Study: Race and Personal Finance in America

[ad_1]

Image source: Getty Images

For as long as organizations have tracked the wealth of different racial and ethnic groups, the net worth of white Americans has far outpaced that of people of color. Wealth inequality in America is a serious issue.

It raises the question of how much race factors in to a person’s financial habits and opportunities.

To find out, we conducted a survey to analyze the similarities and differences not just between white and Black Americans, but of all the major ethnic groups within the United States.

Here’s what we found.

(Editor’s note: “people of color,” in this case, refers to all non-white racial and ethnic groups as a whole.)

Key findings

  • People of color are more likely than white Americans to be unemployed or to work at multiple jobs instead of just one.
  • Salary varies heavily by race, with 58% of white Americans earning over $50,000 per year compared to just 36% of Black Americans.
  • Even though people of color with savings accounts save more of their income each month, white Americans have a much greater median net worth.
  • Among those with non-retirement investment accounts, Black Americans are the most likely to invest regularly (56%).
  • Asian Americans are the most likely to have at least one credit card (92%) and to know their credit scores (71%).
  • Debt is much more common among white Americans, who are the most likely to have credit card debt, mortgage debt, and auto loan debt.
  • Asian Americans are the most likely to have a budget (85%) but the least likely to review their finances every week (54%).
  • All races had similar levels of financial stress, worrying either some or most of the time that they wouldn’t be able to pay their bills.

Employment and income

Number of jobs

Race

Zero (unemployed)

One

More than one

Asian

17.00%

60.60%

22.40%

Black

24.58%

51.67%

23.75%

Hispanic/Latino

19.62%

55.38%

25.00%

White

14.80%

68.40%

16.80%

People of color

20.33%

55.93%

23.73%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

The numbers indicate that white Americans tend to have more stable employment situations than people of color. They’re less likely to be unemployed or to need to work at multiple jobs. This is certainly a factor in wealth inequality.

Black Americans have much higher unemployment than any other ethnic group, as almost a quarter of those surveyed reported not having a job (this difference is also reflected in the 3rd quarter 2020 report from the Bureau of Labor Statistics).

Annual earnings

Race

Less than $15,000

$15,001 to $50,000

$50,001 to $100,000

More than $100,000

Asian

14.20%

33.20%

38.80%

13.80%

Black

21.67%

42.29%

27.08%

8.96%

Hispanic/Latino

19.23%

38.46%

30.19%

12.12%

White

9.40%

32.80%

37.60%

20.20%

People of color

18.33%

37.94%

32.07%

11.67%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

White Americans have consistently reported higher numbers when it comes to income back to at least 1963, according to Urban Institute research. That research also shows that the racial income gap has grown.

Nearly 58% of white Americans reported earning over $50,000 per year, which was about 14 percentage points higher than people of color who reported making that much (44%).

Banking

Where do people keep their money?

Race

Checking account ownership

Savings account ownership

Retirement account ownership

Asian

76.00%

69.80%

27.40%

Black

78.96%

69.58%

18.54%

Hispanic/Latino

78.46%

65.38%

17.12%

White

90.40%

78.20%

41.80%

People of color

77.80%

68.20%

21.67%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

White Americans are much more likely to have bank accounts, including both checking accounts and savings accounts, than people of color.

Unfortunately, there’s a large unbanked population in the United States. Without a bank account, it’s difficult to keep savings secure, and consumers must find alternate methods to cash paychecks.

Why wouldn’t consumers open a bank account? The Federal Deposit Insurance Corporation (FDIC) asked exactly that in a 2017 survey, and respondents mentioned several reasons:

  • Don’t have enough money to keep in an account (cited by 52.7% of respondents)
  • Don’t trust banks (30.2%)
  • Avoiding banks provides more privacy (28.2%)
  • Account fees are too high (24.7%)
  • Account fees are unpredictable (20.2%)

Income saved per month by respondents with savings accounts

Race

0%

1% to 10%

11% to 20%

Over 20%

Asian

3.44%

36.39%

32.95%

27.22%

Black

5.99%

40.12%

28.44%

25.45%

Hispanic/Latino

7.65%

45.59%

26.17%

20.59%

White

10.49%

53.20%

20.97%

15.35%

People of color

5.67%

40.67%

29.23%

24.44%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

People of color may be less likely to have savings accounts, but when they do, they save more on average than white Americans.

