PII: S1057-0810(01)00073-7


Financial services and the African-American market: what
every financial planner should know

D. Anthony Platha,*, Thomas H. Stevensonb

aDepartment of Finance and Business Law, University of North Carolina at Charlotte, Charlotte,
North Carolina 28223

bDepartment of Marketing, University of North Carolina at Charlotte, Charlotte, North Carolina 28223

Received 6 October 1999; received in revised form 12 April 2001; accepted 17 April 2001

Abstract

African-American consumers differ markedly from their Caucasian counterparts in terms of
financial product preferences, product research, and investment asset portfolio composition. This
study examines some of the principal differences between African-American and Caucasian house-
holds in evaluating and purchasing investment assets and explores differences in asset holdings
between the two racial groups. This information can help financial planners seeking to market to the
African-American community better understand this community, tailor investment information for the
unique needs of this community, and render more effective service to individuals and families that
comprise this attractive and growing market segment. © 2001 Elsevier Science Inc. All rights
reserved.

JEL classification: D12; D31; J15; J70

Keywords: Individual investing; Racial difference; Portfolio composition; Personal finance; Investment portfolio

The importance of segmentation in the development of an effective marketing strategy is
well established in the business literature. There are many bases used for market segmen-
tation, but demographic factors such as age, occupation, income level, educational attain-
ment, and race are frequently used to identify key markets. Race has become increasingly
important as a segmentation variable because it has been shown that race can influence

* Corresponding author. Tel.: �1-704-687-4413; fax: �1-704-687-6987.
E-mail address: daplath@email.uncc.edu (D.A. Plath).

Financial Services Review 94 (2000) 343–359

1057-0810/00/$ – see front matter © 2001 Elsevier Science Inc. All rights reserved.
PII: S1057-0810(01)00073-7



consumption patterns and because racial minorities have come to represent a larger and
larger proportion of the U.S. population. The sheer numbers of the largest minority group,
African-Americans, and the improving economic status of many of its members, make this
racial minority especially attractive.

Nevertheless, relatively few studies in the finance literature have profiled differences in
financial asset portfolio holdings of Black versus White households, or examined how these
differences should affect the manner in which financial planners tailor their marketing efforts
to meet the needs of different racial groups. The purpose of this study is twofold: First, we
seek to profile racial differences in investment asset ownership patterns between Black and
White households, evaluating the extent to which this profile is consistent with information
reported in other academic work that examines racial differences in wealth accumulation
patterns and risk tolerance levels. Second, we seek to use the profile of financial asset
portfolio holdings reported here to advise financial planners and others in the financial
community how to structure their product offerings to more effectively meet the needs of
African-American consumers.

The balance of this study provides information and insights regarding the financial
holdings and investment asset consumption preferences of Black and White households.
Section I profiles the growth of African-American households in recent years and surveys the
literature to ascertain extant knowledge about differences in Black versus White financial
asset portfolio holdings. Section II introduces the SCF dataset that represents the source of
the statistical information reported in the article, and explains the statistical tests used to
compare Black versus White households. Section III presents some of the principal differ-
ences in asset holding patterns across Black and White consumers, controlling for income,
age, and educational attainment in presenting household financial information across differ-
ent racial groups. Section IV uses the information introduced in Section III to develop a
profile of African-American households’ wealth-building asset portfolios for financial plan-
ners seeking to understand and serve the needs of the African-American market segment.
Finally, Section V provides conclusions regarding the differences between Black and White
financial consumers and summarizes how these differences influence asset holdings patterns
across the two racial groups.

1. Wealth accumulation and the African-American consumer

The number of African-Americans in the U.S. has grown rapidly. In the ten-year period
from 1985 to 1995 for example, there was an increase of more than 4.5 million African-
Americans in the U.S., a nearly 16 percent increase. The corresponding percentage increase
for Caucasians in the same period was just under 8 percent. During the same ten-year period,
the number of Black households grew by 23 percent; White households grew by only 11
percent. Moreover, the total U.S. population of Blacks is predicted to increase by as many
as 17 million by the year 2020. This represents a projected 53 percent increase over the 25
years from 1995; the White population is forecast to grow only 28 percent during the
corresponding period (U.S. Department of Commerce, 1998).

In spite of this rapid growth, very little academic research examines how financial asset

344 D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



consumption preferences differ between African-American and Caucasian households, and
most prior research examines investment portfolio differences between Black and White
households only as a secondary issue. In general, past studies focus on (1) differences in
wealth accumulation rates between Black and White households, invoking asset portfolio
differences only to explain divergent rates of wealth accumulation, or (2) differences in risk
tolerance across the races, using portfolio composition differences to illustrate differences in
exposure to liquidity and default risk across different racial groups. While these studies touch
on investment portfolio composition differences across different racial groups, portfolio
differences are seldom the focal point of the research effort and they frequently reference a
limited spectrum of investment assets in only two or three financial categories.

In spite of these limitations, the wealth accumulation literature does provide a useful
starting point to characterize differences in the investment portfolio holdings of Black and
White financial consumers. For example, it is widely recognized that the rate of wealth
accumulation across Black households is significantly below the rate at which White
households build wealth (Blau & Graham, 1990; Wolff, 1994; Myers & Chung, 1996).
Wealth accumulation rates are positively related to household income levels (Zhong & Xiao,
1995; Gutter et al., 1999), positively related to educational achievement (Zhong & Xiao,
1995; Gutter et al., 1999), and positively related to consumer age (Blau & Graham, 1990;
Zhong & Xiao, 1995), yet this does not lead to the corollary conclusion that the wealth gap
between Black and White households narrows with advancing income, educational attain-
ment, and age across different racial groups. In contrast, evidence suggests that the wealth
gap widens with increasing consumer age (Wolff, 1994), while the literature is silent about
how the wealth gap changes with advancing income and educational attainment levels across
different racial groups.

Concerning investment portfolio composition differences across different racial groups,
Boyce (1998), Gutter et al. (1999) and Badu et al. (1999) report that Black investors display
little preference for risky financial securities such as common stocks, while White investors
select these riskier financial investments with greater frequency. This leads to the conclusion
that Black consumers should display relatively smaller holdings of risky financial securities,
such as municipal and corporate bonds, common stocks, equity mutual funds, and brokerage
accounts than White consumers; and relatively larger holdings of low-risk financial securities
such as bank savings and time deposits, savings bonds, and Treasury bonds in their
investment portfolios.

