The longstanding disparity between Black and white investors has narrowed, particularly among younger Black Americans, with 68 percent of Black survey respondents under age 40 now investing, compared to 57 percent of younger white investors, according to a report from the 2022 Ariel-Schwab Black Investor Survey.
Stockbroker Charles Schwab and Chicago-based asset management firm Ariel Investments study the investing and saving attitudes and behaviors of Black and white investors annually. Their 2022 survey was based on 2,057 American respondents age 18 and older with Black and white household income averaging $99,000 for Black and $106,000 respectively.
While the investment gap narrowed in 2022, there was an overall decrease of white investors (down 8 percent from 71 percent in 2020) and an increase among Black investors (up 3 percent from 55 percent in 2020).
For many Black Americans, higher risk assets are 1st foray into investing
Black investors are more than twice as likely to say crypto was their first investment (11 percent of Black investors compared to 4 percent of white investors). Younger Black Americans are even more likely to first experience investing through this high-risk asset class. Nearly a quarter (23 percent) of Black investors under age 40 say they first invested in the stock market through crypto. Black investors are also twice as likely to rank cryptocurrency as the best investment choice overall (8 percent of Black investors vs. 4 percent of white investors).
A quarter of Black respondents said they own crypto, but among Black investors under age 40, that number is 38 percent. By comparison, 15 percent of white investor respondents say they own cryptocurrency, and 29 percent of white investors who are under age 40.
The report shows an educational gap when it comes to investing
An education gap between Black and white investor respondents, Schwab reported. Despite news headlines about volatility in crypto prices, hacks, and an unregulated environment, Black investor respondents are less likely than white to think that crypto is a risky investment (68 percent vs. 73 percent). Black investors are also more likely than white to believe investments in crypto are safe (33 percent vs. 18 percent) and regulated by the government (30 percent vs. 14 percent). Among Black investors under age 40, this mindset is even more common with 51 percent saying they believe it is safe and 41 percent saying they think it is government-regulated.
Investing based on social media more common among Black vs white
Nearly half of all Black and white investors (47 percent and 45 percent, respectively) report investing in something they did not fully understand. This is even more pronounced among investors under 40 (58 percent and 46 percent, respectively). While both groups are entering the market without the information they need, Black investors are more likely to trust and make investment decisions based on less credible information sources, such as social media. One-third of Black investors (33 percent) say they have invested based on something they saw on social media, compared to less than a quarter of white investors (20 percent). This gap is even more pronounced among Black and white investors under age 40 (51 percent and 36 percent, respectively).
Lack of trust in financial institutions
Black American respondents are less trusting of the stock market than whites (30 percent vs. 23 percent) and of financial institutions (28 percent vs. 18 percent). This has led to many Black investors pulling out of the market, Schwab and Ariel Investments reported. Since 2020, Black American respondents who stopped investing or never invested were more likely to cite lack of trust in the stock market as a reason (36 percent vs. 29 percent) and in financial institutions (25 percent vs. 19 percent), as well as having had a bad investing experience (15 percent vs. 9 percent).
Black investor respondents are also more afraid of losing money than whites—56 percent vs. 46 percent. Black investor perception of the stock market in 2022 also improved when it came to being seen as offering a fair opportunity for all to profit in 2022 (48 percent vs. 40 percent in 2020) — a sign of optimism for the future, according to Schwab and Ariel investments.
While trust remains low, feelings of being respected by financial institutions improved. In 2020, Black Americans were less likely than white to feel respected by financial institutions, but the gap has narrowed.
When it comes to growing and protecting their assets, Black Americans are more trusting of technology than white (31 percent vs. 21 percent) and less trusting of people (32 percent vs. 45 percent). Trust in technology among Black Americans is highest among men, new investors, and investors under age 40.
“The survey shows a penchant for ‘get rich quick’ tactics, and if we don’t educate the next generation about the value of long-term investing, their financial prospects will be limited and it will be difficult for our industry to gain their trust,” said Carrie Schwab-Pomerantz, president of Charles Schwab Foundation.