READ:  3 Popular Robinhood Dividend Stocks You Can Buy Right Now

It’s generally recommended to save at least 20% of your income each month, or 10% if that’s the most you can manage. Among people of color with savings accounts, 53.7% put away more than 10% of their income, compared to only 36.3% of white Americans with savings accounts.

Rebecca Wiggins, Executive Director of the Association for Financial Counseling & Planning Education, had this to say about these results:

“The fact that people of color save significantly more of their income than white individuals and still have dramatically fewer assets highlights the fact that smart financial behavior is not enough to overcome the financial barriers facing families and individuals of color in today’s society.”

Net worth

Race

Median net worth in 2016

All

$97,300

Black

$17,600

Hispanic/Latino

$20,700

White

$171,000

Data source: Federal Reserve Board (2017).

First, a quick clarification is in order. The Federal Reserve Board’s survey didn’t include the median net worth for Asian Americans.

In an older study, the Federal Reserve Bank of St. Louis found that the median wealth for Asian Americans in 2013 was $91,440, about $10,000 higher than the median for all families at the time.

When you break down net worth by race, it illustrates just how much of a racial wealth gap there is between white Americans and people of color, particularly Black Americans and Hispanic/Latino Americans. This is in large part due to systemic disadvantages that make it harder to build wealth for those groups.

Homeownership rates also play a part, as these have consistently been much higher among white Americans than people of color.

“The financial barriers placed on people of color for generations has resulted in higher generational poverty than for white individuals,” says the AFCPE’s Wiggins. “With limited financial resources to pass on to the next generation, families of color have to work longer and save more to achieve key financial goals, such as home ownership.”

Investing

Investment questions were only asked to respondents who reported that they had non-retirement investment accounts.

Types of investmentscredit card

Race

Stocks

Mutual/index funds

ETFs

Bonds

Asian

90.91%

61.36%

45.45%

34.09%

Black

70.37%

48.15%

51.85%

37.04%

Hispanic/Latino

62.79%

55.81%

51.16%

44.19%

White

82.76%

60.34%

37.93%

46.55%

People of color

75.44%

56.14%

48.25%

38.60%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

In terms of investing preferences, we see significant differences between each ethnic group, not just white Americans and people of color. Here’s what stands out most:

  • Stocks are the most common type of investment for every ethnic group, but they’re much more popular among Asian Americans and white Americans.
  • Asian Americans and white Americans are also more likely to invest in mutual and index funds.
  • Black Americans and Hispanic/Latino Americans are more likely to make ETFs part of their portfolios (part of a traditionally conservative investing style often favored by Black investors).
  • Bonds are the least popular investment option overall, but they are more popular with white American and Hispanic/Latino American investors.

Could more conservative investment practices contribute to the racial wealth gap in America? We’d need a lot more data to say for sure, but these results beg the question.

How often do people invest?

Race

Regularly

Only when I have extra money

Asian

43.18%

56.82%

Black

55.56%

44.44%

Hispanic/Latino

46.51%

53.49%

White

53.45%

46.55%

People of color

47.37%

52.63%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Black Americans with investment accounts are the most likely to make investing a part of their regular routine. This is a good habit to have, because investing consistently, month in and month out, is one of the most important rules of investing.

Overall, it’s nearly a 50/50 split between those who invest regularly and those who only do it when they have the extra money.

Investing priorities

Race

General saving/emergency fund

Saving for retirement

Securing my children’s future

Saving for a down payment on a house or car

Saving for a vacation

Other

Asian

15.91%

47.73%

15.91%

4.55%

2.27%

13.64%

Black

29.63%

29.63%

11.11%

3.70%

3.70%

22.22%

Hispanic/Latino

23.26%

32.56%

27.91%

0.00%

11.63%

4.65%

White

34.48%

44.83%

6.90%

8.62%

0%

5.17%

People of color

21.93%

37.72%

19.30%

2.63%

6.14%

12.28%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Most investors from all ethnic groups are either investing to save for retirement or as a general saving/emergency fund.

People of color were almost three times as likely as white Americans to choose securing their children’s future as an investing priority. This investing priority was especially popular among Hispanic/Latino Americans.

Credit

Who uses credit cards?

Race

Percentage with at least one credit card

Asian

92.00%

Black

77.53%

Hispanic/Latino

81.32%

White

85.75%

People of color

83.56%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Asian Americans lead the pack in credit card usage, with a whopping 92% reporting that they had at least one credit card. On the other end of the spectrum, just 77.5% of Black Americans had a credit card.

What’s especially interesting is that a higher percentage of Asian Americans and Hispanic/Latino Americans reported having credit cards than having bank accounts. Although a bank account usually isn’t required to get a credit card, consumers do tend to open bank accounts first.

