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Investors of Color: New Insights from FINRA’s Investor Education Foundation

February 20, 2024

The FINRA Investor Education Foundation has released a new report, Investors of Color in the United States, examining the behavior and attitudes of investors of color based on data from the FINRA Foundation's National Financial Capability Study coupled with a series of focus groups conducted with young Black/African American, Hispanic/Latino and Asian American/Pacific Islander investors. 

The report shows interesting trends related to the pace at which these investors are entering the market, their views on risk, where they're receiving information and more. On this episode, we hear more from Ritta McLaughlin, Director of Investor Education, Community Outreach, and Principal Research Analyst Dr. Olivia Valdes to learn more.

Resources mentioned in this episode:

Investors of Color in the United States (2024) 

Gen Z and Investing: Social Media, Crypto, FOMO, and Family (2023)

Investors in the United States: The Changing Landscape (2022)

New Accounts and the People Who Opened Them (2021)

FINRA Investor Education Foundation

Episode 134: Gen Z Investors

Listen and subscribe to our podcast on Apple PodcastsGoogle PodcastsSpotify or wherever you listen to your podcasts. Below is a transcript of the episode. Transcripts are generated using a combination of speech recognition software and human editors and may contain errors. Please check the corresponding audio before quoting in print. 


00:00 - 00:38

Kaitlyn Kiernan: The FINRA Investor Education Foundation has released a new report, Investors of Color in the United States, examining the behavior and attitudes of investors of color, based on data from the FINRA Foundation's National Financial Capability Study, coupled with a series of focus groups conducted with young Black/African American, Hispanic/Latino, and Asian American/Pacific Islander investors. The report shows interesting trends related to the pace at which these investors are entering the market and their views on risk, where they're receiving information and more. On this episode, we hear more from two members of the FINRA Investor Education team. 

00:38 – 00:47

Intro Music

00:47 - 01:15

Kaitlyn Kiernan: Welcome to FINRA Unscripted. I'm your host, Kaitlyn Kiernan. I am back from parental leave and excited to kick off my return to FINRA Unscripted with an interview with two individuals from FINRA's Office of Investor Education to discuss a new report focusing on investors of color. Joining me today are Ritta McLaughlin, Director of Investor Education, Community Outreach, and Principal Analyst Olivia Valdes. Ritta and Olivia, welcome back to the show. 

01:15 - 01:18

Ritta McLaughlin: Well, Kaitlyn, thank you so much for having us again today. 

01:18 - 01:25

Kaitlyn Kiernan: So, just to kick things off, can you each just introduce yourselves to our listeners? Olivia, do you want to start? 

01:25 - 01:55

Olivia Valdes: Sure. I'm a Principal Research Analyst at the FINRA Investor Education Foundation, and I'm a research psychologist by training. So, at the Foundation, I lead and support research projects that advance the mission of the Foundation, which are helping adults in the U.S. build wealth and protect wealth. And so, the study that we're talking about today, gaining a better understanding of investors of color, that falls pretty squarely in that first 'build wealth' bucket. 

01:55 - 01:57

Kaitlyn Kiernan: Fantastic. Thank you, Olivia. Ritta, how about you? 

01:58 - 02:28

Ritta McLaughlin: Well, hi, I'm Ritta McLaughlin, the Director of Investor Education, Community Outreach with the Foundation. And in that role, I'm responsible for leading the Foundation's efforts related to financial inclusion. And what that means is that working with our researchers, both in terms of developing research and exploring topics related to financial inclusion, but also leading the foundation's efforts in creating partnerships with national community-based organizations that support the Foundation's mission and objectives. 

02:29 - 02:45

Kaitlyn Kiernan: Great. So, to dig into the study, into Investors of Color. The study found an overall increase in the number of investors in this population. Can you share more about which groups are driving these changes? 

02:46 - 05:13

Ritta McLaughlin: It's important to look at when we talk about capital markets participation, to recognize that there are many facets to the capital markets. And in that context, when we think about how markets work and ensuring that they work for all people and for all those who really wish to participate in fully and equitably in the capital markets. So, generally, when we think about capital markets participation, there are essentially seven factors that stand out. And it's education and awareness, accessibility, incentives, diversification of products that address risk and tolerance in appetites, the regulatory environment, financial inclusion which brings people into this system and reducing barriers of entry. 


