To close the investing gap between Black and white Americans, experts say 5 things need to change

  • The racial wealth gap in America is well-documented, but there are steps we can take now to help close the gap — including encouraging Black Americans to invest more.
  • Researchers estimate that about 67% of Black American households earning $50,000 or more invest, compared to 86% of similar white households, in part because of generational wealth gaps.
  • To close the investing gap and build wealth, it’s important to know why investing matters, increase our earning power, seek out reliable information, and take action. 
  • Click here to sign up for Business Insider’s “Closing the racial wealth gap” panel on September 25 »

Investing has never been easier. Thanks to apps and smartphones, we can buy and sell stocks with a single click — without fees or gatekeepers. 

But while we may have greater access to the market, we’re not all investing at the same rate. In the US, Black Americans tend to invest at lower rates than white Americans, reducing Black Americans’ opportunity to build wealth. 

There has been some progress related to investing in recent years, and the racial investing gap seems to be shrinking. For instance, Ariel Investments found in 2015 that while some Black households still under-invested in stocks when compared to white households (with 67% of Black households earning $50,000 or more investing in stocks or mutual funds versus 86% of similar white households), that percentage was on an upward trend (from 60% in 2010 and 57% in 1998). And Black millennials are investing at higher rates than previous generations.

Still, the racial wealth gap persists. A report from the Samuel Dubois Cook Center on Social Equity at Duke University notes that “the median Black household holds just 10% of the wealth of the median white household.” And while wealth rose for families in all race and ethnicity groups between 2013 and 2016, “long-standing and substantial” wealth disparities have “changed little” in recent years, according to the 2017 Survey of Consumer Finances

So why does the wealth gap persist? 

From a historical perspective, wealth can be generational. So if your family hasn’t had the opportunity to accumulate generational wealth — say due to issues like racism that resulted in a lack of access to jobs, mortgages, or education — this can affect their ability to pass wealth down to you. 

Many Black Americans have also faced other economic issues, including owning properties that are valued lower than those of white families, and being left out of wealth-building social programs, such as the GI Bill and the Homestead Act. 

What makes things even more complicated is that there is “no single, simple explanation for the racial wealth gap,” confirms the Brookings Institution. Frankly, there’s a lot going on. 

Why is there a racial investing gap? 

Today, many Black Americans are middle to high earners. But Americans are not all at the same starting line, says Kaya Ladejobi, a financial planner who specializes in helping women and couples build wealth.

That means the existing racial wealth gap can then feed into the investing gap. In other words, if you have less money overall, you have less money to put into the market. “People have to have a surplus to invest,” Ladejobi notes, explaining that people are not going to invest their rent money.

“Many factors contribute to the racial investing gap, beginning with lack of homeownership, the disparity in income, and lack of financial resources and education to invest in the stock market,” says Bahiyah Shabazz, the founder and executive director of Brown Girls Do Invest, an organization established to educate African American women about investing. “It is difficult for Black families to catch up in the race when the disparity is overwhelming.” 

Research has found that Black Americans also tend to take fewer financial chances when compared to white Americans. “We can be more risk-averse,” Ladejobi says. She also notes that Black Americans who use their money to support their parents will have less to invest in the stock market. 

Another example of risk aversion? Even though investments in equities are a key way to accumulate wealth over time in general, some Black Americans are more conservative in this area and lean more into real estate or insurance.

How can we close the racial investing gap?

While we can acknowledge that history has not always been kind — and has been terrible in some cases — there are some actions we can take individually to help close this gap. Especially when it comes to equities. 

Reduce your spending, if necessary

Remember: You should have a surplus of funds to start investing. If you don’t have extra money, especially as we deal with the economic fallout from the COVID-19 pandemic, now may be a good time to look at your budget. Perhaps you can cut back a bit so you can throw some dollars toward debt or into your emergency fund — and eventually into investing efforts. 

Know why investing matters

If you’ve been taught to save money for emergencies or goals, that’s a good thing. But the returns that can come from investing offer a way to build wealth over time, while money saved in a bank account can become less valuable due to inflation. 

“Inflation actually eats into the purchasing power of your money,” Ladejobi explains, pointing to education costs, cars, and houses becoming more expensive over time. “You want to make sure you’re investing so that your purchasing power is maintained.” 

Of note: Over the past 140 years, US stocks averaged 10-year returns of 9.2%, according to Goldman Sachs. That said, you may be concerned about stock market dips and related risks, as nothing is guaranteed when it comes to equities. But for investors who have a long-term buy-and-hold strategy, returns are still possible. 

Increase your earnings and be willing to take risks

Increasing your income can provide you with more cash to invest, Ladejobi says, noting that some of her clients who are building wealth quickly are doing it by choosing less conservative careers. 

So maybe you can consider taking a career risk, she says — calling this a “critical” change to consider — and move into a position with higher earning potential, such as an equity component for compensation or other financial incentives.  

Alternately, maybe you can make the case for a raise, or seek a position with higher pay. Or maybe it’s time to look into a side hustle or your own business — even something you can do remotely, from home. 

Remember that survey by Ariel Investments? It found income is “a key factor” in stock market participation by African Americans: Only 57% of this group invested at the income range of $50,000 to $100,000, compared to 81% at the range of $100,000 and above. (For white households, the discrepancy was smaller at 83% versus 92%.)

So money and mindset can both have investing benefits. 

Talk to others and seek reliable information

Learning can help us calculate risks, understand the landscape, and take action. For instance, while Jala Eaton, an attorney and fiduciary advisor in Los Angeles, says she didn’t grow up learning about investing, she bought her first stock after her father’s encouragement. 

“I really got into it, and passionate about it, when I started working as a trust administrator in the banking industry,” she says, recalling the day a man walked into the branch and was revealed to have $100 million in trust. Yes, dollars. After that, she was determined to understand how to build more wealth for herself and help reduce the racial wealth gap for others. She learned through studies at work and on her own, and has invested in equities, bought property, and more.

Opening an investment account and making trades can feel frightening or even surreal. But “we have to learn and take action,” says Eaton, who has also started a business to educate others about finances. 

These days, you can check out resources from the library to learn investing basics in addition to reading reputable online articles, watching educational videos, or taking a class if it fits into your budget. (LinkedIn Learning, for instance, offers options.) Reach out to knowledgeable people who can help arm you with information, adds Ladejobi, noting that you may want to contact a career counselor or pay a financial expert (if funds allow).

Then get started 

But note again: If you’re struggling to pay bills, focus first on making sure you can pay for your needs and build an emergency fund

When you do have a financial surplus, and if it’s money you don’t need in the near future, you can consider investing some of it for retirement or other long-term goals. Even $20 or $50 at a time, since starting with smaller amounts can help you get comfortable. With compounding, even smaller investments can add up over time. And if your workplace offers retirement plans and matching funds, this is another opportunity to invest.

Ladejobi says you can treat investing like other financial habits, including saving and paying taxes. “Investing is a muscle that you have to build, and the sooner you start working at it, the better and more comfortable you get.”

This story is part of Business Insider’s “Inside the racial wealth gap” series.