In addition, Blau & Graham (1990) and Brimmer (1991) point out that Black consumers
display a preference for holding tangible, nonfinancial assets that yield consumptive services,
while White consumers tend to hold financial assets and income-producing nonfinancial
assets. Given this evidence, Black consumers should display relatively larger investments in
consumption-oriented real property, such as a personal residence and vacation property, and
a relatively smaller investment in income-producing real property, such as rental property
and commercial real estate, in their investment portfolios.

Consistent with their demonstrated preference for lower risk, Brimmer (1991) and Badu
et al. (1999) also report that Black consumers show a greater preference for financial assets
with a high degree of liquidity; while White investors will more willingly sacrifice financial
asset liquidity in order to earn higher risk-adjusted total investment returns. Based on this

345D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



finding, African-American consumers should show relatively larger holdings of highly
liquid, short-term instruments such as bank accounts, savings bonds, and bond-based mutual
funds; and correspondingly smaller holdings of less liquid, longer-term assets such as
corporate bonds, common stocks, and brokerage accounts, in their financial asset portfolios.

Regardless of racial background, Zhong and Xiao (1995) and Gutter et al. (1999) report
that investment risk tolerance increases with increasing income levels, leading to the
conclusion that risk-related investment portfolio differences between African-American and
Caucasian consumers should diminish with increasing income. Similar to this finding, Zhong
and Xiao (1995) and Gutter et al. (1999) report that investment risk tolerance increases with
heightened levels of educational attainment, suggesting that risk-related investment portfolio
differences between Black and White consumers should also diminish with rising educa-
tional attainment.

In contrast to these results, the literature offers less consensus on the issue of how
investment risk tolerance changes with advancing investor age. Morin and Suarez (1983) find
that investment risk tolerance decreases with increasing age, while Zhong and Ziao (1995)
report that investment risk tolerance increases with increasing age, and Gutter et al. (1999)
suggest that investment risk tolerance first increases with increasing age, reaches a maximum
in middle age, and then declines with further increases in age. In spite of the lack of
agreement across these studies, virtually all past research indicates that there is a significant
relationship between investment risk tolerance and age, leading to the conclusion that
investment portfolio composition across both African-American and Caucasian households
should differ when age is introduced as a control variable in the analysis.

Virtually all of the research results discussing investment portfolio composition differ-
ences across different racial groups may be considered somewhat tentative, because invest-
ment portfolio preference differences usually do not represent the primary focal point of the
research efforts cited here, and these studies offer their respective research conclusions on the
basis of very few categorical investment choices. The remainder of this study seeks to build
on past research conclusions, offering an expanded array of investment alternatives to profile
portfolio preference differences across Black and White households, and reviewing whether
the investment portfolio implications discussed above hold true under the wider array of
investment alternatives presented below.

While the results reported below highlight statistically significant pairwise differences
between Black and White investment portfolios, these isolated pairwise differences may fail
to capture the full range of investment portfolio differences between Black and White
consumers. A large body of prior research has shown that the rate of wealth accumulation
across African-American households significantly lags that of White households, so statis-
tically significant pairwise differences may not capture many of the substantive differences
in Black versus White portfolio holdings. The magnitude of investment balances in Black
households almost always lags White investment balances because White consumers possess
greater financial wealth. Consequently, this research effort also examines the changing
relative magnitude of investment portfolio differences across Black and White households,
noting whether these differences are increasing, decreasing, or remaining the same, as
variables known to influence investment portfolio preferences—such as age, income, and
educational attainment level—change.

346 D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



2. Data and methodology

This study reports and evaluates data gathered from the 1998 Survey of Consumer
Finances (SCF) prepared by the Board of Governors of the Federal Reserve System in
cooperation with the Statistics and Income Division of the Internal Revenue Service.
Conducted triannually since 1983, the SCF provides detailed information on the financial
characteristics of U.S. households, including financial asset and liability holding patterns,
real estate ownership, and household net worth. Also included is a variety of demographic
and attitudinal characteristics covering age, sex, race, educational attainment, income, and
other classificatory variables useful for characterizing household balance sheet characteris-
tics across different subgroups within the American population. A more complete description
of the SCF dataset is given by Kennickell et al. (2000).

The SCF dataset uses a dual-frame sampling plan that incorporates both an area-proba-
bility sample and a special list sample derived from IRS tax records. The area-probability
sample provides information on financial variables that are widely distributed in the general
U.S. population, such as automobile ownership and home mortgages. The list sample
represents an oversample of relatively wealthy families designed to capture financial data
items that are highly concentrated within a relatively small proportion of the population, such
as commercial real estate holdings and household trust fund ownership. This unique sam-
pling methodology results in the oversampling of households more likely to be wealthy,
which requires that descriptive statistical measures derived from the SCF sample be weighted
to generate sampling estimates that are projectible to the entire U.S. population (Board of
Governors of the Federal Reserve System, 2000, p. 27). The descriptive statistics reported
below are derived from the full, weighted version of the SCF sample.

The SCF handles missing data attributable to item nonresponse using a multiple imputa-
tion procedure known as repeated imputation inference (RII). As Montalto and Sung (1996)
discuss, this procedure uses stochastic multivariate methods to replace each missing value
with five different imputed values to approximate the sampling distribution of missing
values, so that imputed values can be averaged to produce a more accurate estimate of what
a given missing value would have been in the absence of item nonresponse. The statistics
reported below rely upon the full public version of the 1998 SCF dataset, surveying 4,305
households to produce a total of 21,525 potential observations (Board of Governors of the
Federal Reserve System, 2000, p. 27). Using all five implicates in developing descriptive
statistical measures introduces imputation error into the research design, however, and this
additional source of variability requires the use of a specialized adjustment procedure to
calculate accurate standard error terms for each of the statistics reported below. The
adjustment procedure used below permits the development of standard error terms that
incorporate both sampling error and imputation error for mean and proportion statistics,
following the recommend course of action reported in the 1998 Codebook for the Survey of
Consumer Finances (Board of Governors of the Federal Reserve System, 2000, pp. 28–32).
In all cases, the statistically significant mean differences and proportion differences reported
below have been obtained using a test statistic suitable when target population variances are
assumed to be both unequal and unknown.