As discussed in the study and through the focus group participation, a lot was highlighted with many aspects of these factors. They cite that their increase in knowledge through various sources, be that through family, through friends, colleagues and social media, and the fear of missing out also was cited of getting people engaged in capital markets. And also, what we found in the research was that was among African American, Latino and Asian American Pacific Islander investors. Seventy-one percent or more were also motivated by their desire to learn from investing. The availability of online videos and apps to directly manage their accounts, were also articulated as reasons for the population to want to participate in the capital markets. 


But importantly, back to your question, when we think about who were the main participants in this study, it really pointed to new investors and this new generation of investors. What we have seen is that they have really emerged since the pandemic, and they are young, low income and are increasingly African American and Latino. And this is exciting news, as investing in the capital markets is an important vehicle for financial stability and for wealth accumulation. When we looked at compared to 2015, the proportion of investors has increased nine percentage points for Black and African American adults, six percentage points for Hispanic and Latino adults, and seven percentage points for Asian Pacific Islander adults. And so, when we think about who has been participating in the capital markets, this is actually great news to see the new generation of investors coming into our marketplace. 

05:14 - 05:25

Kaitlyn Kiernan: Yeah, that's great to hear about the expansion of our capital markets with new investors. So, Ritta, you mentioned that investors of color tend to be younger. Olivia, why is that important? 

05:25 - 07:24

Olivia Valdes: We do find that investors of color and in particular Black/African American, Hispanic/Latino investors, they're quite young. Nearly half are between the ages of 18 and 34. And when I mean nearly half, 49% of Black investors, 45% of Hispanic investors, are in that age group. To your question of why does that matter, well, there are certain things that we'd expect among younger investors, so they tend to be newer to the market, their account balances tend to be lower. They tend to have lower incomes just because they are younger. And these are all things that we're seeing with investors of color. So, there's some overlap between the demographic characteristics of young investors and the demographic characteristics of investors of color. 


We're also seeing that the younger age of Black and Hispanic investors is important to keep in mind, because many of the tendencies that we're seeing among investors of colors reflect those of young investors more generally. For instance, we're seeing that many Black and Hispanic investors are likely to invest in things like meme stocks, cryptocurrency, options. Those are things that a large portion of young investors more generally are also doing. And it's the same thing when we look at information sources. So, many Black and Hispanic investors in particular are relying on friends and family, they're using social media, they're using online videos to get their information, even recommendations from mobile trading apps. Again, these are behaviors and attitudes that are very true for young investors more generally. And actually, when we statistically adjust for age, many of these findings that we're seeing for investors of color, they tend to disappear. So, what I mean to say is that a lot of these differences are not really driven by race and ethnicity, they're driven by age. 

07:25 - 07:59

Kaitlyn Kiernan: That's really interesting to see how because these investors are so young, it can make it seem like it's race or ethnicity that's driving some of these tendencies. But really, it's the age, as you pointed out when you correct for the age. So, for those interested in digging in more on the specific behaviors of young investors, make sure you check out our podcast from last year where we dug into a FINRA Foundation study specifically looking at Gen Z. That's Episode 134, and it has a lot of good information on this younger cohort of investors. 

07:59 - 08:27

Olivia Valdes: Within the survey data, within the focus groups, we can see patterns, we can see interesting quotes. But these participants, investors, investors of color, people in general are not a monolith. And so, we did see a lot of individual differences. And it's important just to know that no one fits the average. And so, these data provide a lot of enriching and important information. But that is something that we need to keep in mind. 

08:28 - 08:34

Kaitlyn Kiernan: Ritta, what are some of the motivations for investing among investors of color as found in this study? 

08:34 - 10:02

Ritta McLaughlin: We look at the population that was in this study in terms of why they are participating in the market. There were multiple reasons that were listed, and many of them were beyond long-term profits or long-term investing. We found that 95% of African American/Black, Latino/Hispanic and Asian investors say that they actually invest for the long term in looking for long term profits, which generally perceived of why people participate in the markets. But then we also found that there were some investors that were interested in short term profits. They were interested in learning about investing. That was one of the reasons that they were participating in the marketplace or coming in. And others, in fact, were committed to making a difference. Also, equally as interesting is that there were investors who were there for entertainment. And taking into consideration that many of the investors are trending younger, their peers were doing it and they thought that they should be doing it too. And we saw that particularly for 56% of Black and African American investors and 46% of Hispanic and Latino investors and 36% of AAPI investors were in that category, of having interest in participating because their peers were doing it as well. And so, that's a sense of many of the reasons that were cited about the interest for participating in the capital markets and becoming new investors. 

