Ariel Education Initiative is a nonprofit arm of Ariel Investments, a very successful fund manager, whose president, Mellody Hobson, said in a formal release, "401(k) plans are
now the primary way Americans save for their golden years. Most are unaware there are significant savings disparities in 401(k) plans across racial and ethnic groups. This study reveals important differences that must be addressed if retirement security is to be a reality for all Americans."
The central explanations for the marked disparities, especially for African Americans, appear to include their suspicion of investing, especially in equities; a simple lack of experience; a tendency to take on greater loans than they can really afford; a generally higher rate of seeking hardship withdrawals from their 401 (k) plans; and a tendency to save less because they have less to save and confront competing obligations.
According to the study, 66 percent of African-American workers and 65 percent of Hispanic workers participate in the defined contribution plans offered by their companies, compared to 77 percent of whites and 76 percent of Asians. That disparity persists even after one accounts for age and income, it concludes, while African-Americans and Hispanics contributing at far lower rates than whites or Asians.
The study finds that, among the universe of those who save, whites contribute
7.9 percent of their income, compared to 6.3 percent and 6 percent for Hispanics and African-Americans, respectively, with Asians showing the distinctly highest contribution rate among all groups, at 9.4 percent. Lower contribution rates obviously prompt lower account balances. Examples cited in the study:
When it comes to employees who earn between $30,000 and $59,999, the following average 401(k) account balances were discerned: African-Americans ($21,224), Hispanics ($22,017), Asians ($32,590), and whites ($35,551). Divergences were found at far higher salary levels, with African-American workers who earn $120,000 or more saving an average of $154,902 in their 401(k) plans compared to $223,408 for white workers in that salary range.
One of several behavioral differences involves the attitude toward investing in the stock market, with African-Americans more wary of doing same. According to the study, they invested 66 percent of their 401(k) assets in the market, while whites, Asians and Hispanics invested 72 percent, 73 percent and 70 percent, respectively. The study highlighted those rates, given its assumption that "employees with long-term time horizons should have a significant amount of their assets invested in equities," given the traditionally strong performance of the market.
Similarly, African-Americans were found to be more inclined to take out a loan and far more likely to take a hardship withdrawal from their 401(k) plans. About 40 percent of African-American workers and nearly a third of Hispanic workers borrowed from their