Nationwide protests over the death of George Floyd, an unarmed black man killed by a white police officer, are renewing attention to the ways that African Americans have been failed by everything from policing to job creation and public health. Many black Americans have also been unable to improve their quality of life through stock market investing—an important wealth generator.
There are many factors that prevent African Americans from accumulating the equity-market holdings their white peers have, including barriers for education, homeownership, higher rates of incarceration, and lower incomes. That translates into far less scope for investing in the stock market, which can amplify savings and build wealth for retirement or getting a college degree. As a result of those and other factors, black people in the US have a median level of household wealth that’s around 10-times lower than whites.
While the stock market is far from a guarantee for getting rich, the equity market’s capacity to help savers accumulate wealth through long-term, diversified investing is well documented. Over the past 20 years, the S&P 500 Index of large US stocks has generated about 6% annually, a return that would turn $500 of monthly investment into more than $20,000 of additional wealth (before taxes) in 10 years, compared to keeping that money in a no-interest checking account.
But African Americans are far less represented when it comes to financial asset holdings, from retirement accounts and investment funds to direct stock ownership. About 30% of black households in the US have retirement accounts, compared with around 60% of whites. The disparities between black and white households’ financial assets are even greater than they are for other important sources of wealth, like housing and vehicles, according to data from the Federal Reserve.
Rich families have the biggest share of the stock-market pie—the wealthiest 10% of US households owned about 83% of those holdings, as of 2016, according to the Federal Reserve Bank of St. Louis. “Stock market wealth is heavily concentrated,” wrote Lowell Ricketts, lead analyst for the Center for Household Financial Stability. “The risk—and rewards—associated with the stock market don’t accrue to many Americans.”
There’s a strong correlation between a college degree and stock market ownership. People of any race with a degree are much more likely to own a piece of the US equity market.
But education still hasn’t made things equal, and the vast majority of stock market wealth is owned by white people who went to college. Some 86% of white households headed by a college graduate owned stocks in some form in 2016, compared with 62% for African American families. Only about 2.4% of the country’s equity market wealth is held in the portfolios of black and Hispanic degree-holding households, according to the St. Louis Fed.
While deep imbalances persist, stock market ownership is, in some respects, easier than ever. Thanks to financial apps, millions of people can buy shares of America’s most promising companies using the phones they already carry in their pockets. But the stock market’s wealth generation will remain out of reach if inequities in the job market and other parts of society aren’t rectified.