347D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



3. Results: asset holding patterns across Black and White consumers

The portfolio of wealth-accumulation assets, including both financial and real property
assets, varies markedly between Black and White households. Tables 1 through 3 present
proportionate holdings of various financial asset categories, as well as household real estate
holdings covering respondents’ primary residence, other vacation property owned, and other
nonvacation property. In addition, these tables provide mean dollar values of financial
accounts and real property holdings across the full SCF dataset. In all cases, the results report
mean financial values rather than the median percentile values, because the public version of
the SCF dataset is adjusted for outliers and other plausible errors in data reporting and coding
before it is released to the public, and the mean is better able to convey the wide dispersion
in the reported data for some response groups (Board of Governors of the Federal Reserve
System, 2000, pp. 7–8). In this case, understanding the wide range of item responses across
particular groups is important in helping to characterize differences between Black and
White investment portfolios. In order to control for differences in asset holdings that can be
explained by demographic characteristics such as income, age, and education, the reported
data stratify household asset holdings by respondent income (Table 1), respondent age (Table
2), and the highest educational grade-level attained by respondents (Table 3).

In each of these cases, advances in income, age, and educational attainment do lead to
changes in asset holdings consistent with the results of Yuh and Hanna (1997). While asset
portfolios of Black and White consumers do become increasingly similar with advances in
income and educational attainment, particularly across bank-related financial asset catego-
ries, substantial differences across both financial and real property assets held by Black and
White households persist even in the highest income and education categories. This finding
regarding asset holdings tends to support the conclusion of Williams and Qualls (1989), who
note that as African-American consumers make more money and move up in class standing,
they do not lose their ethnic orientation and begin to resemble White consumers.

The most notable difference between Black and White households, however, is unrelated
to cultural considerations. The dollar value of virtually all asset holdings is substantially
greater across White respondents. This gap reflects the wide net worth disparity between
Black and White consumers reported by Scott (1998), Myers and Chung (1996), and a host
of other researchers. Moreover, the gap does not appear to be related to the relative
popularity of various asset categories, such as common stock versus real estate, across
different racial groups. As Scott (1998), Lach (1999), and Badu et al. (1999) suggest,
African-American households are particularly conservative in their investment style, prefer-
ring real estate assets and insurance products to stock and bond investments. Even within
these relatively more popular investment categories, however, the mean values for all
categories of real property investments across the African-American sample lie well below
their corresponding values in White households. This trend persists across all income, age,
and education levels; and unlike other asset holding patterns, the real estate gap grows wider,
not more narrow, as income and educational attainment increase. In most cases, this is
attributable to the increased valuation dispersion observed across real estate holdings of
White households. The wide range of real estate values is particularly evident in the

348 D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



Table 1
Family asset holdings by income and race characteristics

Asset category Household income in 1998 dollars

$10,000 to $24,999 $25,000 to $49,999 $50,000 to $100,000 More than $100,000

Race Race Race Race

Black

N � 573

White

N � 2,795

Black

N � 452

White

N � 3,781

Black

N � 286

White

N � 3,915

Black

N � 117

White

N � 5,770
Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean

Financial asset ownership
Transaction accounts 57.8%*** $ 361*** 88.8% $ 2,901 88.0% $ 4,285 95.7% $ 3,539 96.3% $ 4,220 99.4% $ 5,514 99.4% $ 9,282*** 99.7% $ 32,782
Certificates of deposit 4.8%*** $ 374*** 21.8% $ 7,089 13.1% $ 728*** 17.7% $ 6,293 7.5%** $ 278*** 17.7% $ 6,241 18.6% $ 2,776* 16.0% $ 14,349
Savings deposits 45.5% $ 1,417 48.1% $ 2,907 64.2% 42,401 60.7% 43,689 76.8% 43,858* 72.3% $ 6,521 64.8% $ 4,418** 60.3% $ 14,035
Savings bonds 6.4% $ 212 12.3% $ 388 14.2%** $ 238*** 22.5% $ 902 17.0%** $ 300*** 32.2% $ 1,508 4.1%*** $ 1,526 32.5% $ 3,065
Bonds:

Treasury bonds 0.0% $ 0 0.2% $ 50 0.0%** $ 0** 0.9% $ 632 0.0%*** $ 0* 1.2% $ 273 0.4%*** $ 1,463** 5.4% $ 15,430
Municipal bonds 0.0%* $ 0 1.1% $ 611 0.0%** $ 0 1.5% $ 753 0.0%*** $ 0 1.7% $ 1,852 10.0% $ 4,619* 8.4% $ 33,583
Corporate bonds 0.0% $ 0 0.8% $ 321 0.0%** $ 0* 1.2% $ 181 0.0%*** $ 0* 1.5% $ 941 0.0%*** $ 0** 2.5% $ 9,615
Mortgage-backed bonds 0.0% $ 0 0.1% 4127 0.0%* $ 0 0.7% $ 434 0.0%* $ 0 0.7% $ 398 0.0%** $ 0* 1.8% $ 4,459

Stocks 0.9%*** $ 175* 9.0% $ 4,503 11.8% $ 1,160*** 19.3% $ 9,009 14.2%*** $ 6,893** 29.3% $ 22,259 61.6% $ 54,735*** 56.3% $282,400
Retirement accounts (IRA/KEOGH) 6.1%*** $ 682*** 18.2% 44,900 26.3% $ 3,817* 29.1% $ 7,985 37.1% $ 6,319*** 44.6% $ 18,160 37.9% $ 9,665*** 67.8% $103,649
Mutual funds

Stock funds 1.3%*** $ 46*** 8.1% $ 2,395 12.7% $ 1,139** 12.3% $ 3,824 14.4%* $ 2,111*** 23.7% $ 13,899 29.9% $ 20,619*** 44.0% $ 81,554
Government bond funds 0.0%* $ 0* 0.8% $ 158 3.0% $ 87 1.0% $ 223 0.0%*** $ 0* 2.6% $ 914 0.0%*** $ 0*** 5.0% $ 4,126
Municipal bond funds 0.0%** $ 0 2.2% $ 1.378 2.9% $ 330 2.3% $ 748 1.5%* $ 2,316 5.9% $ 1,990 0.6%*** $ 30*** 12.0% $ 17,760
Corporate bond funds 0.0%* $ 0 1.2% $ 577777 0.0%** $ 0 1.2% $ 359 2.4% $ 29* 3.4% $ 2,490 0.0%*** $ 0* 6.7% $ 9,046
Combination funds 0.0% $ 0*** 1.9% $ 761 2.4% $ 320 2.0% $ 645 5.9% $ 3,017 2.7% $ 1,389 6.2% $ 1,994 7.4% $ 6,706

