Investment Behavior: Factors that Impact African American Women’s Investment Behavior

Abstract

The wealth of African Americans has lagged behind that of the general US population. The key to understanding this may lie in African American women’s money management abilities and feelings relating to money because they are often the household’s money manager. This study answers the question, “If African American women had greater confidence in their ability to manage money, or had a positive attitude towards money, would they invest in the stock market more often and ultimately increase their net worth in this way?” Researchers studied a cross-section of African American women, using three logistic regression models and found that African American women who were sure of their ability to manage their finances and felt in control of their money were more likely to be investors. A higher number of younger African American women were investors, compared to older African American women. In addition, younger African American women had greater confidence in their money management ability than their older counterparts.

Keywords

investment behavior African American women confidence money management

Introduction

Wealth, defined as a household’s total assets minus total liabilities, is imperative to the economic well-being of all households because it enables them to weather unexpected financial shocks and allows them to achieve their long-term goals (Hanks et al., 2018; Hudson et al., 2018; Zan et al., 2017). Wealth ties one generation to the next, since it is the goal of most households to pass on their wealth to the next generation (Hanks et al., 2018; McIntosh et al., 2020; Zan et al., 2017). African Americans lag the general U.S. population in terms of wealth and income (Hanks et al., 2018; Kochhar & Cliffuffo, 2017). The net worth of white Americans is 10 times that of African Americans, despite the fact that the annual income of white Americans is only 2.5 times that of African Americans (Kochhar & Cliffuffo, 2017). Furthermore, white American women have accumulated more wealth than African American women, while men have on average accumulated more wealth than women (Richard, 2014).

African American women seem to face a particular set of challenges in their accumulation of wealth, even though they have a higher rate of participation in the labor force and the highest growth rate of college enrollment of any group (Zan et al., 2017). African American women are increasingly being employed in professional and executive positions (Zan et al., 2017). Despite these developments, in 2013, white American married women with a bachelor’s degree had an average median wealth of $260,000, compared to African American women’s average median wealth of $45,000, who were similarly situated (Zan et al., 2017). Again, income accounts for only a small portion of the disparity (Richard, 2014). Investing in the stock market is a vital way to create wealth, and African American women have not invested in the stock market at the same rate as other Americans (Hudson et al., 2018; Richard, 2014; Zan et al., 2017). This study is relevant because it explains why African American women are not active investors in the stock market, and this could be limiting their wealth creation.

Although African American women have made positive strides in income and education, they have not invested in the stock market at the same rate as white American women, nor do they own high-risk/high-return assets such as stocks as compared to white American women (Hudson et al., 2018; Richard, 2014; Zan et al., 2017). It is of interest to note that research shows that African American women have indicated that investing and the stock market is the one field in which they desired more education and greater exposure (Merrill Lynch, 2019). In fact, African American women’s number one regret is not investing more in the stock market (Merrill Lynch, 2019).

Research has explored many reasons for African American women not being active investors, such as age, risk tolerance, financial knowledge/financial information, and lack of financial resources (Ariel Investments, 2016; Coleman, 2003; Lusardi & Mitchell, 2005). However, the emotional aspect of investment behavior as a possible impediment has not been explored as much. For this reason, the emotional aspect is the focus of this research, and the researchers set out to answer the following question: Does African American women’s lack of investment activity stem from their confidence about their financial situation or their attitude regarding their money management skills?

The Role of Confidence and Community Commitment in Wealth Creation

There are many factors affecting the African American women’s investment behavior and this could be affecting their wealth accumulation. Attitudes about and feelings regarding financial matters could be one of those factors. Research shows that, overall, women are as confident as men when it comes to most financial tasks, such as paying bills and budgeting (Merrill Lynch, 2019). However, when it comes to investing in the stock market or managing an investment portfolio, women are not as confident (Merrill Lynch, 2019). Moreover, women feel that the financial services industry targets men to a greater extent than women (Merrill Lynch, 2019). Nevertheless, African American women are more likely to seek support, information, and advice from the financial services industry more than any other source of information (Prudential, 2015).

