Here at Minority Fortune we spend a lot of time isolating the behaviors of a few individuals with a high net worth in the African American community. While a lot of information has been collected, there is always room for more insight into the bigger picture of Wealth behavior from those in the highest wealth bracket. Credit Suisse partnered with Brandeis University’s Institute on Assets and Social Policy to report on the realities for African American wealth-builders. Some of it proved interesting. Some of it was shocking.

Here’s a snapshot of what the report details:

• The top 5% of African-Americans take a relatively conservative approach to decision-making on matters of wealth creation and wealth management. For example:
• The investment portfolios of the top 5% of African-Americans are three times more heavily weighted towards CDs, savings bonds and insurance than the investment portfolios of the study’s white comparison group, and are nearly one-half less weighted towards stocks, bonds and mutual funds.
• The top 5% of African-Americans invest 9% of their non-financial assets in business assets, defined as the total value of business(es) in which a household has either an active or non-active interest. The study’s white comparison group invests 37% of their non-financial assets in business assets.
• The top 5% of African-Americans invest 41% of non-financial assets in real estate outside their primary home, relative to 22% for the study’s white comparison group.
• “Wealth mobility” – the degree to which a population maintains wealth over time or moves into wealth over time – is relatively low among African-Americans and may be a driver of more conservative financial decision-making. IASP’s research shows that around 57% of high-income African-American families in 1984 were still in the top segment of income in 2009, but 8% had fallen into the low-income segment. For high-income white American families, 73% remained in the high income segment and only 1% fell into the low income segment. This analysis is a new analysis of the 1984-2009 data.
• Education is a key driver of wealth among the top 5% of African-Americans. Almost 69% of African-Americans at the 95th percentile of net worth have a college degree, compared with 64% for the study’s white comparison group.

From reviewing this report, it reveals many gaps: gaps between top 5% African Americans vs the top 5% of whites, gaps between the top 5% of blacks and the remaining 95% of blacks, and gaps within black investments themselves. While this information is not surprising, it does lend some insight into why some of these gaps exist.

The Top 5% African American Households are Conservative

For a group of people that do not own the majority of wealth and have not reaped the privileges that come with generational wealth, the knowledge to make aggressive investments are unknown to many. There is a comfort with investing hard-earned money in safe options such as savings, bonds, CDs, and real estate as opposed to stocks, options, and private equity. In return for that safety, conservative earnings are made. There are many plausible explanations for this phenomenon.

The first is complacency. Statistics repeatedly show the wide wealth gaps between African American and white Households. For the middle and working class families in the black community, poverty is not a foreign, distant concept. Many families have several family members with direct experiences with abject poverty and adversity. To finally eradicate the all-too-familiar financial struggles and graduate to a place of consistent income and upgraded social status translates to triumph. However, this “I’ve made it” not only leads to conservative investment habits but also the foolish, hardly wealthy behaviors commonly showcased on this blog.

The second and most problematic is institutionalized racism. Pamela Thomas-Graham, Credit Suisse’s Chief Marketing and Talent Officer and Head of New Markets, shares “that African-Americans are generally under-served by banking institutions. The Commerce Department, for example, has published data showing that minority business owners receive loans less frequently, at significantly smaller sizes, and at worse rates than non-minority business owners.” So aspiring African American entrepreneurs continue to face discriminatory practices by lending institutions; it would not be a stretch to align these barriers to entry in the real estate, jobs, and business sectors. Black Households are not building wealth on an even playing field and frequently have to overcome 2X or more times the hurdles. In order to correct hardly wealthy behavior and in order for black households to become comfortable with wealth creation, institutionalized racism must disappear. Aside from a very few, even the majority of the top 5% of African American households have fewer options for their wealth. With fewer investment and business options, perhaps many opt out of the aggressive investment club because they subconsciously understand that they will not be granted access to the options of their white counterparts. For example, the privilege that allowed Bernie Madoff to be entrusted with billions of dollars from the wealthy elite could have never been awarded to a minority to that degree and for that length of time.

The solution?
In the end, this report circles back to the solution for bridging these various gaps: education. Education will not only shrink the gap between the wealthy top 5% of white households and the wealthy top 5% of black households, but it will also foster more innovative investments. Yes, black households must acquire a basic financial education for proper wealth accrual. Wealthy black households must maintain the discipline to maintain and grow their wealth. However, nothing changes if we only seek to educate one side of this coin. Simultaneously, white households with wealth and ownership must equally be getting an education on eradicating discriminatory practices that restrict upward mobility of people from all racial classes, women, religious sectors, etc. The former will not solve the big picture without the latter.

This report provides a great overview. However, it would be equally beneficial for Credit Suisse to create a report on The Problematic Results of a white Top 5% economy and distribute it across major financial outlets like Forbes, The Wall Street Journal, Harvard Business Review, Business Insider, and more as this problem does not rest solely on the shoulders of African Americans. One of the most important takeaways from this report is that one must continue to sustain and grow their wealth if they want to graduate into the wealth that the top 5% possess while understanding that the playing field does not become level upon getting there.

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