans of the same age. Three times as many Black investors as white investors reported that they invested in the stock market for the first time in 2020, according to the report.
Employer-sponsored retirement plans as a stepping stone
Employer-sponsored retirement savings plans serve as a stepping stone to stock market investing for Black Americans. Sixty-three percent of Black investors said they first invested in the stock market through their retirement plan, said the report, However, while a similar percentage of Black and white Americans now own 401(k) plans (53 percent vs. 55 percent), white 401(k) plan participants save 26 percent more per month than Black participants, an average of $291 vs. $231.
Black Americans also save less than their white counterparts — $393 vs. $693 per month, according to the survey. Even Black Americans earning greater than $100,000 per year consistently save or invest less than their white counterparts who earn the same amount, the report found.
In addition, Black Americans are less likely to access other financial tools such as certificates of deposit, mutual funds, real estate investments and 529 plans, and they are less likely than white Americans to have written wills, financial plans or retirement plans.
The exception is whole life insurance, which Black Americans own at higher levels than white Americans. The survey also found that Black Americans are far less likely to have inherited or expect to inherit wealth.
White Americans reported they were more focused on preparing for retirement as their most important financial goal (44 percent) than Black Americans (33 percent). Black Americans were more focused on preparing for an emergency, building a better lifestyle and leaving money to their heirs, the report found.
While both Black and white Americans reported the pandemic prompted them to sharply increase their focus on saving for emergencies, Black Americans were more likely to take action. For instance, more Black Americans cut spending on extras and basics than white Americans during the pandemic, and Black Americans deferred student loans three times as often as their white counterparts, said the report.
Pandemic impact on finances
Black Americans were also more likely to be forced to tap into their savings to make ends meet during the pandemic, said the report. That included 12 percent of Black 401(k) participants borrowing money from retirement accounts, 18 percent dipping into an emergency fund, and 9 percent seeking financial help from family or friends.
That compares with 5 percent of white Americans who borrowed from a retirement account, 10 percent who used emergency funds, and 4 percent who borrowed from family or friends. Eighteen percent of Black Americans and 13 percent of white Americans said they were able to help family and friends financially last year.
Black Americans expressed optimism about their personal financial situation this year, with 60 percent predicting their financial situation will improve, compared with 40 percent of white Americans who feel that way. The survey suggested this optimism coupled with the circumstances of the 2020 market creates an opportunity for underinvested Black Americans to help one another learn more about investing.
About one-third of Black investors said they feel they are treated with respect by financial institutions, compared with 62 percent of white investors. Only 21 percent of Black Americans said they work with a financial advisor, but those who do were more likely to feel respected by financial institutions.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM's Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics.
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