Another potential impediment to African American women’s wealth accumulation is their sense of commitment to their family and community (Evans, 2016; ING, 2008). African American women have a sense of obligation to their community, starting with their financial obligation to take care of their immediate and extended family (Evans, 2016; ING, 2008). This obligation to the family may stem from the era of slavery, when African Americans were not permitted to marry, and African American women were mainly responsible for maintaining the family unit (Craemer et al., 2020; Pryor, 2010). Furthermore, in an ING (2008) study of African American women, 47% of those surveyed stated that it was difficult to attain their desired lifestyle due to their financial obligation to immediate family. More than 33% had loaned in excess of $1,000 to family or friends within the previous year (ING, 2008). In addition, 71% of those surveyed indicated that they regarded it as essential to donate money to their church. These obligations reduce African American women’s savings, affect their ability to invest in the stock market, and hamper their wealth accumulation (ING, 2008).

If African American women had greater confidence in their money management ability or a positive attitude relating to money, could this have a positive impact on their investment behavior? Research has shown that confidence can trigger action or behavior, so it is vital to examine the relationship between confidence and investment behavior (Merrill Lynch, 2019). While the primary focus of this study is all African American women, a secondary focus is on younger African American women because they are more willing to leverage technology, which is prevalent in the investment industry, and they are more willing to take investment risk as opposed to older African American women (Prudential, 2015).

According to Noel et al. (2019) the African American and white American wealth gap is constraining the entire U.S. economy, costing the economy between $1 billion to $1.5 billion. This study is relevant because uncovering reasons why African American women do not invest in the stock market could lead to a potential resolution and could put them on a path to accumulate more wealth. Furthermore, African American buying power exploded from $961 billion in 2010 to $1.3 trillion in 2018 and is projected to grow to $1.5 trillion by 2021 (Weeks, 2019). African American women are driving this growth through their expansion of minority-owned businesses (Nielsen, 2017). The number of business owned by African American women grew by 67% between 2007 to 2012 (Nielsen, 2017). This study is relevant because this enormous and growing buying power could be diverted into investing and again help African American women accumulate more wealth.

Literature Review

This study examines potential barriers to African American women investing in the stock market, similar to studies that examined barriers such as risk tolerance, financial knowledge/financial education, lack of resources, and emotional factors (Ariel Investments, 2016; Evans, 2016; ING, 2008; Pryor, 2010; Richard, 2014). Studies have found that risk tolerance is a barrier to investing in the stock market for all women (Kansal & Zaidi, 2015; Richard, 2014). African American women are more risk averse compared to white American women; therefore, they do not invest in the stock market nor own high-risk/high-return assets at the same rate as white American women (Richard, 2014).

Studies have shown that African American women may not be as financially knowledgeable as the general population (Smith, 2018), and some African American women feel that they have not had enough exposure to investing and the stock market (ING, 2008). In the ING report (2008), 75% of participants say that they were exposed to investing late and wished that they had been exposed to investing while growing up. Thus, African American women’s limited exposure to financial education or financial information hurts their financial knowledge, and this inhibits their investment behavior (Pryor, 2010). In addition, some African American women who are not investors say they do not invest because they do not know enough to pick the best investment options (Pryor, 2010).

Very few studies have examined the emotional side of African American women’s investment behavior. A small number of studies examined African American women’s sense of obligation to their extended family and the effect this has had on their financial decisions (Evans, 2006; Pryor, 2010). In a study by Evans (2006), race and culture were examined to determine if they affected African American women’s financial fitness, asset accumulation, and wealth attainment. For the purposes of this study, culture was defined as “shared values or norms among the African American community.” Evans (2006) found it was an informal norm to view family as paramount and the expectation existed that African American women would provide social, emotional, and financial support to the immediate and extended family when needed. This support could take the form of housing, clothing, food, and monetary support. Evans’s (2006) study did find that culture limits African American women’s wealth accumulation. Most women surveyed felt that they could have accumulated more wealth if they did not have to support their extended family financially (Evans, 2006).

