New Research: Racial And Ethnic Disparities Persist Among American Households Who Own Taxable Investments
Small, But Encouraging Gains Apparent Among Some Groups
WASHINGTON—African Americans and Hispanics/Latinos continue to be underrepresented among investor households in America, despite modest gains by African Americans in recent years, according to new research released by the FINRA Investor Education Foundation (FINRA Foundation).
The study, Bridging the Divide: A Closer Look at Changes in the Racial and Ethnic Composition of Investor Households, examined investor behavior over a six-year period and found only about a quarter of African American and Hispanic/Latino adults owned a taxable investment account, and more than half owned no investments of any kind. However, the proportion of African Americans owning taxable investment accounts increased from 22 to 26 percent from 2012 to 2018.
“These findings confirm the presence of a stark, persistent racial and ethnic divide among U.S. investors,” said FINRA Foundation President Gerri Walsh. “We know that systemic racism—evident in disparities in income and wealth—poses significant barriers that can impede the financial inclusion of African American and Hispanic households. While our findings are not exhaustive, they provide tremendous insight and potential avenues to address problematic disparities in market participation.”
When researchers controlled for certain sociodemographic factors, racial and ethnic gaps closed substantially. These factors—education level, income, age, marital status and employment status—were tied to the likelihood of owning a taxable investment account. Those with a college degree were more likely to have a taxable investment account, along with households with annual incomes totaling more than $50,000. Financial assets, behaviors and knowledge also mattered. Those with an emergency savings account, higher financial risk tolerance and higher rates of financial literacy were more likely to own a taxable investment account, as were respondents who owned their home.
The FINRA Foundation analyzed data from the National Financial Capability Study (NFCS), collected in 2012, 2015 and 2018. Researchers examined investment account ownership across more than 80,000 households of differing racial and ethnic backgrounds. Researchers also examined three segments of households: households with taxable investment accounts; households whose only financial investments were in retirement accounts; and households without any investment accounts.
Across these investor categories, a number of differences emerged. Key findings from the report include:
- While African American and Hispanic/Latino adults make up 12 and 16 percent of the U.S. adult population, respectively, they comprise only 10 and 11 percent of households with taxable investment accounts.
- Of all the groups surveyed, African American women and Hispanic/Latina women were the least likely to own a taxable investment account.
- The rate of taxable account ownership among Asian American adults was higher than that of white Americans. Forty-five percent of Asian Americans reported owning a taxable investment account in 2012. The number fell to 41 percent by 2018, but was still substantially higher than the other groups studied.
- The investment gap between white women and white men was relatively minor. White women were 6 percent less likely to own a taxable account than white men, across the six-year period. However, African American women and Hispanic/Latina women were 14 percent less likely than their male counterparts to own a taxable investment account. Similar gender gaps were identified among Asian American men and women.
- Age was also a factor in owning an investment account. Each 10-year increment in age increased the likelihood of owning a taxable investment account by two percentage points.
About the FINRA Investor Education Foundation
The FINRA Investor Education Foundation supports innovative research and educational projects that give underserved Americans the knowledge, skills and tools to make sound financial decisions throughout life. For more information about FINRA Foundation initiatives, visit www.finrafoundation.org.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.