10:02 - 10:16

Kaitlyn Kiernan: So, FOMO is not always a good thing, but I guess it is a good thing here when you have people starting to invest for their future. Olivia, are there any findings related to risk that this new study can offer insights into? 

10:16 - 12:50

Olivia Valdes: There were several interesting findings related to risk. Some of them were in terms of what people understood about risk, and then also the risk that they were willing to take. So, like Ritta alluded to earlier, for part of the study, we talked to young investors of color about their experiences investing. And in these conversations, it became pretty clear that they understood risk in narrow terms. So, basically, am I willing to lose the money that I invest? And that's pretty much the entirety of how they were perceiving risk. So, as a result, they were less willing to take risks with larger amounts of money than smaller amounts. But that was the entirety of how they were perceiving risk. Very few said things like that they compartmentalize their investments. So, for instance, they had one account where they invested in "play money," where they invested in riskier things versus their other investments. Very few did that. 


The other thing that we thought was quite interesting is that many reported a willingness to take above average or substantial amounts of risks. So, it's not just about understanding risk, but even just risk tolerance. People do say that they want to take substantial risk, especially Black/African American investors. We saw that 55% said that they'd be willing to take substantial risk. And even though a lot say that they want to take high risk, this is not necessarily all of these investors of color. Many investors of color don't want to take substantial risks. They want to take average risk or below. But sometimes their behaviors aren't aligning with what they're saying that their risk tolerance is. So, you know, many of them are investing in things like crypto or meme stocks. And in some cases, we wonder whether they're aware that these are riskier or more complex products. But when we talk to these focus groups, sometimes they are aware, and they understand that what their risk tolerance is doesn't always align with their behavior. 


And this is where FOMO comes in. So, some of these participants, and you can look at the quotes which are really interesting within the study, they will say, 'I just wanted to do what my friends were doing,' or 'I know that my risk tolerance is A, but sometimes I'm doing B,' so it's interesting that some of these participants are actually aware of that disparity. 

12:51 - 13:18

Kaitlyn Kiernan: That's a really interesting point. It sounds like there's a great education opportunity in what we mean when we're talking about risk, especially when people open new accounts. It's you generally check a box on what your risk tolerance is. So, it's also been encouraging to see that market participation is growing in terms of relative numbers, as we talked about at the beginning, but in overall terms as well. So, how many are participating in capital markets these days?

13:18 - 14:36

Olivia Valdes: So, that's a really important and nuanced question, Kaitlyn. Because on the one hand, you're right. It's super encouraging to see that there's relative increases in market participation since 2015, especially for groups that have not traditionally participated in the market. And as Ritta was saying, nine percentage, .67 percentage points, these are meaningful increments, but it's important to also look at actual terms like what are the real numbers of participation? And even across the board, we're seeing that 35% of adults in 2021 were participating in the capital markets. So, if you flip that around, that means that two thirds of people are not participating in the capital markets, a majority are not benefiting from market participation. And when we look at younger people or when we look at investors of color, particularly Black and Hispanic adults, those numbers are even more staggering. So, only 29 and 30%, respectively, are participating in the market. Again, flipping that on its head, that means that 70% or more are not benefiting from such an important vehicle to financial stability and wealth accumulation. 

14:37 - 14:53

Kaitlyn Kiernan: So, a lot of opportunity there for continued improvement. Ritta, earlier you were talking about some of the factors that are helping aid participation and entry into the market. But on the flip side of that, what are some of the factors that continue to serve as barriers to entry? 

14:54 - 16:10

Ritta McLaughlin: When we think about the factors that continue to be barriers, Olivia mentioned when we look at over 70% of people not participating, what's getting in the way? Our barriers to inclusion that have been well documented related to disparities in income, wealth transfer, education, employment. So, it's no surprise that people who participated in our focus groups mentioned really four top areas that prevent people from engaging in the market. Of course, resources, and that's having available funds to be able to invest. Second, it's actually having access to the knowledge and the ability to learn by doing. And so, having actionable knowledge. The third is actually having market access. And that's tools that are built to encourage accessibility for people that are living on low and moderate incomes. And also having those tools keep them in mind as they are being developed. And finally, it's the idea of people feeling like they can be an investor, or they should be an investor. And that investor identity, in many instances, gets in the way of people participating in the market in addition to the available resources that they have, that they don't see themselves as investors in the capital market. 

