Black investors have always had to risk more for less, Wall Street watchdog says

A report from FINRA's educational arm sheds light on some of the building blocks of the racial wealth gap

By Melvin Backman4 min readUpdated February 19, 2024

On the eve of Black History Month the Financial Education Foundation, an extension of the watchdog Financial Industry Regulatory Authority (FINRA), released a report analyzing the demographics, habits, and assumptions of investors of color—Black, Hispanic/Latino, Asian American/Pacific Islander—as well as white investors. Looking at the numbers for the Black investors, the top notes go like this: They’re younger, they have less experience in the market, and arrive at their financial decisions in different ways than their older, whiter peers.

“Many participants reported that investing is not common in their communities, as preceding generations did not invest due to socio-economic status (insufficient money) driven in part by historical policies that limit opportunities, or generational status (recent immigrants with little knowledge of the financial system), or both,” the report reads. “Thus, they have had to teach themselves how to invest, or seek the help of colleagues (often white) with more investment knowledge and investment experience.”

Serious play money

An important caveat is that the investors in question are people who putting money to work outside of their retirement accounts, the way that most people interact with the stock market. Because FINRA is a private-sector organization funded by the financial industry, its foundation’s goal is to make people feel comfy-cozy when they provide the capital to keep Wall Street’s lights on. They don’t want to ameliorate the Black-white wealth gap through taxes or other kinds of wealth redistribution, they just want Black people to invest themselves up by their bootstraps.

To that end, the “education” part of Financial Education Foundation goes both ways; people outside the industry can learn best practices about how to invest, and people inside the industry can learn how to cater to them. One of the most important numbers is the amount of money at stake for Black investors compared to white ones: America’s cohort of white investors skews more top-heavy, with nearly a third of them having (non-retirement!) holdings greater than $250,000, while most Black investors are working with less than $50,000.

Part of that gap can be explained by age, since half of the white investors are older than 55 and half the Black investors are younger than 34. But given that the Federal Reserve’s Survey of Consumer Finances finds that white household wealth tends to be about six times the amount of Black household wealth across the board, these figures aren’t coming from nowhere.

Late starts

The holdings imbalance helps explain another facet of the report: 95% of both Black and white investors put money in the market to make money in the long term, but a lopsided 91% of Black investors are trying to make money in the short term as well, compared to just 69% of white investors. Per the report, that speed bias manifests in lots of different ways, like a greater tolerance for making risky bets, or more buy-in for volatile asset classes like cryptocurrencies and meme stocks.

A Black woman who had participated in a focus group for the report framed her investment activity partially in terms of making up for lost ground. “My male coworkers were teaching me about investments, and a lot of them were white, and it was them teaching us—as in women, Black women—how to invest,” she said. “They had been doing this for years, since they were teenagers, and they’re well into their later adult life. We’re kind of just recently investing in the last five years.”

That time gap regarding the onset of investing, or of at least being in a financial position to invest, is one of the main benefits of the so-called “baby bonds” proposed by economist William Darity. Under the plan, every American child would receive $25,000 investment trust at birth to be paid out at adulthood, with larger payments going towards lower-income families. New Jersey senator Cory Booker and Massachusetts representative Ayanna Pressley really like the idea, and have sponsored bills based on it multiple times.

Coming a long way

An article in the Journal of Economic Perspectives last fall, “Changes in the Distribution of Black and White Wealth since the US Civil War,” is a reminder that the racial wealth gap exists not just because enslaved Black people were denied full citizenship and thus unable to build wealth — they were literally the wealth itself.

“We understand now that the wealth gap between Black and white Americans narrowed in the first century after Emancipation, despite grave obstacles to Black wealth accumulation,” the authors write, while also spelling out those obstacles:

In the post-slavery period, Black Americans faced discrimination in labor and housing markets, exclusion from financial markets, and outright destruction of Black wealth that hindered continuous convergence in their wealth. On top of this, the rising importance of capital gains since the 1980s has reversed the racial wealth convergence process altogether: the average wealth gap today is larger than at the end of the civil rights era of the 1960s and 1970s.

(Don’t tell FINRA about that capital gains line.)

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