Blacks are 35 percent less likely than whites of similar means to invest in the stock market, with a devastating effect on their ability to accumulate wealth, a new study released today shows.
The report from Charles Schwab and Ariel Mutual Funds is based on a survey of 500 blacks and 500 whites who earn over $50,000, and was conducted in January and February by Neuwirth Research.
Good Morning America contributor Mellody Hobson, who is also president of Ariel Capital Management, said the disparity lies in part on big social and cultural differences.
Age vs. Wage
"Income is the biggest factor in whether blacks invest," Hobson told Good Morning America. "For whites, it's age. For whites it was typical to start investing around age 35. With blacks, on the other hand, age made almost no difference."
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Income, however, made a huge difference with black investors, she said. Specifically, the 2001 survey shows that blacks earning six-figure salaries are almost three times as likely to be investors as blacks earning below $75,000. At income levels of $100,000 and above, equal percentages of blacks and whites own stocks. Among white people, six-figure earners are only twice as likely to own stocks as those under $75,000.
The investment issue is a big reason for the wealth gap between black and white America, Hobson says.
"We're under-invested in the stock market, which over the years has generated the best returns of any investment," she said.
The survey found that the average wealth of blacks making over $50,000 a year was $158,000 while the average wealth of whites over that income was $273,000. As for retirement savings, blacks averaged $44,000 while whites had $69,000.
But children — not retirement — was an impetus for black investment, Hobson says. Blacks tend to want to invest in educating their children to improve their futures, over saving for their retirements.
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The survey was conducted in January and February, when the market was plummeting. And the study found that blacks were more shaken by all the market, with 32 percent saying their confidence had been hit, compared to 15 percent of whites.
Education is the best way to shore up the divide, Hobson says. The stock market has always had bear markets from time to time, and the patient investor prevails. This year, 69 percent of blacks surveyed own stocks, up from 57 percent in 1998 and 64 percent last year. The percentage of whites in the survey who own stock over the same period has remained flat at about 80 percent.
At the same time, the percentage of black people who have "most of their assets at a brokerage or mutual fund company," as opposed to banks or insurance companies, has climbed steadily from 26 percent in 1998 to 37 percent today. The percentage of white investors has been flat for over four years at about 51 percent.
The president's tax cut holds some promise in the area of education, Hobson notes. The annual amount an individual can contribute to an education IRA rises from just $500 to $2,000 beginning next year. And $167 a month (which adds up to $2,000 a year) for 18 years can result in a $100,294 college fund. Your money grows tax-free and you do not have to pay taxes when you take it out.