READ:  Americans Will Stay Glued to Their TV Sets (and Phones) Post-COVID

Average number of credit cards

Race

Average number of credit cards

Asian

2.1

Black

1.7

Hispanic/Latino

1.8

White

2.1

People of color

1.7

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

There isn’t a big difference in the average number of credit cards for each ethnic group. Asian Americans and white Americans do have a slightly higher average, but that can be explained by the fact that they’re more likely to have credit cards in the first place.

Credit scores

Race

Knows credit score

Doesn’t know credit score

No credit score

Asian

70.60%

19.20%

10.20%

Black

61.04%

20.63%

18.33%

Hispanic/Latino

61.15%

23.85%

15.00%

White

68.60%

18.80%

12.60%

People of color

64.27%

21.27%

14.47%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Credit scores are an area of concern for both Black Americans and Hispanic/Latino Americans. People in those groups are more likely to not have a credit score or to not know their credit score. The former is more common for Black Americans and the latter for Hispanic/Latino Americans.

Not having a credit score, also known as being credit invisible, makes it hard to open credit cards, get approved for loans, or even to pass a credit check for an apartment — and those kinds of problems contribute to wealth inequality in America.

Consumers who simply don’t know their credit scores face other issues, predominantly that they won’t know what financial opportunities they have available.

For example, if you want to buy a car and you haven’t checked your credit score, you may accept an auto loan with a higher interest rate than you could’ve qualified for.

Debt

On average, white Americans are more likely than people of color to carry debt. This isn’t limited to a specific type of debt, either, as you’ll see in the statistics below.

At first, this might seem like it contradicts the racial wealth gap patterns we’ve seen so far. But it’s also important to remember that some types of debt — especially mortgage debt — are only available to people with ample financial resources.

Credit card debt

Race

Percentage with credit card debt

Asian

45.60%

Black

41.46%

Hispanic/Latino

48.46%

White

54.20%

People of color

45.27%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

The percentage of white Americans with credit card debt is almost 9% higher than that of people of color with credit card debt.

We can’t simply attribute this to the fact that white Americans are more likely to have credit cards. Credit card ownership was even higher among Asian Americans, but they have a much lower likelihood of taking on credit card debt.

Mortgages

Race

Percentage with mortgage debt

Asian

36.80%

Black

20.42%

Hispanic/Latino

26.54%

White

45.60%

People of color

28.00%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Mortgage debt is where there’s the largest gap between white Americans and people of color. That makes sense when you remember that white Americans have significantly higher homeownership rates, a significant factor in American wealth inequality.

Auto loans

Race

Percentage with auto loan debt

Asian

31.20%

Black

26.04%

Hispanic/Latino

30.58%

White

43.00%

People of color

29.33%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Auto loan debt follows the same pattern. White Americans are overwhelmingly the most likely to have auto loans they’re paying off, followed by Asian Americans, Hispanic/Latino Americans, and Black Americans.

Personal loans

Race

Percentage with personal loan debt

Asian

25.40%

Black

24.38%

Hispanic/Latino

26.15%

White

25.20%

People of color

25.33%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Personal loan debt is the only type of debt where there wasn’t much of a difference between white Americans and people of color — or between any ethnic groups, for that matter.

Editor’s note: Our survey didn’t specify whether the personal loan was from a bank, a friend, a family member, or another source. Because these numbers are rather high, we think most respondents included loans from friends and family members.

Financial habits

Who uses a budget?

Race

Percentage with a budget

Asian

84.60%

Black

74.58%

Hispanic/Latino

70.00%

White

71.20%

People of color

76.33%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Following a budget is a simple, effective way for consumers to improve their money management. Basic skills like budgeting are important for addressing wealth inequality.

The good news is that most consumers, regardless of race, do this. In each group we surveyed, at least 7 out of 10 reported having a budget.

Asian Americans were by far the most likely to have budgets, with 84.6% using them. No other group came within 10% of that average.

How often do people review their finances?

Race

At least once per week

At least once per month

Asian

53.80%

79.60%

Black

58.33%

80.62%

Hispanic/Latino

63.27%

79.81%

White

65.60%

87.40%

People of color

58.54%

80.01%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

READ:  How to Save on Your Next Vacation

For this question, we asked respondents when they did any sort of financial review, such as checking their bank accounts, credit cards, investment accounts, or recent spending.

