As a young woman working at Seafirst Bank in Seattle, Cynthia Hunter set down her goal: “Instead of being around people with money, I wanted to actually have some of it myself.”
She became involved in the bank’s 401(k) plan, then started investing on her own, first in mutual funds and then in individual stocks. She joined an investment club about 10 years ago, long before it was the thing to do.
Frank Mason, 55, of Mill Creek, Wash., traces his interest in investing to the ’60s. With his wife, Patricia, he has been buying stocks for more than 20 years.
“When I get up at 6 in the morning,” said Mason, who calls himself semiretired, “the first thing I look at is my portfolio and how the stock market is doing.”
The statistics show that the Masons and Hunter are anomalies: African-Americans who have gained from the stock market run of the past 20 years.
In 1997, 10.4 percent of African-Americans owned stock, compared with 48 percent of whites, said Edward Wolff, an economics professor at New York University, who is considered an authority on wealth distribution.
More than income differences seem to be at work. Among people with annual income of more than $75,000, 66.7 percent of African-Americans own stock, compared with 80.5 percent of whites, Wolff said.
A recent survey by Ariel Mutual Funds and Charles Schwab yielded similar results. That survey, of people with annual household income of more than $50,000, found that 64 percent of African-Americans invested in the stock market, compared with 82 percent of whites. Aversion to stocks can be costly and has been especially so in recent years. From 1980 through 1998, stocks returned better than 15 percent a year, according to Ibbotson Associates in Chicago.
“We’re closing the income gap,” economist and author Julianne Malveaux said recently. “It’s inevitable that the digital divide is closing. Guess what gap isn’t closing? The wealth gap.”
There doesn’t appear to be one simple reason why African-Americans are less invested in stocks than whites at similar income levels are. African-Americans’ distrust of the market and the financial-services industry and a lack of knowledge about stocks have been commonly cited by African-Americans. Differences in spending and saving priorities seem to be a factor, as do differences in inheritance levels.
In any case, the picture appears to be changing. In the Ariel/Schwab survey, the number of African-Americans who say they own stock has risen by 12 percent in the past two years. In about that same time, the Coalition of Black Investors (www.cobinvest.com ) has grown to include more than 7,000 members, said the group’s president, Carol Davis.
Last year’s Ariel/Schwab survey found that African-Americans were more likely than whites to have taken steps to increase their investing knowledge. And personal-finance books written by African-Americans for African-Americans are appearing more often.
In “It’s About the Money!” the authors, the Rev. Jesse Jackson and his son, Jesse Jackson Jr., an Illinois congressman, call wealth building the fourth phase of the civil-rights movement.
The financial-services industry appears to be recognizing the changes. Schwab held 50 workshops last year aimed at African-American investors, said Schwab Vice President Michael DeFlorimonte.
The industry has a ways to go in the eyes of Ken Smikle, president of Target Market News, a research company based in Chicago that monitors African-American marketing and media trends. He sums up a common black perception this way: “All I know is that the world of money has never treated me like I had any.”
Hunter had been handling her own investments a few years ago when she decided that she needed help. Her concerns about the brokerage industry were hardly unusual: unnecessary buying and selling, high fees.
Ultimately, though, she decided to work with Gerald Schley of Merrill Lynch, whom she had come to respect while working with him on a church committee.
“The color of his skin was probably a huge factor,” said Hunter, 38, who lives in Seattle and is a realtor for John L. Scott Real Estate. “Coming from a common experience made me able to trust him a little more. That and the fact that we belonged to the same church.”
Mason agrees that trust is an issue.
“It’s even more of an issue when you don’t know how to do it yourself,” said Mason. “I know what I’m doing, so I don’t have to trust anyone completely.”
Mason has served as president, vice president and now treasurer of an investment club of African-American men, which now includes a group of about 10 youths.
“It’s important to share that knowledge with people who are willing to listen,” Mason said. “The earlier the better.”
The Coalition of Black Investors was formed in 1997 to address the issue of financial education and exposure.
“My husband is a certified financial planner,” Davis said. “He had been in the business since 1984, and 90 percent of clients were not African-American.
“We started to figure out how we could get more African Americans involved in planning and investing. We had seen the statistics on African-American income being valued at $500 billion a year, yet we were only a small percentage of the investment market. We felt that by creating organization to address that issue, we could make a difference.”
Wealth-building simply hasn’t been the top priority for African-Americans, Davis said.
“We’ve kind of been conditioned to go to college and get a good-paying job with good benefits,” said Davis. “The focus has been on income and not on accumulation of wealth. That is why the gap has continued to exist.”
Inheritance disparities haven’t helped.
“Part of the difference in investing behavior is due to the fact that whites inherit a lot more than blacks,” Wolff said. In fact, they inherited 10 times more from 1990 to 1997, according to his research. “Some of that inheritance is in the form of stocks.”
Investment goals affect investment decisions, as well. In the Ariel-Schwab survey, African-Americans were far less likely than whites (33 percent to 49 percent) to name retirement as their most important saving or investing goal. They were more likely than whites to list preparation for an emergency or future need (18 percent to 12 percent) or sending children to college (22 percent to 16 percent). Because people tend to need money for emergencies and college sooner than for retirement, investing for them tends to be less aggressive.
Smikle cautioned against seeing African-American investing habits in a strictly negative light.
“There’s something about that conservative nature that makes for a potentially successful investor,” he said. “That’s not a bad thing. That’s good.”
In any case, the financial behavior will change, Davis believes.
“The growing black middle class is relatively young,” she said. “Our financial savvy will increase, and we’ll accumulate wealth that we can pass on to our children and grandchildren.
“I’m not saying we’re behind where we should be or blaming anyone. I’m just saying this is the time to address the issue and make a difference.”
