Study: The 2022 Divergence Between Black and White Investors

Investor participation, Black and white, is at historic lows since the beginning of the pandemic

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On April 5, The Charles Schwab Corporation (NYSE:SCHW) released the results of the 2022 Ariel-Schwab Black Investor Survey. The study did conclude that investors - regardless of race - were experiencing historic lows in retail trader participation in the stock market amidst extraordinary market volatility since the beginning of the COVID-19 pandemic. The racial disparity notes from this study done in coordination between Charles Schwab and Ariel Investments are remarkable as this study has been conducted annually for 24 years now, comparing the investing and saving behaviors of Black and white investors.

The 2022 Ariel-Schwab Black Investor Survey

Chart c/o Charles Schwab

According to the study results, new and higher-risk investment options are strikingly popular amongst young Black investors as we have seen unregulated assets on the crypto markets surge in popularity during the pandemic. Specifically, "One-quarter of Black Americans (25%) currently own cryptocurrency, and among Black investors under 40, that figure jumps to 38%. This is compared to only 15% of white investors who own cryptocurrency, and 29% of white investors under 40."

Additionally, "Black investors are more than twice as likely to say cryptocurrency was their first investment (11% of Black investors compared to 4% of white investors), " according to the press release, "Younger Black Americans are even more likely to first experience investing through this high-risk asset class. Nearly a quarter (23%) of Black investors under 40 first invested in the stock market through cryptocurrency."

These data points cry out for an increase in education availability on high-risk investments, especially considering the wild volatility in cryptocurrency and the unregulated nature of the investments. At this point in time, Black investors are not only less likely than white investors to think crypto is risky, but Black investors are also significantly more likely to believe that crypto is safe and government-regulated.

Mellody Hobson of Ariel Investments comments on the concerning mix of factors here, stating, "The confluence of low stock market participation, appetite for risky investment options, and alarming lack of knowledge about fundamental investing principles is a red flag about the critical need for greater investor education. Many new and younger investors have never experienced market volatility like we’ve seen in the last couple years, and we have a responsibility to educate these new investors about the value of long-term investing to build wealth and achieve financial security.”

In discussing the 2022 survey results with Motley Fool, we were pointed to another study on racial disparities in making financial decisions - having a financial role model growing up and how that impacts an investor's current views on saving and investing. One of the key finding of the Fool study highlighted that 45% of white investors in America had a relatable financial role model, a clear standout compared to all other racial groups. The importance of a relatable financial role model is more important than one may think on the surface - those who had one were much more likely to trust the financial industry and stock market in general.

Whether is is a relatable financial role model or a solid understanding of the risks that come with the stock market, it is clear that the overarching need to provide accessible and relatable educational tools for younger investors of all races, with a particular focus on BIPOC investors.

 

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