In 2016, a survey of Australian women examined the relationship between women’s financial self-efficacy and their financial behavior (Farrell et al., 2016). Self-efficacy is defined as an individual’s sense of self-assurance or self-belief in their capabilities (Farrell et al., 2016). The study found that self-efficacy emerged as a significant predictor of personal financial behavior (Farrell et al., 2016). In other words, those who exhibited high self-efficacy were more likely to own investment and savings products and were less likely to hold debt (Farrell et al., 2016).

In 2018, a study was done examining factors that limit all African American’s investment behavior. Participants self-reported that the reasons they don’t invest are (a) “I don’t understand how the stock market works,” (b) “I don’t have enough money,” and (c) “I don’t want to lose my money” (Hudson et al., 2018). Through regression analyses, researchers found that financial knowledge, financial education, and financial socialization were all significant factors on African American’s investment behavior (Hudson et al., 2018).

Age and Investment Behavior

In addition to gender, the results of existing research indicate that age also influences investment behavior (Embrey & Fox, 1997; Gutter et al., 1999; Sykes, 2005). A study by Embrey and Fox (1997) explored how living alone influences the differences in investment behavior of men and women. This study used data obtained from the 839 single-person households that participated in the 1995 Survey of Consumer Finances (SCF). The study found that although single women were more risk averse than single men, gender was not the critical determinant of investment decisions. Demographic characteristics, such as net worth, income, and age, also influence investment decisions (Embrey & Fox, 1997). The study found that there were no significant differences in gender as it relates to the proportion of financial assets in stocks and certificates of deposits (Embrey & Fox, 1997). However, older women invested more in housing if they had experienced divorce (Embrey & Fox, 1997).

Sykes (2005) explicitly studied asset ownership and racial differences of nonmarried African American and white American females, using data from the Census 2000 Supplementary Survey (C2SS). The results of the study indicate that the likelihood of homeownership for females increased with age (Sykes, 2005). The study reported that as the age of nonmarried African American females increases, the likelihood of homeownership increases (Sykes, 2005).

The influence of generational differences on investment behavior and financial decision-making has been explored in previous studies (Chung & Park, 2015; Kim et al., 2019; Schooley & Worden, 2003). The Pew Research Center defines the generations as Baby Boomers (born 1946–1964), Generation X (born 1965–1980), Millennials/Generation Y (1981–1996) and Generation Z (born 1997–present). Kim et al. (2019) explored the relationship between financial knowledge and the short- and long-term financial behaviors of Millennials. The results indicate that there is a positive relationship between financial knowledge and short- and long-term financial behaviors. Chung and Park (2015) used an experimental survey to examine the retirement investment decisions of Generation Y (Gen-Yers). Chung and Park (2015) found the interaction of financial literacy and the strength of relationships with others who are financially literate positively influence the investment decision-making of Gen-Yers.

Schooley and Worden (2003) explored the risk tolerance and investment behavior of individuals in Generation X. The results of Schooley and Worden (2003) indicate that Generation X is more willing to take a substantial risk for substantial returns when compared to Baby Boomers. However, Generation X is less willing to take above-average/average risk for above-average/average returns compared to Baby Boomers. The stage of life of Generation X influences the willingness to take on much risk, and Generation X individuals have less propensity for risk than Baby Boomers (Schooley & Worden, 2003).

Theory

This study investigates the relationship between the attitudes/feelings of African American women and their investment behavior. The Family Financial Socialization theory provides a basis for this study. This theory posits that there is a relationship between attitudes/feelings and financial behaviors such as investing. Overall, the Family Financial Socialization theory illustrates that financial well-being is ultimately influenced, directly or indirectly, by several variables, including attitudes/feelings. This theory shows the interactions between and the influences of characteristics, relationships, attitudes, financial knowledge, and capabilities on financial behavior (Gudmunson & Dane, 2011). Thus, the theory states that an individual’s personal and family characteristics have an impact on their family interactions and relationships, as well as an impact on their purposeful financial socialization (Gudmunson & Dane, 2011). Financial socialization is defined as the process of acquiring/learning financial tools and skills for making sound financial decisions (Gudmunson & Dane, 2011).

