New Survey Claims Young Black Investors are Fleeing Traditional Stock Investment for Crypto

Black Americans are experiencing historic lows in traditional investor participation, according to the annual Ariel-Schwab Black Investor Survey. The 2022 edition of the report shows increased market volatility since the beginning of the pandemic, and only 58% of Black Americans own stocks compared to a peak of 74% in 2002. 

The numbers are almost as low for white Americans who once owned stocks at an 86% population level in 2015, compared to a current rate of 63%. 

But the Schwab report also aims at cryptocurrency investing, drawing investors away from traditional stocks and blames a “lack of education” as the culprit. 

The report claimed that “many new and younger investors have never experienced market volatility like we’ve seen in the last couple of years. We have a responsibility to educate these new investors about the value of long-term investing to build wealth and achieve financial security.”

For the past 24 years, Ariel Investments and Charles Schwab have studied the investing and saving attitudes and behaviors of Black and white Americans. The 2022 survey compares Black and white survey respondents with an average household income of $99,000 and $106,000.

According to the survey, the popularity of new, higher-risk investment options, especially among younger and first-time Black investors, is “striking.”  The report highlighted: 

• 25% of Black Americans currently own cryptocurrency, and among Black investors under 40, that figure jumps to 38%.
  • This compares to only 15% of white investors who own cryptocurrency and 29% of white investors under 40.

• Black investors are more than twice as likely to say cryptocurrency was their first investment (11% of Black investors compared to 4% of white investors).
  • Younger Black Americans are even more likely to experience investing through this high-risk asset class. Nearly a quarter (23%) of Black investors under 40 first invested in the stock market through cryptocurrency.
    
• Black investors are also twice as likely to rank cryptocurrency as the best investment choice overall (8% of Black investors vs. 4% of white investors).

The study also claimed evidence of a continued education gap between Black and white Americans. Despite headline-making news about volatility in cryptocurrency values, platform hacks, and a lack of government regulation, Black investors are less likely than white investors to think cryptocurrency is a risky investment (68% vs. 73%). Black investors are also more likely than white investors to believe cryptocurrency investments are safe (33% vs. 18%) and regulated by the government (30% vs. 14%). This mindset is even more common among Black investors under 40, with 51% believing it is safe and 41% believing it is government-regulated.

According to the survey, nearly half of all Black and white investors (47% and 45%, respectively) report investing in something they did not fully understand. This is even more pronounced among investors under 40 (58% and 46%, respectively). 

The report surmised that while both groups are entering the market without the information they need, Black investors are more likely to trust and make investment decisions based on less credible information sources, such as social media. One-third of Black investors (33%) say they have invested based on something they saw on social media, compared to less than a quarter of white investors (20%).

“The confluence of low stock market participation, appetite for risky investment options, and alarming lack of knowledge about fundamental investing principles is a red flag about the critical need for greater investor education,” Mellody Hobson, Co-CEO and President of Ariel Investments, said. “Many new and younger investors have never experienced market volatility like we’ve seen in the last couple years, and we have a responsibility to educate these new investors about the value of long-term investing to build wealth and achieve financial security.”