Life insurance 65.8%* $24,199 59.9% $ 20,511 83.4% $65,446 73.8% $ 55,636 90.8% $124,238 86.3% $ 117,744 90.7% $413,460 89.5% $315,783
Brokerage accounts 0.9%*** $ 0 8.4% $ 0 5.8%* $ 0 13.3% $ 0 11.2%** $ 0 23.3% $ 0 47.9% $ 0 54.9% $ 0
Trust accounts and annuities 0.7%*** $ 820 6.1% $ 1,530 3.2% $ 2,056 5.5% $ 1,442 4.5% $ 482** 8.2% $ 3,691 7.8% $ 4,169 13.6% $ 14,879

Real property ownership
Personal residence 35.8%** $60,735 57.9% $ 88,511 59.7% $92,515 71.3% $109,857 66.8% $115,339 87.8% $ 151,004 80.3% $238,449 93.7% $337,352
Indebtedness on personal residence 19.7% $31,211 21.2% $ 45,070 45.2% $67,786 44.2% $ 52,596 63.8% $ 66,770 71.5% $ 80,210 60.5% $164,376 70.7% $164,959
Other vacation property 8.4% $ 7,327 11.5% $ 12,767 12.6% $11,171 17.4% $ 12,167 32.8% $ 13,655 25.9% $ 13,378 36.5% $ 18,509 46.4% $ 19,826
Indebtedness on other vacation property 2.0% $37,919 1.7% $ 182,039 3.7% $20,499* 5.2% $ 52,618 13.7% $ 56,295 9.3% $ 93,890 15.6% $128,694 21.4% $223,360
Other nonvacation property 0.0% $ 0 0.2% $2,491,560 0.0% $ 0 0.4% $ 63,302 1.2% $ 25,000* 2.1% $ 13,856 2.2% $ 25,000*** 4.4% $640,681
Indebtedness on other property 0.0% $ 0 0.1% $ 718,188 0.0% $ 0 0.2% $ 37,030 0.0%** $ 0 1.0% 4136,181 2.2% $ 23,000** 1.1% $720,251

Note: *** denotes significance at the 0.001 level; ** denotes significance at the 0.01 level; * denotes significance at the 0.05 level.

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Table 2
Family asset holdings by age and race characteristics

Asset category Head of household age

35 to 44 45 to 54 55 to 64 65 to 74

Race Race Race Race

Black

N � 528

White

N � 3698

Black

N � 379

White

N � 3,948

Black

N � 235

White

N � 2,976

Black

N � 190

White

N � 2,346
Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean

Financial asset ownership
Transaction accounts 65.0%*** $ 981*** 91.9% $ 4,648 69.0%** $ 4,460 95.0% $ 7,461 75.8% $ 4,279* 94.5% $ 11,657 61.2%*** $ 2,064*** 97.0% $ 9,607
Certificates of deposit 8.0% $ 470*** 9.9% $ 1,177 4.1%*** $ 214*** 13.7% $ 5,416 3.4%*** $ 309*** 21.4% $ 9,163 13.4%*** $ 1,280*** 33.1% $ 14,845
Savings deposits 59.0% $ 1,384*** 65.6% $ 3,839 44.0%*** $ 1,400*** 65.7% $ 5,815 58.8% $ 2,287*** 56.3% $ 6,299 37.3% $ 2,299** 51.3% $ 8,099
Savings bonds 12.9%*** $ 132*** 29.0% $ 858 6.7%*** $ 208*** 24.9% $ 1,249 9.1%** $ 135*** 20.3% $ 1,681 6.1%** $ 423* 18.0% $ 1,105
Bonds:

Treasury bonds 0.0%* $ 0 1.0% $ 957 0.0%** $ 88* 1.2% $ 1,832 0.0%** $ 0 1.4% $ 5,708 0.0%** $ 0*** 2.4% $ 1,707
Municipal bonds 0.0%* $ 0** 0.6% $ 1,028 0.0%*** $ 346 1.8% $ 3,906 0.0%*** $ 0*** 2.8% $ 7,669 0.0%*** $ 0** 5.7% $ 10,326
Corporate bonds 0.0%* $ 0 0.6% $ 400 0.0%** $ 0** 1.3% $ 1,913 0.0%** $ 0 0.9% $ 834 0.0%* $ 0** 2.0% $ 2,169
Mortgage-backed bonds 0.0%* $ 0* 0.2% $ 186 0.0% $ 0 0.5% $ 280 0.0%* $ 0 0.9% $ 1,398 0.0%** $ 0** 2.0% $ 1,252

Stocks 8.0%*** $ 1,404*** 21.8% $ 20,048 9.4%*** $ 8,655*** 25.6% $ 33,985 3.5%*** $ 3,751*** 29.2% $ 83,278 0.2%*** $ 46*** 24.1% $ 71,196
Retirement accounts (IRA/KEOGH) 24.4% $ 3,309** 30.4% $ 7,718 12.0%*** $ 2,523*** 39.7% $ 18,409 29.3%* $ 5,482*** 46.3% $ 50,486 9.0%*** $ 4,182*** 48.2% $ 38,114
Mutual funds

Stock funds 12.1% $ 2,179*** 15.7% $ 10,888 4.1%*** $ 2,115*** 24.3% $ 19,364 0.1%*** $ 25*** 16.4% $ 22,683 5.5%** $ 969*** 15.9% $ 23,618
Government bond funds 1.2% $ 74 1.1% $ 341 0.0%*** $ 0** 2.3% $ 657 0.0%*** $ 0* 2.1% $ 1,423 0.0%** $ 0** 3.3% $ 2,047
Municipal bond funds 1.8% $ 1,561 2.4% $ 909 0.0%*** $ 0** 4.2% $ 2,719 0.1%*** $ 5** 4.7% $ 4,589 0.0%*** $ 0*** 7.3% $ 7,115
Corporate bond funds 1.3% $ 16 2.2% $ 1,135 0.0%*** $ 0 3.6% $ 3,435 0.0%** $ 0* 1.7% $ 1,084 0.0%** $ 0* 3.2% $ 4,810
Combination funds 2.5% $ 698 2.4% $ 1,155 0.0%*** $ 0** 2.9% $ 1,536 0.0%*** $ 0* 2.4% $ 1,609 4.6% $ 3,650 4.2% $ 2,583