Financial socialization and family interactions and relationships have an equal impact on financial attitudes, knowledge, and capabilities (Gudmunson & Dane, 2011). Moreover, financial attitudes, knowledge, and capabilities have an impact on financial behaviors and financial well-being. This study seeks to explore the relationship between African American women’s financial attitudes and investment behaviors, and the hypotheses are as follows:

Hypothesis 1: African American women who have confidence in their financial situation are more likely to be investors in the stock market than African American women who have less confidence in their financial situation.

Hypothesis 2: African American women who have a more positive attitude to managing their finances are more likely to be investors than African American women who have a less-positive attitude to managing their finances.

Hypothesis 3: African American women who are financially literate are more likely to be investors than African American women who are not financially literate.

Hypothesis 4: Younger African American women are more likely to be investors than older African American women.

Hypothesis 5: Younger African American women are more confident in their financial situations than older African American women.

Hypothesis 6: Younger African American women have a more positive attitude about managing finances than older African American women.

Hypothesis 7: Older African American women seek more financial knowledge than younger African American women.

Hypothesis 8: Younger African American women are more likely to be financially literate than older African American women.

Method

Data

The convenience sample was drawn from a cross-section of African American women through emails and social media. The Alumni email database and current students from an urban southeastern university, members of an African American national women’s organization and random participants through the authors’ personal Facebook and LinkedIn accounts were asked to complete an online survey through the Qualtrics survey tool. Potential respondents were initially asked to complete the study within a 2-week timeframe, and follow-up reminders were sent out to nonrespondents. As a result, 1,954 African American participants took the survey. Among the 1,954 respondents, 498 were found to be incomplete or male. Finally, 1,003 African American women were considered for the logistical analysis from the pool of the 1,456 completed surveys (Table 1).

Table 1.

Summary Statistics of the Socioeconomic Variables.

Variable	Sample characteristics (n = 1,003)	GEN X or younger		Boomers or older
		Investor status		Investor status
		Yes (n = 245)	No (n = 367)	Yes (n = 193)	No (n = 198)
Financial literacy level
Nonliterate	76.6%	57.1%	77.4%	58.0%	69.7%
Literate^a	23.4%	42.9%	22.6%	42.0%	30.3%
Education
Some college or less	13.6%	7.3%	16.6%	9.8%	16.2%
College	25.1%	20.0%	30.5%	20.7%	19.7%
Postgraduate^a	61.3%	72.7%	52.9%	69.4%	64.1%
Marital status
Unmarried	67.0%	60.4%	78.2%	60.1%	62.1%
Married^a	33.0%	39.6%	21.8%	39.9%	37.9%
Income
$50,000 or less	35.9%	25.3%	51.2%	17.6%	31.3%
Less than $100,000	36.5%	35.9%	33.2%	34.7%	42.9%
$100,000 plus^a	27.6%	38.8%	15.5%	47.7%	25.8%
Employment status
Other	23.4%	15.1%	39.0%	11.9%	17.2%
Retired	23.5%	2.0%	0.5%	47.7%	60.1%
Full-time^a	53.1%	82.9%	60.5%	40.4%	22.7%

Reference group.

The data were collected from responses to a questionnaire during the period 2016 to 2017. Participants were analyzed as one whole sample and were then divided into two subsamples for further analysis. The first subsample was younger African American women, and it included individuals in Generation X and younger (612 participants). The second was older African American women, and it included Baby Boomers and older (391 participants).

Variables

Respondents were asked questions about individual behaviors and viewpoints on investment, spending, and saving, as well as questions about their economic and sociodemographic characteristics. The primary dependent variable INVESTOR was originated from the question, “What kind of financial accounts do you have? (Check all that apply): Savings, Checking, Money Market, Investment broker account, Retirement account (401k), IRA, Roth, Other.” Participants were coded as an INVESTOR if they indicated that they had an investment brokerage account. Participants who responded that they did not have an investment brokerage account were coded as NON-INVESTORS.

The independent variable measuring financial literacy (FINLIT) was measured through the responses to five questions. These five questions are widely used in the industry to measure financial literacy (Hudson et al., 2016; Lusardi & Mitchell, 2005; Robb & Woodyard, 2011; Young et al., 2017). Participants who correctly answered four or more questions are considered to be financially literate, whereas participants correctly answering three or fewer questions are considered not to be financially literate (Hudson et al., 2016; Lusardi & Mitchell, 2005; Robb & Woodyard, 2011; Young et al., 2017).

