Posted by: Lauren Young on July 7, 2009
Why can’t minorities—particularly those who are professionals—save more for retirement?
New research out from the Ariel Education Initiative, Hewitt Associates and several other partners shows 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 counterparts—a $68,000 deficit that worries retirement experts, notes my colleague Nanette Byrnes in BusinessWeek’s Management IQ blog. Overall, lower-income blacks and Hispanics also lag their when it comes to saving for retirement. Moreover, nearly two of every five African-American workers and almost a third of Hispanic workers borrowed from their retirement accounts compared to just one in five white workers.
The data comes from an extensive analysis of nearly 3 million employees who participate in a 401(k) across 57 large companies in the U.S. Hewitt has been aggregating this data for many months, so it doesn’t even include the impact on retirement savings after the recession hit America the hardest in the past year.
Back in January, I profiled McDonald’s (MCD) where nearly 20% of the 6,700 store managers are black. Thanks to the work of John Rogers, founder of Ariel and a McDonald’s board member, McDonald’s is one of the few companies trying to close the savings gap between its African-American and Latino workers in comparison to their white and Asian counterparts.
What fascinates me the most are the cultural reasons why minorities don’t save more. African Americans, for example, do not trust the financial system because it has excluded them for generations. They consistently put home ownership and college ahead of retirement goals. In the black professional community, owning a home and educating children are top priorities, particularly if you are the first person in your family to do it.
Saving for the future is controversial. “If your Mama lives with you—and others in your extended community are struggling to get by—putting aside money that you can’t touch for the next 15 to 20 years feels selfish and inappropriate,” according to a quote I have in my article from Andreas Tapia, chief diversity officer at Hewitt Associates, who led the data-mining project. (Hewitt also helped McDonald’s redesign its 401(k) plan.)
The story is similar in the Latino community, although the familial bonds tend to be even more intense.
To close the retirement savings gap, McDonald’s is attacking on many fronts. It is pushing financial literacy on employees, and it is using grassroots employee networking to spread the retirement savings gospel.
But McDonald’s is just one company, and my sources say it is light years ahead of its competitors as well as the rest of Corporate America on investing education. Let’s hope this will be a wake up call to other companies to get workers to save more for the future. (For more information on saving for retirement, check out BusinessWeek’s special issue on Rethinking Retirement.)