Life insurance 67.5% 74,388*** 74.7% $128,183 65.6% $ 38,767*** 75.7% $128,395 81.8% $ 32,420** 79.6% $ 66,342 77.2% $ 27,004 75.8% $ 19,893
Brokerage accounts 9.4%*** $ 0 17.0% $ 0 4.8%*** $ 0 23.1% $ 0 3.4%*** $ 0 19.3% $ 0 0.2%*** $ 0 23.8% $ 0
Trust accounts and annuities 1.5% $ 1,467 3.7% $ 2,068 4.7% $ 1,108 6.8% $ 3,221 0.1%*** $ 0** 6.4% $ 6,888 0.4%*** $ 44*** 15.0% $ 6,373

Real property ownership
Personal residence 51.6%*** $87,323*** 72.1% $144,338 43.7%*** $101,891** 79.4% $170,754 61.6%* $109,084* 84.2% $167,366 61.6%* $ 62,322*** 85.0% $150,524
Indebtedness on personal residence 41.9%*** $69,532 63.8% $ 88,423 30.6%*** $ 52,678** 63.5% $ 88,766 39.1% $ 67,528 50.1% $ 72,353 20.3% $ 40,532 24.3% $ 55,655
Other vacation property 13.5% $ 9,324 18.8% $ 13,320 12.7%** $ 12,848 26.4% $ 15,563 24.8% $ 16,244 24.4% $ 16,619 13.3%*** $ 7,067* 29.3% $ 14,585
Indebtedness on other vacation property 4.5%* $25,904*** 9.1% $106,916 2.3%*** $ 72,180 9.8% $115,733 15.5% $ 59,558* 7.8% $215,155 0.6%*** $329,042 5.9% $155,829
Other nonvacation property 0.0%*** $ 0* 0.7% $190,024 0.3%** $ 25,000* 1.9% $197,567 1.4% $ 25,000* 1.9% $974,283 0.0%*** $ 0* 1.8% $394,334
Indebtedness on other property 0.0%* $ 0 0.5% $115,106 0.3% $ 23,000 0.&% $121,921 0.0%* $ 0* 0.6% $695,094 0.0% $ 0 0.6% $343,148

Note: *** denotes significance at the 0.001 level; ** denotes significance at the 0.01 level; * denotes significance at the 0.05 level.

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Table 3
Family asset holdings by educational attainment and race characteristics

Asset category Head of household highest educational attainment

Completed 9th through 11th grade High school graduate Colege graduate Attended or completed graduate school

Race Race Race Race

Black

N � 393

White

N � 1,252Tc;;2Black

N � 669

White

N � 4,085

Black

N � 161

White

N � 3,800

Black

N � 127

White

N � 3,756

Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean Proportion Mean

Financial asset ownership
Transaction accounts 29.8%*** $ 226*** 77.1% $ 2,633 65.7%*** $ 998*** 90.5% $ 3,446 84.7% $ 2,848** 98.4% $ 6,977 96.5% $ 2,297*** 99.4% $ 10,680
Certificates of deposit 4.0%*** $ 186*** 15.6% $ 3,970 6.9%*** $ 394*** 19.1% $ 7,030 3.4%*** $ 50** 15.8% $ 7,522 8.4%*** $ 464*** 25.6% $ 10,763
Savings deposits 30.3%* $ 319*** 42.8% $ 2,131 48.7% $ 1,592*** 58.7% $ 4,188 40.5% $ 834*** 44.8% $ 3,213 59.5% $ 1,591*** 43.1% $ 5,308
Savings bonds 3.3%*** $ 21 11.8% $ 604 8.6%*** $ 131*** 20.8% $ 825 21.1% $ 141*** 33.3% $ 1,407 33.0% $ 1,001** 32.0% $ 3,193
Bonds:

Treasury bonds 0.0% $ 0 0.1% $ 154 0.0% $ 0 0.2% $ 280 0.0%*** $ 0*** 2.0% $ 2,220 0.0%*** $ 0** 3.4% $ 6,261
Municipal bonds 0.0% $ 0 0.9% $ 1,280 0.0%** $ 0 0.6% $ 1,428 0.0%*** $ 0*** 2.9% $ 7,847 0.0%*** $ 0*** 8.5% $ 14,574
Corporate bonds 0.0%* $ 0 0.8% $ 944 0.0%* $ 0 0.7% $ 1,521 0.0%** $ 0* 0.8% $ 1,646 0.0%*** $ 0 2.8% $ 5,839
Mortgage-backed bonds 0.0% $ 0 0.1% $ 74 0.0% $ 0 0.2% $ 757 0.0%* $ 0 0.6% $ 603 0.0%** $ 0* 1.0% $ 1,102

Stocks 1.3%*** $ 3** 9.0% $ 4,348 4.7%*** $ 1,086*** 15.5% $ 18,783 14.3%** $ 2,417*** 29.0) $ 28,720 10.2%*** $ 446*** 36.2% $ 56,709
Retirement accounts (IRA/KEOGH) 3.4%*** $ 361*** 16.8% $ 2,640 7.4%*** $ 1,036*** 25.1% $ 7,862 7.3%*** $ 1,649*** 43.5% $ 18,495 19.0%*** $ 4,510*** 55.9% $ 32,526
Mutual funds

Stock funds 1.1%* $ 33** 4.8% $ 1,268 6.8% $ 368*** 9.7% $ 6,315 6.3%*** $ 461*** 20.7% $ 12,010 10.1%** $ 1,430*** 27.2% $ 23,636
Government bond funds 0.0% $ 0 0.3% $ 327 0.0%*** $ 0 0.9% $ 98 0.0%*** $ 0*** 4.4% $ 1,108 0.1%*** $ 304 5.7% $ 2,643
Municipal bond funds 0.0%* $ 0* 1.1% $ 621 1.4% $ 24*** 2.7% $ 1,938 0.0%*** $ 0*** 6.5% $ 4,002 5.8% $ 377** 11.1% $ 7,060
Corporate bond funds 0.0% $ 0 0.3% $ 431 0.0%** $ 0 1.3% $ 696 0.0%*** $ 0** 2.2% $ 926 p*** $ 0 4.9% $ 4,911
Combination funds 0.0% $ 0 0.7% $ 407 2.8% $ 1,158 1.8% $ 989 0.0%*** $ 0* 4.8% $ 3,518 0.0%*** $ 0*** 6.9% $ 4,388

Life insurance 60.3% $ 9,454* 62.0* $34,364 69.2% $41,252 70.1% $ 44,693 84.8% $ 88,807 81.1% $104,042 81.1% $ 92,785* 82.8% $149,202
Brokerage accounts 0.0%*** $ 0 6.0% $ 0 3.1%*** $ 0 11.4% $ 0 9.5%*** $ 0 26.0% $ 0 7.9%*** $ 0 35.0% $ 0
Trust accounts and annuities ‘0.0%** $ 0* 2.6% $ 679 0.7%*** $ 204* 6.1% $ 1,544 0.3%*** $ 16,314 7.1% $ 6,999 5.2% $ 3*** 9.7% $ 17,843