Education, which denotes the level of education among the respondents, was coded as “1” if the individual had not completed an undergraduate degree, “2” if the respondent had completed an undergraduate degree, and “3” if an individual had completed a postgraduate degree. “Marital status” identified respondents as married and unmarried. Individuals were coded as not married, or “1,” if they were single, separated, divorced, or a widow/widower. Participants were coded as married, or “2,” if the respondent was married. Income level was divided into three categories: individuals who earned $50,000 or less, individuals who earned between $50,001 and $99,999, and individuals who earned $100,000 or more. Employment status was divided into three groups: “full-time,” “retired,” and “other.” The latter included participants who were not retired and not employed full-time.

Key independent variables were originated from the following five-question set and were used to gain insight into the attitudes and financial behaviors of African American women: 1. Comparing yourself to your parents, would you say that you are: (Likert-type scale, “5” = saver to “1” = spender). 2. “How sure do you feel about your ability to manage your finances”? (Likert-type scale, “5” = somewhat sure to “1” = very sure). 3. “I feel in control of my financial situation.” 4. “I feel capable of handling my financial future (e.g., buying insurance or investments).” 5. “I read to increase my financial knowledge” (Likert-type scale, “5” = Not at all true of me to “1” = Very true of me.

Data Analysis

A binary logistic regression model was used to predict the likelihood that an individual is more likely to be an investor, given a set of five attitudes to financial behaviors and other control variables, as depicted below:

L o g i t (ρ) = \log (\frac{ρ}{1 - ρ}) = β_{0} + β_{1} χ_{1} + β_{2} χ_{2} + \dots + β_{κ} χ_{κ}

where β is a vector of coefficients to determine the significant influence of χi, a vector of the independent variables of each respondent on the dependent variable (Hudson et al., 2017; Snedker et al., 2002). Thus, a logistic regression analysis was used to determine if any of the five financial attitudes (“compared to parents,” “manage finances,” “control financial situation,” “handle financial future” and “increase financial knowledge”) had a significant likelihood on the binary dependent variable of investor status. Control variables, such as financial literacy level, education, marital status, income, and employment status, were included in the logistic regression analysis as independent variables.

An independent samples t-test was used to verify hypotheses H₄ through H_8. Specifically, the t-test determined whether the financial attitudes and behaviors of the five variables (investor status, manage finances, financial situation, financial knowledge, and financial literacy) differed significantly among African American women. We further divided the samples of two cohorts of respondents by “Generation X and younger” and “Baby Boomers and older” to observe whether their financial attitudes and behaviors were significantly different.

Results

Summary Statistics

A summary of the sample characteristics for the African American women surveyed in the study is presented in Table 1. More specifically, Table 1 revealed that the majority (76.6%) of the respondents are financially nonliterate, based on their responses to a set of financial literacy questions. The highest educational qualifications attained for the respondents were terminal degrees (61.3%). It is of interest to note that a respondent with a terminal degree was more likely to be an investor. The income range is relatively flat among the tiers, with $50,000 to $99,999 leading by a few percentage points, at 36.5%. The majority of the respondents were employed full-time (53.1%). Among Generation X and younger respondents who are investors (40%), more than 20% were likely to be financially literate compared to noninvestors (42.9% compared to 22.6%, respectively). About 10% separates the educational levels of the college graduate group (20% for investors and 30.5% for noninvestors), with investors having a 20% margin at the postgraduate level (72.7% compared to 52.9%, respectively).

Within the marital status variable, the unmarried status dominated both groups. However, about 80% of unmarried respondents led the noninvestor group, compared to about 60% for the investor group. Income among the investors is distributed relatively evenly between the three levels, with the $50,000 or less respondents being the least represented. The noninvestor respondents are headed in the opposite direction, whereas more than half of the respondents fall in the $50,000 or less category (51.2%). Full-time employment status is a key driver for both groups, with the investors maintaining a 20% advantage compared to the noninvestors (82.9% compared to 60.5%, respectively). Retired respondents within this group are not a factor, with 2% for investors and 0.5% for noninvestors. The remaining respondents, “Other,” accounted for 39% of the noninvestor respondents compared to 15.1% of the investor respondents.

