Disparities between African American versus White boomer retirement savings patterns are important for financial advisors to examine. Since 1998, Ariel Investments and Charles Schwab have conducted the Ariel/Schwab Black Investor Survey, an annual study that compares and contrasts higher income ($50,000 or more) African American and White households in terms of their savings and investment attitudes and behaviors. When working with Blacks, it's important for financial advisors to know that both our situations and attitudes tend to differ from those of our white counterparts.
African Americans hold less than half of what their White counterparts hold in retirement plans. The median for African Americans is $53,000 versus $114,000 for Whites.
There are two key reasons for the difference. First, we contribute at lower rates, investing $169 monthly in retirement accounts, compared to $249 for White Americans. Second, we are more financially conservative. Specifically, a considerably lower percentage of us have exposure to stocks, the asset class with the best long-term rewards but also the greatest volatility. While 82 percent of Whites hold stocks or stock mutual funds, only 62 percent of African Americans do so. All this is even more problematic because Blacks tend to retire a few years earlier than Whites.
One of the key reasons behind this dramatic difference in behaviors is African Americans' preference for real estate over the stock market. We favor tangible investments, things we can see and touch. Before the housing bubble began to burst in 2004, 61 percent of Blacks thought real estate was the best investment versus 51 percent of Whites. By 2008, this perception had fallen to 39 percent and 28 percent, respectively. Clearly, owning a home is a key part of the American dream. And for a long time, redlining -- when lenders won't make loans in low-income areas -- meant there was a sign on the door telling us to keep out. So, especially for us, becoming a homeowner holds important status, plus it creates a sense of security. Real estate is not, however, a great investment. Historically, the returns on real estate are about half those of the stock market.
Another key finding is while Whites tend to agree that retirement is the key saving and investing priority, Blacks often have other top goals. In keeping with our general conservatism,18 percent of Blacks list preparing for emergencies as the top reason to save, compared to only 14 percent of Whites. And 15 percent of African Americans save primarily to send their kids to college, versus 11 percent for Whites. These preferences also have their roots in our different history: emergencies have hit us harder, and we strongly value education as the way to help our children succeed.
That's the big picture. Below is my list of the key things that can help financial advisors succeed with Black clients:
- More so than in other families, women are critical in financial decision-making in Black families.
- African Americans prefer a personal touch in money matters. Specifically, we don't like communicating about money via e-mail.
- Be attentive to our unique biases. African Americans tend to be conservative overall. And even when we do have a good bit of money, we like to move slowly with it. Black clients often start investing with smaller sums and ramp up more gradually.
- While you certainly want to get African American clients on the road to a happy retirement, don't overlook how much we appreciate a good education. A discussion about the benefits of 529 plans can be a productive starting point.
- Finally, the bursting of the real estate bubble presents a great opportunity to talk about stocks. Helping your clients to see a house as a place to live and stocks as the place to invest will produce bigger nest eggs -- and happier clients.
Mellody Hobson is president of Ariel Investments, a Chicago-based money management firm that serves individual investors and 401(k) plans through its no-load mutual funds and manages separate accounts for institutional clients.