Real property ownership
Personal residence 26.2%*** $59,357 66.7% $80,816 45.7%*** $75,069** 72.6% $112,786 48.0%* $118,946 71.6% $155,272 67.2% $141,450* 74.5% $207,416
Indebtedness on personal residence 12.8%*** $10,540*** 31.8% $40,369 27.5%** $52,189 42.6% $ 56,862 34.1%* $ 71,897 53.8% $ 81,999 42.0% $102,560 54.7% $100,679
Other vacation property 3.6%** $12,656 11.7% $14,313 9.3%** $12,296 17.6% $ 12,653 11.6% $ 11,643 22.3% $ 14,216 31.5% $ 12,316 30.8% $ 14,843
Indebtedness on other vacation property 0.9% $27,352 2.2% $40,725 3.6% $23,947* 5.2% $ 62,238 9.8% $ 23,699** 6.5% $197,702 21.3% $ 56,443 13.6% $588,194
Other nonvacation property 0.0% $ 0 0.5% $86,706 0.5% $25,000 0.6% $287,331 0.1%*** $ 601*** 1.7% $419,850 2.4% $244,659 1.7% $389,778
Indebtedness on other property 0.0% $ 0 0.4% $35,546 0.0%* $ 0* 0.3% $ 70,054 0.1%* $ 272** 0.&% $336,592 0.5% $ 50,000 0.6% $409,805

Note: *** denotes significance at the 0.001 level; ** denotes significance at the 0.01 level; * denotes significance at the 0.05 level.

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nonvacation real estate category, where commercial real estate assets are particularly con-
centrated across a White ownership group.

Interestingly, Black households do appear to display a preference for consumptive-type
real estate, a finding that supports the work of Terrell (1971), Sobol (1979), Blau and Graham
(1990) and Brimmer (1991). Black consumers show a far greater relative investment in
consumption-oriented real property, such as a personal residence or vacation property, and
a smaller corresponding investment in income-producing business property, captured in the
other nonvacation property classification within the SCF dataset. While White households
also report a relative preference for residential and vacation-type properties over business
properties, the relative strength of this preference is not as great as it is for Black households.
In contrast to this interpretation of commercial real estate holdings, however, it is also likely
that the absence of business property ownership across Black households reflects a lower
incidence of family business ownership within Black households.

While Lach (1999) suggests that life insurance holdings often parallel real estate holding
patterns across Black households, this trend is not evident in the 1998 SCF dataset. The mean
value of life insurance assets across Black households modestly exceeds the value of White
households’ life insurance assets for every income category in the SCF dataset. While these
pairwise mean differences are not statistically significant, the life insurance category repre-
sents the only financial asset classification for which the dollar value of Black household
holdings exceeds that of White households. For all income groups, this supports the assertion
by Scott (1998) and Badu et al. (1999) that African-Americans prefer relatively conservative
financial alternatives in their investment portfolios.

Reviewing financial asset holdings across the various income categories shown in Table
1 reveals a striking difference in portfolio composition for relatively high-risk, high-return
financial assets between Black and White consumers. The absence of corporate debt and
equity securities within Black families’ investment portfolios—and the corresponding con-
centration of wealth in real property and life insurance assets across these households—
creates a stark contrast with White households’ portfolio holdings. This absence of financial
diversification, coupled with the concentration of wealth in lower-yielding financial assets
and real property, signals that African-American households face far greater unsystematic
financial risk, lower portfolio returns, and a diminished rate of wealth accumulation over
time in their wealth-creating asset portfolios.

While this conclusion is troubling, it is consistent with other research results investigating
racial differences in investing preferences. A number of studies—including Boyce (1998),
Zhong and Xiao (1995), Lach (1999), and Gutter et al. (1999)—point out the wide disparity
in equity ownership between Black and White households. Past research offers a number of
different explanations for this disparity. Bajtelsmit and Bernasek (1996) attribute it to the
greater relative influence of Black women in making household investment decisions and the
relatively greater risk aversion observed across these investors. Lach (1999) and Vatter and
Palm (1977) attribute it to a lack of understanding of corporate equity and debt instruments
across Black households, and limited access to information regarding these investment
alternatives. Still other researchers attribute it to differences in risk tolerance related to
socioeconomic factors (Schooley & Worden, 1996), educational attainment (Shaw, 1996),
and a savings motive driven by near-future needs for cash, such as saving for college

352 D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



expenses, rather than distant-future events, like retirement savings (Lach, 1999). Finally,
Burlew et al. (1992) attribute the absence of relatively illiquid financial investments—such
as stocks, bonds, and 401-K retirement assets—in African-American households to stronger
current consumption preferences across Black households, while Pitts, Whalen, O’Keefe,
and Murray (1989) and Morrall (1996) suggest that Blacks display a higher preference for
very liquid investments as well as cash holdings.

The SCF results reported in Table 1 support this final contention. For most financial assets,
there is a wide disparity between Black and White households’ portfolio holdings. This gap
is much smaller in the case of bank transaction accounts, particularly for upper middle- and
high-income families, reflecting the Black families’ greater preference for highly liquid
financial assets. Within lower-income families, however, the use of basic banking services is
less prevalent among Black households. The distance between the percentage of Black and
White families reporting holdings of checking and savings deposits narrows with increasing
income, but the valuation gap between the dollar value of mean account balances across
Black and White households does not diminish in similar fashion. Like other wealth-oriented
asset categories, there is a persistent difference between bank demand, time, and savings
deposit balances reported by Black and White households. This difference remains unex-
plained by income, age, or advancing educational attainment.

Consistent with the notion that Black families focus on near-term savings goals (Lach,
1999), the use of tax-advantaged retirement savings vehicles such as IRA and KEOGH
accounts is much less pronounced across African-American families. Moreover, Tables 1
through 3 illustrate that the retirement savings gap does not diminish with increasing income,
household age, or increased educational attainment. While Blacks close much of the gap
between differential residential property values as income, household age, and educational
attainment levels rise; Black households remain severely underinvested in retirement wealth-
building categories. A wide disparity between the IRA/KEOGH holdings of Black and White
households persists among even the most affluent, well-educated Black households.