Among the Baby Boomers and older respondents who are investors (49%), more than 10% were likely to be financially literate than noninvestors. Within the education variable, investors and noninvestors are both dominated by postgraduate respondents (69.4% for investors and 64.1% for noninvestors). The identical pattern persists within the college graduate group (20.7% for investors and 19.7% for noninvestors). For all practical purposes, the marital status variable does not present significant differences between the unmarried noninvestors (62.1%) compared to the unmarried investors (60.1%). The investors have a distinct advantage in the $100,000 plus respondent group; in fact, more than a 20% advantage compared to noninvestors (47.7%, 25.8%, respectively). The Baby Boomers and older respondents met expectations with a high percentage of retirees––noninvestors leading the group with 60.1% compared to 47.7% for investors. The interesting finding is the percentage of full-time investors (40.4%) compared to noninvestor (22.7%) respondents.

Financial Behaviors and Attitudes Leading to Personal Investing

Table 2 shows results from three logistic regressions, in the logistic regression expecting investor compared to noninvestor (Total Cohort), for African American women. The variables “manage finances,” “control the financial situation,” and “increase financial knowledge” were significantly and positively related to the individual’s investor-state, supporting the main hypotheses of this study, H₁, H₂, and H₃. Thus, the odds ratio of 1.174 in Table 2 for the relationship between investor status and managing finances indicated that the odds of being an investor was 17.4% higher for those African American women who are very sure about their ability to manage their finances than respondents who are not sure about their ability. Likewise, the odds ratio of 1.284 for the relationship between investor status and being in control of their financial situation (confidence variable) indicated that the odds of being an investor was 28.4% higher for an African American woman who felt in control of their financial situation compared to African American women who do not feel in control of their financial situation (p = .003).

Table 2.

Logistic Results: Total Cohorts; Gen X and Younger Versus Baby Boomers and Older in Investor Behavior.

	Total cohorts				Generation X or younger				Baby Boomers or older
Variable	β	SE	Odds ratio	p value	β	SE	Odds ratio	p value	β	SE	Odds ratio	p value
Constant	−3.306			.000***	−3.706			.000***	−2.588			.000***
Financial literacy (nonliterate)	0.335	0.163	1.398	.040*	0.386	0.221	1.471	.081	0.201	0.252	1.222	.425
Education (postgraduate)
Some college or less	0.170	0.262	1.185	.516	−0.082	0.382	0.921	.829	0.332	0.381	1.393	.384
College	0.464	0.183	1.590	.011*	0.713	0.238	2.039	.003**	−0.018	0.305	0.983	.954
Marital status (unmarried)	0.122	0.168	1.129	.470	0.469	0.233	1.599	.044*	−0.330	0.256	0.719	.198
Income ($100,000 and greater)
$50,000 or less	0.798	0.215	2.220	.000***	0.647	0.290	1.910	.026*	0.796	0.347	2.216	.022*
Less than $100,000	0.583	0.191	1.791	.002**	0.428	0.266	1.535	.108	0.737	0.288	2.089	.011*
Employment status (full-time)
Others	0.953	0.212	2.594	.000***	1.134	0.280	3.109	.000***	0.762	0.387	2.142	.049*
Retired	0.710	0.198	2.035	.000***	−0.662	1.361	0.516	.627	0.855	0.286	2.352	.003**
Financial behaviors
Compared to parents	−0.002	0.066	0.998	.972	0.027	0.088	1.027	.761	−0.096	0.104	0.908	.352
Manage finances	0.161	0.058	1.175	.006**	0.176	0.079	1.192	.027*	0.134	0.089	1.144	.130
Control financial situation	0.258	0.085	1.295	.002**	0.312	0.111	1.366	.005**	0.134	0.140	1.144	.338
Handle financial future	0.078	0.074	1.081	.288	−0.003	0.099	0.997	.972	0.242	0.117	1.273	.039*
Increase financial knowledge	0.348	0.060	1.416	.000***	0.407	0.078	1.502	.000***	0.263	0.099	1.301	.008**

Note. Deviance value = 1,030.324, df = 897; Pearson chi-square value = 877.411, df = 897; p = .05.

