Nearly 10 years after conducting its first survey of African American investors, Ariel Capital Management has found that not much has changed.
In fact, the 2007 Ariel-Schwab 2007 Black Investor Survey found that despite climbing to a high of 74 percent in 2002 black participation in the stock market has dropped back down to where it was in 1998–57 percent.
In addition, while four of five working blacks and whites say a defined contribution plan such as a 401(k) will help fund their retirement, African Americans save a significantly lower amount of money than do their white counter parts–an average of $182 per month versus $261 monthly.
The Ariel-Schwab survey talked with 500 blacks and 500 whites earning more than $50,000 annually. And this year for the first time, researchers also questioned middle and upper income black and white retirees to assess how well they prepared for retirement.
Other findings in the survey include the fact that African Americans tend to retire an average of two years earlier than whites.The survey found that nearly half of all working blacks believe they will rely on rental income after retirement but in reality fewer than two in 10 actually did.
This information–coupled with the fact that while retired whites had a median retirement savings of $210,000 compared to just $73,000 for blacks, and all the retirees found that medical expenses were eating into their savings faster than expected–points to an impending financial crisis in the African American community.
Another finding revealed cultural differences. African Americans are more than 1.5 time more likely to support adult children and aging parents. They are also more likely to have extended family living in their homes, and are less likely to be married.
Further, African Americans are not exposed to the concept of stock market investing as early as whites are. According to Ariel, in 2001 just 56 percent of blacks said their child under 18 had a bank savings account compared to 68 percent of whites; only 36 percent of blacks had savings bonds for their children compared to 55 percent of whites; and only 21 percent of blacks had bought stocks or mutual funds for their children compared to 31 percent of whites.
Finally the survey also found that there are key differences in attitude toward retirement savings between the two groups. African Americans consider day-to-day expenses a bigger worry; 41 percent versus 29 percent of whites saying the same thing. On the other hand, 71 percent of whites cited having enough money to retire as the bigger worry compared to 59 percent of blacks.
Eliminating the disparities between black and white investors requires sustained action, according to the Ariel-Schwab report. It must start with educating African American youth about financial literacy very early. It will also take more employers stepping up to the plate to offer their workers financial education; and finally, the report pointed out there must be more focus placed on the racial and cultural differences of potential investors, and efforts must be taken by the financial services community to create programs that take these variations into account.