It’s good to review your finances once per week or at least once per month to avoid overspending and to check for potential fraud on your financial accounts. Most consumers do this, with just over 8 in 10 reviewing finances on at least a monthly basis.

White Americans seem to stay on top of their finances more, with about 7% more checking finances weekly and monthly compared to people of color.

In an interesting twist, Asian Americans are the least likely to review finances at least once per week or month, even though they were the most likely to use a budget.

Financial stress and security

Financial worry score

Race

Financial worry score

Asian

3.4

Black

3.5

Hispanic/Latino

3.7

White

3.4

People of color

3.5

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

Using respondents’ answers to our question about how often they worried their income wouldn’t cover their bills and expenses, we calculated a financial worry score.

The average score of 3.5 falls between feeling worried some of the time (a score of 3) and most of the time (a score of 4).

It’s sad that so many Americans need to deal with such frequent financial stress. This is, at least, something that people of every ethnic group share. Financial worry scores varied little by race, and there wasn’t any group with a significantly higher or lower score, despite a proven racial wealth gap in America.

Who has enough in their emergency fund?

Race

Three months of living expenses in savings

Asian

71.92%

Black

59.28%

Hispanic/Latino

51.18%

White

52.17%

People of color

60.90%

Data source: The Ascent survey of 2,000 Americans, September 30, 2020. “People of color” refers to non-white respondents as a whole.

We asked this question to respondents who indicated that they had savings accounts.

Financial experts recommend having an emergency fund that can cover your living expenses for at least three to six months.

Based on that advice, only 58.5% of Americans with savings accounts have enough, and those numbers vary considerably by race. (This is higher than we might have expected after a recent study from The Ascent that found the average American to have $3,500 in savings.)

Asian Americans with savings accounts are the most likely to have a sufficient emergency fund, with almost 72% having at least three months of expenses put away.

At 59.3%, the percentage of Black Americans with savings accounts who saved enough was slightly above average.

White Americans (52.2%) and Hispanic/Latino Americans (51.2%) had the worst numbers.

Racial wealth inequality shows many faces

It’s clear that good financial habits alone aren’t responsible for a person’s level of success. People of color are more likely to follow several recommended financial habits than white Americans, including using a budget and avoiding credit card debt. Those who have savings accounts also put away more money and are more likely to have at least three months of living expenses.

Despite that, there’s a significant racial wealth gap in America. People of color have a much lower median net worth, especially Black Americans and Hispanic/Latino Americans. Collectively, they face a number of disadvantages, including higher unemployment rates, lower salaries, and the need to work multiple jobs. And since wealth is largely passed down through inheritances, this wealth inequality continues from one generation to the next.

Methodology

The Ascent distributed this survey via Pollfish to 2,000 American adults ages 18 and over on September 30, 2020. While efforts were made to create a representative sample, there is variability in any sampling method, and no strict statistical testing was performed.

Respondents were 56% female and 44% male. Age breakdown was approximately 17% 18–24, 32% 25–34, 31% 35–44, 11% 45–54, and 9% over 54. Racial/ethnic breakdown was as follows: 25% Asian, 24% Black, 26% Hispanic/Latino, and 25% white.

Some percentages may not total to 100% due to rounding.

To calculate financial worry scores, a score of one through five was assigned to how respondents answered the question “How often do you worry that your income won’t be enough to cover your expenses and bills?” Response options and the corresponding score for each were:

  • Never (1 point)
  • Almost never (2 points)
  • Some of the time (3 points)
  • Most of the time (4 points)
  • All the time (5 points)

The average of every respondent’s answer was a group’s financial worry score.

Sources

  1. ABC News (2006). “Study Finds Race Plays a Role in Investing.”
  2. Federal Deposit Insurance Corporation (2020). “2017 FDIC National Survey of Unbanked and Underbanked Households.”
  3. Federal Reserve Bank of St. Louis (2020). “The Demographics of Wealth.”
  4. Federal Reserve Bulletin (2020). “Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances.”
  5. McKintosh, Kristin, et. al. (2020). Brookings Institution. “Examining the Black-white wealth gap.”
  6. Pew Research Center (2020). “Demographic trends and economic well-being.”
  7. Tisdale, Stacey (2019). Black Enterprise. “The investing habits of wealthy Black people.”
  8. Urban Institute (2017). “Nine Charts about Wealth Inequality in America (Updated).”

[ad_2]
View more information: https://www.fool.com/the-ascent/research/study-race-personal-finance-america/

Xem thêm bài viết thuộc chuyên mục: Media

Related Articles

Leave a Reply

Back to top button