*p < .05. **p < .01. ***p < .001.

Moreover, the odds ratio of 1.406 for those African American women who read to increase their financial knowledge indicated that the odds of being an investor was 40.6% higher for them than those who do not read to increase their knowledge (p = .000). The odds of being an investor were higher by 40.3% for financially literate African American women than financially nonliterate respondents (p = .038). With $100,000 and over as the reference group, all income levels were significantly related to investor status. With postgraduate degrees as the reference group, education levels were not significantly related to investor status, except for the college degree group. With working full-time as the reference group, all employment status was significantly related to investor status.

Pearson’s chi-square value and the Deviance value were calculated to confirm the model’s goodness-of-fit. A model’s Pearson’s chi-square value and Deviance value, values close to 1 indicate a good fit of the model to the data (p = .05). The model goodness-of-fit test statistics shows that this model is acceptable. We tested for correlation and multicollinearity and found those not to be an issue. The variance inflation factors (VIFs) were less than 2.0, and significant correlation coefficients were all less than .26.

Generation X and Baby Boomer African American Women Regression Results

In the logit on being an investor (Generation X or Younger), for African American women in this cohort, that was a significant predictor in the likelihood to be an investor (p = .000). The effect of the control factors is compelling. Education level, marital status, income level, and employment status were significant factors. However, the financial literacy level was not significant. With postgraduate as the reference group, education levels were not significantly related to investor status, except for the college degree group. The odds of being an unmarried investor were 1.60 times higher than of a married investor. The odds ratio of 1.91 for the relationship between investor status and income levels indicated that odds were 91% higher for respondents earning $50,000 or less than the individual earning $100,000 or more. For individuals who are not working full-time or retired, the highly significant odds of being an investor were 210.9 compared to a full-time worker.

Turning to the “Baby Boomers and older” model, that was a significant predictor in the likelihood to be an investor (p = .000). Income levels and employment status were highly significant factors across all groups—income of $50,000 or less was 121.6% higher, and the $51,000 to $99,999 group was 108.9% higher than the reference group. Whereas employment status indicated that respondents not retired or working full-time were 114.2% higher than the reference group, and retired respondents were 135.2% higher than the reference group to be investors. However, surprisingly, financial literacy level, education level, and marital status were not significant.

The financial behavior factors demonstrated mixed results across the cohort groups, except when respondents compared themselves to their parents and increasing their financial knowledge. The “compared to parents” variable was not significantly related to investor status. While the “increasing financial knowledge” variable was highly significant across all respondents. Interestingly, concerning Baby Boomers and older individuals’ attitude to their financial future, and holding all other variables constant, investors held a 27.3% higher comfort level in handling their future financial decisions than noninvestors (odds ratio = 1.273). Among generation X and younger women, controlling their financial situation was 36.6% higher for investors than noninvestors, holding all other variables constant. Coupled with their confidence in managing their finances, generation X, and younger investors held a 19.2% higher advance over noninvestors, holding all other variables constant.

Generation X and Baby Boomer African American Women Comparison

Table 3 shows results from a paired samples statistics t-test for the generational cohort groups in the t-test analysis of younger African American women compared to older African American women. The variables “manage finances,” “control the financial situation,” and “increase financial knowledge” were significantly related to the younger African American women, supporting the main hypotheses of this study, H₅, H₆, and H₇. Whereas the “investor status” variable significantly related to support the older African American women, failing to support one the main hypotheses of this study, H₄. However, the “financial literacy” variable was not significantly related, indicating no significant relationship for hypothesis H₈, when comparing younger African American women to older African American women.

Table 3.

Results of Paired Samples Statistics t-Test for Generational Cohort Groups.

