If middle- and upper-income African-Americans continue to save and invest the way they tend to do, they stand to struggle financially through retirement in greater proportions than whites at similar income levels.
On average, black Americans are saving less for retirement than whites, and close to half shun the stock market, according to a study released Thursday by Argosy Research for Ariel Mutual Funds and Charles Schwab Corp. Consequently, the money saved by black investors is not positioned to grow with the power that comes from stocks and stock mutual funds.
Ariel and Schwab started surveying middle- and upper-income people by race a decade ago, believing cultural differences were creating disparities in investment practices.
"Both whites and African-Americans are failing to save enough, but if Americans have a cold, African-Americans have pneumonia," said John Rogers, an African-American who is the founder of Chicago investment firm Ariel Capital Management.
One possible solution, experts say: more education, such as Ariel's support of a school in Chicago that teaches children about money.
In 401(k) plans, where people save money for retirement at their workplaces, the contrast between black and white investors is stark, Rogers said.
On average, blacks at age 42 have $11,000 saved for retirement, while whites have $48,000, Rogers said. He drew the numbers from a survey of 21,000 401(k) plans by the Great-West financial services company.
If each one of those people were to save another $2,000 a year and invest all the money in a stock market mutual fund, those with $11,000 could end up roughly with $195,115 at retirement, while those with $48,000 would have about $413,400.
This assumes that each would earn about 8 percent annually in the stock market on average. But the Ariel research suggests that many black investors probably would earn less than that.
According to the survey, only a third of black investors said stocks and mutual funds were the "best investment overall." Half preferred real estate, which historically has not consistently provided returns as high as stocks.
In 2002, 74 percent of African-Americans were investing in stock or stock funds. At the time, 82 percent of whites were doing the same.
As the stock market plunged, both races pulled away from the stock market, but the retreat was significantly higher among black investors.
Chris Long, a black financial planner in Chicago, said he recently talked an African-American couple into returning to a diversified portfolio of stock and bond mutual funds. They had been frightened by the downturn in 2002 and withdrew from stock funds, but they realized their savings were not growing adequately, he said.
"Culturally, African-Americans aren't comfortable in the stock market," Rogers said.
As a young broker years ago, Rogers said, "White friends came to me with stocks they had inherited from aunts or grandparents, but black friends came with nothing." Their families hadn't had the types of jobs or businesses that provided experience with investing, he said.
"There was no lifetime experience, and that's a big thing," he said.
"There weren't discussions about the stock market around the dinner table," said Lisa Toppin, vice president of human resources at Schwab.
In the survey, most black respondents said they are getting their first experience with investing in 401(k) plans at work. And that is a relatively new trend. In the past, black employees often have worked in jobs that provided defined-benefit pensions, but those plans are fading away.