Among the top 5 percent of the wealthiest African-Americans, a new study by Credit Suisse identified that these wealthy African-Americans are much less likely than whites at the same income level to have money invested in their own or someone else’s business. This finding could go far in explaining why Black entrepreneurs have much more difficulty finding investment dollars for their business ventures—wealthy Blacks are not as eager to see businesses as an investment opportunity. This is unfortunate because a 2010 study issued by the U.S. Commerce Department found that minority business owners had difficulty securing money from traditional sources: they were less likely to receive loans compared with non-minority business owners; they received loans that were, on average, less than half the size of whites; and they received loans that were, on average, 140 basis points more expensive. All these factors combine to place significant constraints on African-Americans launching businesses, resulting in less wealth being created in the Black community—and, in a vicious cycle, meaning there’s less wealth available for others to start thriving businesses. The Credit Suisse study, entitled “Wealth patterns among the top 5 percent of African-Americans,” compared wealth-management behaviors of the richest African-Americans – those with over $357,000 in net worth – with those of whites at the same level. The study’s main finding is that wealthy Blacks are much more conservative than whites with their money. The study said the wealthiest African-Americans have 9 percent of their non-financial assets invested in business assets—defined as equity in their own businesses or someone else’s—compared to 37 percent for the white comparison group. For African-Americans, the more conservative investment of real estate accounted for a much larger proportion of investments. The group had 41 percent of non-financial assets invested in real estate outside of one’s primary home, compared with 22 percent for the study’s white comparison group. “Investing in real estate has historically been a smart and steady way to build wealth,” said Stefano Natella, Global Head of Equity Research at Credit Suisse and one of the principal authors of the study. “But if you successfully invest in a company—a tech company is a great example—you could you could see a multiplier of three, four, even 10 times your wealth. That’s where more conservative wealth-management behaviors can sometimes be limiting.” The study also found that Blacks have a difficult time staying in high-income groupings over time. Only 37 percent of African-Americans whose parents were in the highest quartile of net worth in 1984 remained there 20 years later, for example, versus more than half, or 56 percent, of whites. In addition, it’s harder for Blacks to move up: Only 7 percent of the children of the poorest African-Americans climbed to the highest wealth levels, compared to 12 percent for whites. “When you look at the wealth mobility data, and you overlay it with the Commerce Department data, the picture becomes clear,” said Pamela Thomas-Graham, the bank’s first African-American Executive Board member, and the Head of Credit Suisse’s New Markets business. “A more conservative investing approach is a sensible and pragmatic response to these factors. The question is how to change the picture and to accelerate wealth creation.”
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