Black Americans more engaged with investing, especially outside the mainstream

A trust gap shapes Black Americans’ investing priorities, according to the 2022 Ariel-Schwab Black Investor Survey released Tuesday.

Black Americans increasingly turn to newer types of assets that are less likely to be associated with structural discrimination, the study found. Correspondingly, Black Americans are less engaged with traditional forms of investing, such as employer-sponsored retirement plans.

The study’s findings ring true to Philip Gibson, an associate professor of finance and director of certified financial planning at Winthrop University, in Rock Hill, South Carolina.  Longstanding bias in mortgage lending and other traditional modes of wealth-building have spurred Black families to explore technology-based assets, such as cryptocurrency, said Gibson, who was on the InvestmentNews 40 Under 40 list in 2020.

“With more technology to help and guide investors, we need to be sure that technology doesn’t reflect structural or historic bias,” he said.

The study found both white and Black Americans have pulled back from the stock market. Now, 58% of Black Americans with household incomes over $50,000 own stocks, down from a high of 74% in 2002; 63% of white Americans are now in the stock market, down from a high of  86% in 2015.

Black investors specifically cited a “lack of trust” in the stock market and financial institutions. The Ariel-Schwab study found that Black Americans who have withdrawn from investing, or who have never invested, “cite lack of trust in the stock market (36% vs. 29%), lack of trust in financial institutions (25% vs. 19%), and having had a bad investing experience (15% vs. 9%) as the reason.”

Other recently released studies document structural racial bias in asset classes considered to be staples for American households. For instance, in September, secondary mortgage lender Freddie Mac released an analysis that found houses in primarily Black neighborhoods are appraised for less than the purchase price more often that houses located in primarily white neighborhoods. The gap peaked at 5.9% for Black-owned properties and at 9.4% for Latino-owned properties.  

UNRELIABLE INFORMATION, POTENTIALLY DANGEROUS DECISIONS

At the same time, Black Americans are talking about investing more than ever — with peers and family, at least.

Currently, Black families are just as likely as white families to talk about the stock market among themselves (41%, compared to 43%).  A hot topic of conversation among Black investors is ESG strategies, the Ariel-Schwab study found, with 44% of Blacks deeming it very important in “aligning their investments with personal beliefs,” compared to 29% of whites.

Nearly three times as many Black investors as white investors cited cryptocurrency as their first investment, the Ariel-Schwab study found (11% compared to 4%). 401(k) plans are still the first investing experience for 31% of Black investors, closely followed by individual stocks and bonds at 28%.

Social sharing and a fascination with new, presumably bias-free crypto, could prove a lethal combination, said Gibson, who teaches undergrads the basics of markets and investing. 

“Students just don’t have a basic understanding of how the financial markets work. They hear about get-rich-quick schemes on social media,” he said. “There has to be some basic education.”

More Black Americans are working with financial advisers, too, though they are less likely than whites to have an adviser (28% compared to 36%, according to Ariel-Schwab). However, that’s an increase from the 21% of Blacks who worked with advisers in the firms’ 2020 study.

And, in line with their interest in “voting their values” through ESG, Black Americans strongly prefer working with financial advisers of the same race (64% vs. 47%), generation (59% vs. 43%) and gender (53% vs. 40%).