As a final point of interest in Table 1, it is noteworthy that while real estate ownership is
far more common among lower- and middle-income White families, the use of debt
financing to obtain personal real estate is quite similar across both races. Following the
convention suggested by Reichenstein (1998), who shows that time-series price changes in
real property and the corresponding mortgage instrument used to finance the property do not
necessarily move in lockstep, making it inappropriate to measure the equity position in real
estate by netting current mortgage balances against the fair market value of real property,
Table 1 reports gross property values and mortgage balances associated with these invest-
ments separately.

Examining proportionate data describing the prevalence of mortgage debt across racial
groups in various income categories reveals that the incidence of mortgage debt and the
magnitude of this debt are frequently quite similar for Black and White families. What is
different, however, is the size of mortgage debt relative to the market value of real property
encumbered by this debt. Across all income categories, Black families are more heavily
leveraged that their White counterparts, with reported mortgage balances representing a far
larger percentage of the value of real property owned.

Turning to the results shown in Table 2, which reports asset holdings while controlling for

353D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



differences in respondent age, we find results similar to those offered in the income
stratification sample. Again, common stock and corporate bond holdings are quite rare across
African-American families, regardless of respondents’ age. While Zhong and Xiao (1995)
report an increasing likelihood of stock ownership as respondent age increases within the
African-American population, Table 2 indicates that this increase is really quite modest.
Incidence of stock ownership within Black households is 8.9 percent in the group of
respondents below 35 years of age, and this proportion actually falls to 8 percent in the
35-to-44 year old age category before peaking at 9.4 percent among 45-to-54 year old
respondents and falling to 3.5 percent among 55-to-64 year old respondents and less than 1
percent for respondents aged 65-to-74 years.

A much stronger relationship between respondent age and the likelihood of equity
ownership emerges within White families. Here, the incidence of stock ownership is 15.2
percent for respondents below age 35, increasing to 21.8 percent for respondents between 35
and 44 years old, 25.6 percent for respondents aged 45 to 54 years, and 29.2 percent for
respondents aged 55 to 64 years before it declines to 24.1 percent for respondents aged 65
to 74 years. For both racial groups, an inverted U-shape characterizes the relationship
between respondent age and equity holdings, although the trend is much more pronounced
across White households. Interestingly, a similar inverted U-shape describes the relationship
between respondent age and household investment in equity mutual funds, although for most
age groups, the incidence of mutual fund ownership is surprisingly below the rate of
individual stock ownership. This trend holds for both White and Black consumer groups in
the SCF sample.

In the case of individual equity holdings and equity fund holdings, the inverted U-shape
profile corroborates the most recent research results reported in Gutter et al. (1999), while
contradicting the work of Zhong and Xiao (1995) and Morrin and Suarez (1983). Using
equity security holdings as a proxy for investment risk tolerance, it appears that risk tolerance
first increases with increasing age, reaches a maximum somewhere between age 45 and 64,
and then diminishes with further increases in age. The age at which risk tolerance appears to
reach a maximum is lower for Black households, at somewhere between 45 and 54 years of
age, than it is for White households, at somewhere between 55 and 64 years of age.

Turning to differences in the dollar value of equity holdings across the two racial groups,
it is clear that Black households are seriously underinvested in equities, and this difference
persists across all age groups observed in the SCF dataset. For Black households the mean
equity investment starts at $490 for respondents below age 35, and rises to only $8,655 for
respondents between 45 and 54 years of age before beginning to decline at higher age levels
as households seek greater financial liquidity and investment safety with advancing age. In
contrast, White households begin with a mean equity investment of $6,797 for respondents
below age 35, and this investment grows to a maximum of $83,278 for respondents between
the ages of 55 and 64 before it begins to decline. Clearly, White households place a larger
quantity of financial resources in equity investments, use these investments to realize a larger
absolute level of capital appreciation, and begin liquidating these equity holdings in favor of
safer, more liquid financial assets later in life than their Black counterparts. The limited
presence of corporate debt and equity investments in African-American households and the

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limited time period over which these families invest in higher-yielding assets severely limits
the ability of these households to build wealth over time.

Examining real estate holdings, respondent age appears to influence the rate at which
families first acquire real property. While Black respondents consistently lag their White
counterparts in the sample proportions reporting ownership of residential real estate, the gap
between the races is widest for younger respondents. In addition, the proportion of Black
households owning residential property accelerates dramatically between the 45-to-54 year
old age category and the 54-to-64 year old group, while corresponding changes in property
ownership proportions reported by White families is a much smaller increase across these
two age categories. Comparing the two racial groups, Black households show an investment
preference for residential real estate over almost all other types of assets, yet they tend to
acquire this residential real estate at a more advanced age than their White counterparts.

Interestingly, the ownership incidence of bank-type financial assets—including both
demand and savings deposits—follows an inverted U-shaped pattern across advancing age
categories within African-American households, and a much more linear pattern across
White households. Ownership of banking products first rises with increasing age in Black
households, reaches a maximum within the 55-to-64 year old age category, and then falls
within older families. In the White sample, virtually all respondent households maintain at
least one bank account by the time they reach the 35-to-44 year old age category, and the
proportion of households holding one or more banking products remains virtually unchanged
across successively older age categories. Attitudes toward bank products and banking
relationships are a function of age within African-American households, while in White
households these attitudes appear to be invariant to changes in age.

Many researchers—including Yuh and Hanna (1997), Shaw (1996), and Lach (1999)—
suggest that preferences for holding risky assets in general, and equity securities in particular,
rise with increasing educational attainment. The data reported in Table 3 support this
contention, as stock and bond ownership rates rise with increasing educational attainment
across both Black and White subgroups of the SCF sample. For both races, equity holdings
accelerate dramatically among households in which respondents possess a baccalaureate
degree. Even among respondents with advanced educational attainment levels, however,
Black equity holdings significantly lag their White counterparts in both the proportion of the
sample owning stock and the mean market value of equity holdings.

It is noteworthy that increased educational attainment occurring below the college-
graduate category contributes to increased family holdings of risky assets, but only in a
modest way. Both Black and White respondents who report completing some undergraduate
college coursework or receiving a high school diploma evidence only slightly more stock and
bond holdings than respondents who failed to complete a secondary school education.
Earning a college degree is a significant determinant of household investment patterns across
both Black and White households. The impact on the risk-return characteristics of family
asset portfolios, however, remains much more pronounced among White households, which
evidence greater diversification across financial asset categories and substantially greater
investment in stocks, bonds, and mutual fund assets.

