Black 401k Participants Lag White Counterparts in Wealth Building

February 27, 2021

For 63% of Black Americans, a retirement plan is their entry to the stock market, according to the 2020 Ariel-Schwab Black Investor Survey. However, even though participation in a 401k plan is roughly equal between Black Americans (53%) and white Americans (55%), white Americans have benefitted from stock market gains to a greater extent. Just 55% of Black Americans reported owning stocks, according to the report, compared to 71% of white Americans.

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Black participants are also saving less in their retirement plan: about 26% less every month than their white counterparts.

“Black Americans are already behind the eight ball, and it is disheartening to see that at current savings and investing rates, the wealth gap will continue to expand, endangering our futures and leaving our families exposed,” according to Mellody Hobson, co-CEO and President of Ariel Investments.

Hobson added in a statement that Black investors are less likely to inherit wealth (23% versus 51% of white investors), making it harder to build generational wealth.

Carrie Schwab-Pomerantz, President of Charles Schwab Foundation, noted that white investors are more likely to prioritize saving for retirement (44% versus 33%).

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“For so many Americans, the 401k is the first step to becoming an investor, and while it’s encouraging to see greater parity among those who have access to this opportunity through their workplace, it’s incumbent on employers and all of us in our industry to help 401k owners save more throughout their earning years,” she said in a statement.

Part of that effort will include building trust, according to the report. Roughly one in five respondents regardless of race said that financial services organizations aren’t to be trusted, but only half as many Black investors said they were treated with respect by financial professionals (35% versus 62% of white investors). That’s led to very low utilization of professional financial advice among Black investors; just 21% work with an advisor, compared to 45% of white investors.

Schwab-Pomerantz called financial literacy “a great equalizer, and a life skill that everyone needs. We have a responsibility to help people develop the knowledge and skills to become financially confident and remain lifelong savers and investors.”