African Americans, Hispanics Lag on Retirement Savings

Posted by: Nanette Byrnes on July 7, 2009

Regardless of age or income African-Americans and Hispanic workers contribute less often, and less money, to a 401k than white and Asian-Americans, according to a just-published study. Among the surprising findings: that African-American employees who earn $120,000 or more have saved $154,902 in their 401(k)s on average, versus $223,408 for their white counterpart—a $68,000 deficit that worries retirement experts.

“Without a significant effort to improve savings and investing behaviors, African-American and Hispanic workers are in danger of retiring into poverty,” says Mellody Hobson, president of Ariel Investments, an investment firm that sponsored the study along with benefit consultants Hewitt Associates.

Some companies have done a good job of engaging minority workers in retirement savings, but on the whole, while 77% of white Americans contribute to their employer’s 401(k), this study found only 66% of African Americans do, and just 65% of Hispanics participate. Whites also contribute more, an average of 7.9% of their income, compared to 6.0% for African Americans. African Americans are also less likely to invest in equities, and more likely to take out loans against their retirement savings or make hardship withdrawals.

And the sharp disparities are likely even worse today, with the economy well into recession. This study was conducted through December 2007, before the worst of the economic slump hit. The data, which includes information for nearly 3 million employees of 57 large U.S. corporations, “doesn’t even incorporate the financial crisis,” notes Hobson. “You’re looking at numbers that shocked us even before that.” (For more on the challenges of planning for retirement in the downturn here’s a link to our current special report.)

The high rate of borrowing from 401k worries Barbara Hogg, a principal at Hewitt and co-leader of the study, because that money is in danger of never getting back into the employee’s account, especially if they lose their job and are forced to quickly repay it or bear financial penalties. The study found that 39% of African-American workers had taken a loan, versus just 16% of their Asian American counterparts. And in the current downturn, minorities have been losing jobs at a faster clip than white Americans, notes Hobson. “It puts them on shaky financial footing,” she says. ( In a separate study, Hewitt found that between 2007 and 2008 hardship withdrawals from 401(k) accounts rose 20%.)

On the other hand, many minorities report they are willing to save because they know they can get access to the money through loans or withdrawals if they do have an emergency.

Fixing this kind of inequity might be hard to do. But the authors say mandating financial education and communicating better about saving for retirement would be two helpful steps. Hogg notes that companies and investment managers have traditionally touted 401(k)s as a means to financial empowerment and individual success. “Other cultures may be less cultures of individualism and more of a community. They may need motivation beyond individualistic success.”

Whatever the marketing message, both Hogg and Hobson agree that students have to hear about the value of retirement savings earlier. “Today in High School you can elect to take woodshop or auto mechanics and not (have the option to take) a really great class on money and investing,” notes Hobson. “ The odds people are cleaning their own carburetors are declining, but making good informed money choices not only affects your life but future generations.”

Reader Comments

sss

July 7, 2009 1:25 PM

"especially if they loose their job and are forced to"

It's LOSE, not LOOSE. I'm available as an editor, $50/hr.

Mr. Spellright

July 7, 2009 1:38 PM

Has everyone forgotten how to spell the word "lose" for when you no longer have something? It is not "loose!"

Algibbs

July 7, 2009 1:51 PM

I'm betting that the author of this article is a member of the group discussed in the article. The "loose" for "lose" is a tip off! LOL

liveandlearn

July 7, 2009 1:53 PM

I am tired of hearing all of the sob stories about losing my job.. No monies.. Etc..

I personally came from poverty and will never go back because of the simple rules I live by:

1) Live beneath your means
2) Save your monies for a rainy day
3) Invest your monies. (Read up and study about finances... Nobody repeat nobody will look after your own interests like yourself!)
4) WORK YOUR BUTT OFF!!!! Work is a privilege not a right!

I am proficient as:

Car Mechanic
Carpenter
Electrician
A/C Repairman
Plumber
Database Adminsitrator
Software Programmer
Air plane Pilot

5) Live a simple life! (Follow the good book!)

6) Look for work not handouts!

P.S.

At the threat of going to jail, my government is forcing me to give my hard earned monies to fools and irresponsible people...

100% Un-ethical and immoral.

Sincerely,

Jim Fields

Camilo

July 7, 2009 2:15 PM

LAME!