In virtually all cases, the proportion of Black households reporting ownership of a
particular financial asset lies well below the percentage of White families reporting owner-

355D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



ship of the same asset. The exception to this generalization is life insurance holdings across
Black households. Within White households, the percentage of respondents reporting some
life insurance ownership begins at 62 percent in families that fail to complete a high school
education and rises progressively with increasing educational attainment until reaching 83
percent among respondents who report attending or completing graduate school. Black
households report remarkably similar rates of life insurance ownership, beginning at 60
percent for Black respondents who fail to complete high school, rising to 81 percent across
those who have attended or completed graduate school. The data suggest that Black
households prefer the relative stability and security of life insurance products over riskier and
more price volatile investments is stocks, corporate bonds, and other brokerage assets. This
preference transcends increasing income levels, respondent age, and educational attainment
levels within the SCF sample.

Finally, educational attainment levels represent a much more important determinant of
household banking relationships among Black consumers than White consumers. The pro-
portion of Black households reporting use of these traditional commercial banking products
rises dramatically with increasing education, from less than 30 percent for respondents who
fail to complete high school to over 96 percent for respondents who have attended or
completed graduate school. Across White respondents, more than 72 percent of non-high
school graduates report demand deposit account ownership, and this number rises to 99
percent across respondents who have attended or completed graduate school. At higher levels
of educational attainment, Black households’ commercial banking relationships closely
resemble their White counterparts. At lower levels of educational attainment, particularly in
the case of individuals who fail to complete a secondary school education, Black consumers’
banking relationships are far different than those observed within White households, indi-
cating that a disproportionate number of unbanked consumers are concentrated within the
African-American community.

4. Investment portfolio preferences within African-American households

It is clear from the statistical information presented here and from a review of the recent
academic literature that differences between African-American and Caucasian households in
terms of financial services ownership patterns and wealth-accumulating asset portfolios are
broad and substantive. In particular, Black households control smaller asset portfolios than
their White counterparts. This conclusion persists when controlling for income, age, and
education attainment differences between the two racial groups. In addition, Black financial
portfolios reflect a clear preference for near-term savings, such as savings for a planned
consumer purchase or savings for a college education, at the expense of distant-term savings,
such as retirement saving. Given this preference, African-American retirement account
balances are significantly smaller than the average retirement savings balance observed
across Caucasian households.

Consistent with a preference for near-term savings, Black households value liquidity more
than their White counterparts, showing a greater relative inclination to hold cash and
cash-equivalent assets while foregoing less liquid assets offering higher rates of return. This

356 D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



liquidity preference occurs across all but the lowest income strata. As income levels increase,
commercial bank patronage patterns across Black and White consumer groups become quite
similar, while divergent patronage patterns characterize the lowest income category. Within
low-income households, Caucasians are far more likely than African-Americans to maintain
conventional demand and time deposit account relationships with commercial banks.

At all income, education, and age levels, however, African-American households invest a
smaller percentage of their portfolios in the form of mutual funds, brokerage accounts, and
outright equity purchases than Caucasian households. In addition, Black households dem-
onstrate a distinct preference for safety and security in their investment preferences, favoring
life insurance and real estate assets over corporate debt and equity securities across all levels
of household income and educational attainment.

In most African-American households, life insurance represents the single-most important
financial investment. Life insurance participation rates for Black families exceed those of
White families across all income categories. Moreover, for middle- and upper middle-class
households, the reported value of life insurance holdings across Black families exceeds the
corresponding value of White households’ holdings. This result is particularly noteworthy in
light of the large body of academic literature that reports the absolute value of household
wealth across African-American households to be significantly below the corresponding
value in Caucasian households. In relation to total household wealth, it is clear that life
insurance holdings represent a far more dominant financial asset in Black households than in
White households.

Turning to non-financial investment assets, the market value of real property owned by
Black families—including owner-occupied residential real estate, vacation property, and
other nonvacation property—lies substantially below the corresponding property valuation
levels reported by White households. Similar to the pattern observed for financial asset
holdings across the two racial groups, this real estate valuation gap persists when controlling
for income, age, and educational attainment differences between the two groups. In addition,
Black households report greater mortgage indebtedness than their White counterparts,
particularly with respect to owner-occupied residential property. African-American families
also wait until later in life, typically between the ages of 45 and 54, to acquire residential real
estate. In contrast, Caucasian households display a major surge in residential property
ownership rates after age 35.

In combination, these findings suggest a troubling investment pattern in which African-
American households underinvest in financial asset categories offering relatively high re-
turns, such as common stock, mutual funds, corporate bonds, and municipal bonds, because
they perceive that these securities carry unacceptable investment risks and offer diminished
liquidity. At the same time, African-American households overinvest, in relative terms, in
highly liquid financial assets offering heightened liquidity only in exchange for relatively
lower rates of return over shorter investment periods. As a consequence, these households
forego the benefits of financial compounding over a lengthy investment horizon at the higher
annualized rates of return associated with debt and equity investments. Finally, African-
American households emphasize the notion of intergenerational wealth transfer over the
lifetime accumulation of wealth as the dominant goal of investment strategy. This is reflected
in a preference across Black households for insurance-based contractual financial arrange-

357D.A. Plath, T.H. Stevenson / Financial Services Review 94 (2000) 343–359



ments that monetize upon the death of the investor, at the expense of investment-based
financial asset purchases that build value over the investor’s life span. Collectively, these
investment strategies result in a diminished rate of wealth accumulation over time, and a
smaller stock of total accumulated wealth at any given point in time, within African-
American households.

5. Summary and recommendations

This paper has shown that the African-American market for financial services has grown
rapidly in size and importance. This growth represents a major opportunity for the marketers
of financial services, because statistical evidence indicates that the financial asset profiles of
Black households trail those of their White counterparts in terms of breadth and depth of
holdings, particularly in the area of relatively risky, high yield financial assets. Moreover, the
paper has shown that the African-American segment of the market demonstrates some
unique attitudes and preferences that impact purchase decision patterns. To respond to the
opportunity to serve the needs of this emerging segment of the market, this paper shows that
it is important for financial service providers to be aware that investment preferences and
asset accumulation patterns differ across different racial groups. Examined from this per-
spective, the paper provides financial planners seeking to serve the African-American
community with information to understand the community, tailor investment information to
the unique needs of this community, and interact with this community to render effective
service to the families and individuals who comprise this attractive and growing segment of
the financial services marketplace.

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