African-American Community Needs Industry Attention

Prudential released findings from a research study, “The African American Financial Experience,” and the results show a demographic largely mistrusting of the financial services industry, with a growing middle class in need of guidance.  

An urgent request from Dr. Deforest Soaries, Jr., Senior Pastor at First Baptist Church of Lincoln Gardens: “Where are the financial advisers?” he asked at Prudential’s unveiling of the report. Pastor Soaries, who served as New Jersey’s Secretary of State from 1999 to 2002, was speaking on a panel of financial experts and leaders within the African-American community. Joining him was Kelvin Bolston, executive producer of Moneywise with Kelvin Bolston, a nationally-broadcast multicultural financial affairs series; Wilhelmina Leigh, Senior Research Associate at the Joint Center for Political and Economic Studies in Washington, D.C.; and Mark Hug, vice president and chief marketing officer, Prudential Insurance Company of America.  Moderating the event was Ronald Andrews, vice president, Head of Human Resources for Prudential U.S. Business.

The study found that African-Americans are optimistic about achieving their financial goals; however, they tend to hold fewer financial products, invest more conservatively, lack relationships with financial professionals, and be more likely to borrow from company retirement plans – all of which are barriers to achieving financial goals, Prudential reported. Leigh added that in the aftermath of the recession, the African-American unemployment rate is still on the rise; you can’t contribute to a workplace plan if you’re unemployed, she pointed out.

The study also found a growing middle class in the African-American community, which is in need of sound financial planning to achieve financial security. When asked, “Has any financial services company effectively engaged and shown support for the Black community?” a significant 78% of respondents said “No.”  Yet, when it comes to doing business with a financial services firm, 94% said trust is critical or very important.

The statistics showing a need for more financial guidance among African-Americans are numerous:

  • Two in 10 African-Americans believe that they are on track to meet their savings goals for retirement, and nearly twice as many say they are way behind or haven't even started. Sixty percent of African-Americans surveyed have less than $50,000 in company retirement plans and only 23% have more than $100,000.   
  • African-Americans are three times more likely than the general population to tap into their 401(k) or similar plans to meet immediate financial needs.
  • Although 82% of African-Americans believe maintaining their current lifestyle in retirement is critical, only one-third feel confident they will be able to accomplish this. In addition, 83% place critical importance on not becoming a financial burden on loved ones, but just one in 10 is confident of being able to achieve that goal.
  • African-Americans are nearly twice as likely to have a dream of starting a small business as those in the general population (35% versus 19%), and view starting their own small business as a path to financial freedom. However, more than half of those with an interest in starting a small business say a lack of capital has been the primary hurdle to getting started.

Where to begin 

Pastor Soaries followed up his inquiry of “Where are the financial advisers?” with a reality check. He rhetorically asked, “What financial services company is going to let an adviser come to work each day with $50,000 on their books? No one wants 200 clients with $2,000 in an IRA.” The research backs this idea up: 40% of African-American respondents said they are behind on saving for retirement, and 39% said they are way behind and haven’t started (only 21% said they are on track).

Mark Hug with Prudential said in theory, there is a business model that can be built around that. But this research report is only a first step – advisers need to be made more aware of this market, start a dialogue within the industry, and then change can take affect – he acknowledged it will be a slow process.

As for the 78% of respondents who have no trust in the industry, Hug said he thought the industry was doing a better job than that. He said the industry should take a three-pronged approach to earn trust:

  1. have higher ethical standards – the African-American community is very family-oriented and ethical practices matter, the survey found,
  2. have a broad cultural understanding, which as an industry, we don’t have, he said, and
  3. the industry needs to do a better job at local community support.

Hug also mentioned a multicultural team at Prudential – it had 15 members when it began but has grown to 150 members. He said it’s a passionate group, and if the team can change things within the company, it will then be able to branch out. “It’s a start,” he said, “and we’re moving in the right direction.”

The panelists discussed why trust of the industry is so low among the African-American demographic in particular; they acknowledged not all African-Americans are the same, yet trust was lacking among a large majority. Pastor Soaries said it is historical; civil rights removed barriers, but removing barriers does not automatically build trust and relationships. He cited an FDIC statistic that says 54% of African-Americans are “under-banked” or don’t receive banking services at all.

More than education 

There have been financial literacy campaigns targeted to African-Americans, said Pastor Soaries. But there is a problem in the African-American community that goes deeper than financial literacy, he said. There is too much “conspicuous consumption.”

“We need to change people’s attitudes and behaviors…we’re paying last month’s bills with next week’s pay check…we’ll never get ahead like that,” he said. 

The survey found a greater level of optimism in the African-American community than in the general population, but the Pastor noted there are two kinds of optimism. “There is spiritual optimism…if God can make the Earth in a week, he can help me,” he jested – that optimism is prevalent. But when African-Americans look at the facts, the report showed they begin to lose confidence.

Even though trust is low, desire for financial advice is high, the report found. Fifty-eight percent of respondents agreed with the statement, “I would like advice on saving and planning for retirement, but I don’t know or can’t find a professional I can trust.” Those that do have an adviser are twice as likely to say their retirement savings are on track (36% versus 16%).  Likewise, 37% of respondents with an adviser know what savings they’ll need in retirement versus 15% without an adviser.

The study polled 1,500 African-Americans with incomes of $25,000 or more, between the ages of 25 and 70, as well as 500 people with the same qualification for a general population. All respondents either lead or have a significant role in making financial decisions for their households.   

A complete compilation of the survey results is available here.