16:12 - 16:25

Kaitlyn Kiernan: Ritta, you just mentioned those focus groups. That is one unique aspect of this study, as opposed to other studies that the Foundation has done. Olivia, can you tell us more about these groups and what kind of insights they provided? 

16:25 - 18:02

Olivia Valdes: These conversations were really enlightening because they allowed us to understand the role of things like culture, the role of society, generation, all of these things that are difficult to assess within a survey. So, we talked with six groups of young investors of color, so they were between the ages of 18 and 34. And one of the many things that we learn was about the barriers that they face. So, as Ritta was mentioning, many suggested that income and socioeconomic variables, they limited their opportunities to invest. Many cited lack of knowledge about investing. Others cited things like historical policies that have limited entry to the market. So, we were able to have these rich conversations about what they believed had limited their entry to the market, their parents, their families, their communities, which was very enlightening and something that is not that easy to get from a survey. We were also able to look at opportunities. So, from their own perspectives, what did they find were important opportunities? And we saw the role of technological advances. They said that it increased their access to investing opportunities. They had information in ways that their parents and past generations hadn't really had before, which made them more likely to invest than past generations. All in all, it was very interesting and insightful to actually have conversations beyond what we can tell from the survey data. 

18:03 - 18:14

Kaitlyn Kiernan: Yeah, that's great. Data can only tell you so much, so it's great to hear from actual people in conversation as well. And what prompted the Foundation to use this approach for this study? 

18:15 - 19:24

Olivia Valdes: Having the two different approaches, both survey data and focus groups, they really enrich each other because from survey data, we can learn about patterns and differences between groups. We can leverage this large, nationally representative sample of investors to quantify these investors' experiences. But what we can't get from these survey data are the why of the findings, we can't really understand when people are selecting an answer what's going through their heads. We're limited to the questions that we as researchers decide to ask, and sometimes we don't know the questions to ask. And so, pairing the survey data with focus groups gives us the best of both worlds. In one hand, we can quantify and really understand the patterns and how differences occur across groups. But then we can go back and ask real people, what did you think about this? It was really important for us to hear from the voices of real investors, to add that context and nuance to the survey findings. 

19:24 - 19:44

Kaitlyn Kiernan: And I definitely encourage our listeners to check out the study itself. There are quotes from some of the focus group participants weaved in throughout the report, which I think is very interesting to see. Ritta taking a little bit of a step back, can you tell us a little background on the study overall and what prompted it? 

19:44 - 21:54

Ritta McLaughlin: Well, I think it's important, Kaitlyn, to just think about some of the work that the Foundation has done since 2020. In fact, earlier the Foundation published some research on new accounts and the people who open them, and that was published in February of 2021. And that study revealed that new investors during 2020 tended to be younger, earn lower incomes and reflect really, the mosaic that is the United States. In that study, we found that 66% of individuals who opened accounts had not previously owned a taxable investment account, and that research showed that those new investors were demographically different and also reflected sort of the general census demographic trends that related to age and ethnicity in the country. So, building on that research and the 2021 National Financial Capability Study Investor Survey, this study took a deeper dive into the new generation of investors. And looking at what does that participation look like?


And that's really important when we think about the research that's been conducted, that we actually are able to see that the growth of participation in the marketplace really reflects individuals seeking to have financial stability to asset accumulation, and that's good for the individuals and that's good for the overall economy. Continuing on this path of full and equitable market participation and gaining better understanding really helps the overall marketplace, understanding the changing client base, the investors, what their motivations are, and what their appetites are in terms of their overall participation in the capital markets. Fostering this better understanding is one of the real reasons that the Foundation actually engages in research, so that we can offer to the public what's needed from new investors and younger investors who are evaluating their risk, who are also looking at ways to build their overall asset and also invest for the long term. So, that's part of at the source in the background of why we actually have conducted some of this research and looking at ways to really tease out what really matters to investors. 