Teri

July 7, 2009 3:15 PM

Agree with Live and Learn. I know people who did everything they were supposed to financially and lost half. I'm sure it would be a nice comfort if everything went as planned. But no one has that kind of security. You have to be willing to adapt and work a second job if you need to. Get as many skills as you can and use them.

fishmonger

July 7, 2009 6:01 PM

Algibbs, are you saying that anyone who makes a mistake or, possibly, just a typo, such as "loose" for "lose" is either an African-American or a Hispanic? Allow me, then, to make a similar conclusion: you are a racist.

FJ

July 7, 2009 10:28 PM

This article would get an "F" when I was in high school.

Another example:

"investment mangers" - next to last paragraph.

Aaron

July 7, 2009 10:50 PM

Take a look at this article about the author:

http://www.businessweek.com/bios/Nanette_Byrnes.htm

Thomas Huynh

July 8, 2009 8:50 AM

Hi everyone,

Let's get back to the heart of the issue in the article. The fix may be as simple as automatically signing everybody up to 401k the moment they are hired. They would have to opt out of it, much like healthcare. Hardly anyone would miss the 401k deduction and we all know this is a benefit -- "free" money as they say -- not to be missed. Frankly I think it's probably not a matter of race but of economic class; I would like to see the stats on blue-collar whites versus white-collar blacks.

Sincerely,
Thomas, founder, Sonshi.com

TOM W

July 8, 2009 11:04 AM

I'm surprised more articles like this haven't shown up. For years, I've been waiting for some organization such as the N.A.A.C.P. to propose some sort of legislation to "level the playing field" in regards to social security payments, trying to make the argument that since minorities have historically been paid less than their white counterparts, social security payments for them should be increased across the board, regardless of contributions.
I'm sure that item is going to be on the agenda sooner or later.

EF

July 9, 2009 7:20 PM

I think the discrepancy is because blacks and hispanics will tend to help out their parents and grandparents, who may not have attended college because of past discriminatory practices. Chances are that the extended family of white counterparts are in no need of finncial assistance. Just my thought...

bon

July 10, 2009 1:22 PM

Typically, minorities save less because they have to spend more to maintain a lifestyle that is remotely close to the majority. The loans they do get approved for are typically higher interest rates and maybe 95% of loan to value vs the majority. The article is slanted with premises not grounded in reality.

kenny

January 5, 2010 9:01 AM

WISHING YOU A PROPEROUS 2010….

BUY Australian blue chips stocks and hold them for your retirement income!

Australia's positive GDP growth has been in an UNBROKEN uptrend for the last 17 years. This unblemished economic growth which now is accelerating due to expanding resource exports to China and India, this will return profits far in excess of the average US growth.

Take for example WESTFIELD, if you invested just $1,000 into it 40 years ago and then reinvested the dividends, it would now be worth over $100 million dollars!!!

AUSTRALIAN’S (4) BANK STOCKS are exceptional growth and dividend machines with their monopolistic position in both Australia & NZ, they have continually returned growth rates of 20% p.a. with additional 6% p.a. fully franked dividends (NO TAX).

Presently any of the BANKS in Australia are fantastic investments.
ANZ
CBA
NAB (Also owns 100% Michigan National Bank)
WESTPAC

Only 8 banks in the WORLD now have AA+ ratings, so the Australian Banks count for 50%.

“Fortune favors the brave”

julie

January 5, 2010 9:03 AM

WISHING YOU A PROPEROUS 2010….

BUY Australian blue chips stocks and hold them for your retirement income!

Australia's positive GDP growth has been in an UNBROKEN uptrend for the last 17 years. This unblemished economic growth which now is accelerating due to expanding resource exports to China and India, this will return profits far in excess of the average US growth.

Take for example WESTFIELD, if you invested just $1,000 into it 40 years ago and then reinvested the dividends, it would now be worth over $100 million dollars!!!

AUSTRALIAN’S (4) BANK STOCKS are exceptional growth and dividend machines with their monopolistic position in both Australia & NZ, they have continually returned growth rates of 20% p.a. with additional 6% p.a. fully franked dividends (NO TAX).

Presently any of the BANKS in Australia are fantastic investments.
ANZ
CBA
NAB (Also owns 100% Michigan National Bank)
WESTPAC

Only 8 banks in the WORLD now have AA+ ratings, so the Australian Banks count for 50%.

“Fortune favors the brave”

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