New Financial Survey on Black Americans Is a Call to Action
Dear Readers: In the last 15 years writing "Ask Carrie" columns, I've often written about why and how investing opens the door to financial freedom. In my mind, the advice -- and the opportunity -- should be available to everyone. Unfortunately, for too many Black Americans, that's not the case.
As a country, we've started to have some important conversations that are long overdue. Racial inequality and the resulting wealth gap are not only disastrous for the impacted individuals; they also weaken our communities and our economy.
To begin to address these issues, I'd like to share some insights from the 2020 Black Investor Survey that Schwab conducted in collaboration with Ariel Investments, the oldest minority-owned investment firm established in the United States. This long-running survey looked at stock market participation as well as the characteristics and attitudes of middle-class Black and white investors. The investors have similar income levels, but the survey revealed some stark disparities -- as well as some encouraging trends.
Historic Low Participation in the Stock Market Persists Among Black Americans, Exacerbating Wealth Inequality
Far fewer Black Americans than white Americans invest in the stock market. This has historically been the case, but the 2020 Schwab-Ariel survey showed the largest gap in the study's 20-year history (55% of Black Americans versus 71% of white Americans). The reasons for this are complex and include decades of systematic discrimination, less money available to save and invest, and lack of trust. But the impact is crystal clear: Without the power of the stock market on one's side, the wealth gap continues to widen. As the stock market hits record highs, those who don't invest are left further behind.
To provide context, despite the major stock market collapse of 2000, the Great Recession in 2008 and the pandemic declines in 2020, $1 invested in the S&P 500 in 2000 would be worth almost four times that amount today. In contrast, a dollar placed in savings would have lost value due to inflation. And while you don't need a lot of money to start investing, you do need time to build assets that can compound into significant wealth.
The Financial Services Industry Needs a Bigger and Better Welcome Mat
One of the most troubling and telling statistics in our survey is that the majority of Black investors (65%) as opposed to white investors (38%) don't feel respected by financial institutions and so don't trust them. Black investors who work with a financial advisor express greater trust, but this is a clear call to action for every bank, brokerage house and insurance company -- including Schwab. Without the foundation of respect, we can't expect anyone to entrust us with their hard-earned dollars.
My friend Michelle Singletary put a very human face on this issue in her column "The Legacy of Slavery Made My Grandmother Fear Investing." Generations of oppression and discriminatory policies legitimately overshadowed every financial decision Michelle's grandmother made. Michelle writes, "As a descendent of enslaved people who were denied the right to own anything of real value" the only investment that her grandmother trusted was her home. Her experience taught her that she needed to "see and touch her wealth." For this smart and determined woman, stocks and other financial instruments were simply out of the question.
To me, the message is clear: It's up to those of us who work in finance to earn the respect and trust of Black investors, not the other way around. Schwab was founded on the principle of democratizing investing. Now, as an industry, we need to examine every aspect of the way we do business to unequivocally expand our outreach to underrepresented individuals and communities of color. We must do better to level the playing field for all Americans.