21:55 - 22:08

Kaitlyn Kiernan: Thanks, Ritta. And at the end of the day, what are your overall thoughts on the study? Do you think there are any key takeaways in the results for firms, regulators, or others with a vested interest in investor behavior? 

22:09 - 23:31

Ritta McLaughlin: We have a new generation of investors. They've entered the marketplace and they are younger. We're looking at Gen Z participants who are between the ages of 18 and 25. We have millennials that are participating in the marketplace between the ages of 26 and 41. And we know that with the magic of compound interest, that their investments in the capital markets bodes well for the next generation. And that's in terms of their overall financial wellness, their financial capability, and importantly, their financial stability going forward. And that's good for the individual, that's good for communities and overall, that's good for our economy as a whole. So, understanding their perspective, their needs, their wants, their desires, offers an opportunity for our financial ecosystem to support a vibrant marketplace. 


We've also seen just this democratization of information. And so, as we are working with people in communities all across the country, it is helpful for us to be able to give people the skills, the tools, the resources to be able to distinguish fact from fiction. And that actually includes understanding what information, what advertising may be false, but providing information that people can use that's actionable, that's actually honest and truthful. And as part of our role, it's important that we are able to provide that in communities across the country. 

23:31 - 23:46

Kaitlyn Kiernan: Yes, when the social media is a data source, that's important. And I think it's also important just to help investors understand the questions they should be asking, because I think sometimes that's the hardest part, is they don't even know what they should be asking. How about you, Olivia? 

23:46 - 25:05

Olivia Valdes: Like Ritta said, this is a new generation of investors. And if we want to better serve them for firms to retain this new client population, it's important to understand them, understand what their motivations are, understand where they're getting their information, what their needs are, and hopefully keep them in the market because we know what an important vehicle this is to wealth accumulation. And for financial educators, policymakers, other stakeholders, these data provide really rich information about things like where investors are getting their information from. We know that they're going to social media. We know that they're going to online videos. These are places where those with a vested interest in investors need to be. These are places where we can provide and enrich their information search, where they need reliable information. And one of the motivations that many of these investors of color gave as to why they're investing is because they want to learn. So, there's a real appetite for learning among new investors, and we can provide that. I see that there's so much opportunity all around for us who want to serve new investors. 

25:06 - 25:14

Kaitlyn Kiernan: Ritta, we mentioned that you are Director of Investor Education, Community Outreach. How do you see yourself and FINRA using this information in your work? 

25:16 - 26:05

Ritta McLaughlin: As Olivia mentioned, there is a huge education component that was actually discussed by many in the focus groups. And so, that information that they provided in specific topics and areas that we can think about as we work with our partners all across the country and community to ensure that their participants in those programs have access to that information. And we also recognize that given from this research, we see that people are getting information and from lots of different sources, not just from individuals or even social media, but also from friends and family to ensure that those networks are having access to information. In addition, what that means is that we also see from the research that there is a deep desire for people to understand what it means to invest long term, and also to be able to generate income long term. 

26:06 - 26:09

Kaitlyn Kiernan: Ritta, at the end of the day, what do you hope comes out of this study? 

26:10 - 26:45

Ritta McLaughlin: I would say what we hope to come out of it, in fact, is to continue to enrich the research and information that's available both for the researchers, both for policymakers and decision makers to really understand the activities that are happening in the capital market. And as we've talked about that, we do have a new generation of investors and that there is the need to continue to study what their interests, their appetites, their needs are, and that we're providing information for the industry and for investors to consider as they are making investing decisions. 

26:45 - 27:35

Kaitlyn Kiernan: Thanks, Ritta. I know the FINRA Foundation has a rich pipeline of studies coming up this year, so this is just one of many to come. So, I really appreciate you both taking the time to delve into the findings of this report on investors of color. We will definitely link to the report and other reports mentioned in the show notes, so you can check out the full study and other research by the FINRA Foundation. And if you don't already, be sure to subscribe to FINRA Unscripted to stay up to date on all of our latest episodes. We will definitely have more in the year to come looking at more foundation research. If you have any ideas for future episodes or feedback on today's episode, you can email us at [email protected]. Today's episode was produced by me, Kaitlyn Kiernan, coordinated by Hannah Krobock and edited and engineered by John Williams. Until next time. 

27:35 – 27:41

Outro Music

27:41 - 28:09

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