A recent survey found that the percentage of African Americans who earn at least $50,000 annually and who invest in the stock market increased 30% over the last five years — more than seven times greater than the rate of increase for white Americans over the same period.
Today, three out of four high-income African Americans own stocks or stock funds, according to the Ariel/Schwab Black Investor Survey. Stock market participation in general has increased over the last two decades, and the survey shows that African Americans are an important part of the rising tide.
African Americans have traditionally shied away from stock market investments in favor of less volatile, more conservative investment vehicles. But the survey findings suggest that high-income African Americans who are invested in the stock market have a greater tolerance for risk. This growing risk tolerance is most likely explained by the fact that a majority of African Americans surveyed indicated that they were investing for retirement or to send their children to college. These are long-term investment goals that are not significantly affected by short-term price swings. Apparently, African American investors are recognizing the benefits of managing risk rather than simply avoiding it.
This is an important development because it signals changing attitudes toward individual saving and investing that could narrow the existing racial gap in wealth. While racially discriminatory practices, both past and present, undoubtedly contribute to the dearth of accumulated wealth possessed by African Americans, individual saving and investing behavior is another contributing factor. Spending rather than saving does not permit the opportunity to accumulate wealth. But the recent study finds that the African Americans surveyed cut spending in order to put more money aside for long-term saving and investing. This is a welcome trend.
Storing wealth in stock investments is a welcome trend for another reason. Historically, African Americans have had a preference for real estate as a means of storing wealth — a preference that remains strong. But it has been argued that housing discrimination results in African Americans receiving lower rates of return on real estate investments than white Americans. Stock markets are colorblind. Thus, African Americans have the opportunity to earn the same rates of return on their hard-earned dollars as everyone else.
A shift away from spending and toward greater saving and investing, whatever the means of storing wealth, is the best way to pursue the thus far elusive goal of economic empowerment for our community. Private wealth accumulation is not just a selfish pursuit; it has political implications as well. For example, the strength of our institutions and the future well-being of our children depend on the availability of economic resources that are controlled by socially conscious individuals, especially African Americans. Wealthier people can and do give more to charities. As a result, private wealth accumulation is a means of strengthening institutions such as the United Negro College Fund and the NAACP, and all the other charities that work tirelessly to promote the general welfare of the African American community.
Private wealth accumulation is