	Generation X and younger		Baby Boomer and older
Outcome	M	SD	M	SD	n	95% CI	p value	t	df
Investor status	1.400	.490	1.494	.500	1,103	[−.156, −.030]	.004*	−2.901	818.412
Manage finances	3.882	1.255	3.566	1.376	1,154	[.159, .472]	.000**	3.949	922.247
Financial situation	2.666	1.108	2.081	1.143	1,126	[.068, .451]	.000**	8.546	1,124
Financial knowledge	2.708	1.395	2.379	1.318	1,026	[.159, .500]	.000**	3.784	1,024
Financial literacy	.223	.417	.249	.433	1,456	[−.070, .019]	.263	−1.119	1,225.528

*p < .05. **p < .001.

A paired t-test was run on the sample of African American women to determine the significance of the mean difference between Generation X and Younger compared to Baby Boomers and Older participants (Table 3). Generation X and Younger participants who self-reported as investors (M = 1.400, SD = .49) as opposed to Baby Boomers and Older (M = 1.494, SD = .50); a statistically significant decrease of 0.094 (95% CI, −0.156 to −0.030), t (818.412) = −2.901, p < .05. Generation X and Younger participants who reported their ability to manage their finances (M = 3.882, SD = 1.255) as opposed to Baby Boomers and Older (M = 3.566, SD = 1.376); a statistically significant increase of 0.316 (95% CI, 0.159–0.472), t (922.247) = 3.949, p < .001.

Generation X and Younger participants who reported feeling in control of their financial situation (M = 2.666, SD = 1.108) as opposed to Baby Boomers and Older (M = 2.081, SD = 1.143); a statistically significant increase of 0.585 (95% CI, 0.068–0.451), t (1,124) = 8.546, p < .001. Generation X and Younger participants who reported reading to increase their financial knowledge (M = 2.708, SD = 1.395) as opposed to Baby Boomers and Older (M = 2.379, SD = 1.318); a statistically significant increase of 0.329 (95% CI, 0.159–0.500), t(1,024) = 3.784, p < .001. Generation X and Younger participants financial literacy level (M = 0.223, SD = 0.417) as opposed to Baby Boomers and Older (M = 0.249, SD = .433); not a statistically significant different (95% CI, −0.070 to 0.019), t (1,225.528) = −1.119, p > .05 (Table 3).

Discussion

The purpose of this study was to determine the impact of investor status as measured by financial attitudes and behaviors. Investor status was indicated by having opened an investment brokerage account. Surprisingly, when analyzed by generational cohort groups, the level of financial literacy was not a significant predictor of investor status in Generation X and younger, nor in Baby Boomers and older women. It is unexpected that those who opened an investment brokerage account were not an advantage compared to the noninvestors. The results were repeated across both generational cohort groups.

We found that African American women who reported having opened an investment brokerage account were more likely to earn $50,000 or less compared to African American women earning $100,000 or greater. This finding was significant and positive across both cohort groups. While marital status was not significant among older investors, unmarried women stand out in the younger cohort as more likely to be investors compared to their married counterparts. Interestingly, in the Baby Boomer group, retired African American women were more likely to be investors than their full-time employed colleagues—both significant and positive. Generation X and younger displayed the opposite behavior to the “Other” employment category—positive and significant compared to respondents working full-time.

The financial factors provided the most interesting results in the analysis of the cohort groups. The only factor the respondents had in common (both positive and significant) was that they read to increase their financial knowledge. Only the younger investors felt comfortable managing their finances, as well as being confident in the control of their current financial situation, compared to noninvestors. The confidence to handle one’s financial future rested solely with the older investors (both positive and significant) when compared to older noninvestors.

A significant difference exists between African American women who are investors and those who are noninvestors. When controlling for comfort with their financial situation, women who have strong feelings toward controlling their financial situation (p = .002) are more likely to be investors: The likelihood ratio is 1.30. Given these findings, we cannot reject hypothesis H₁ in the study (Table 2). A significant distinction exists between investor respondents compared to noninvestor respondents in respect of having a positive attitude toward managing their finances and the likelihood of having a positive attitude about managing finances (p = .006). We can conclude that African American women with a positive attitude about managing finances are 1.18 times more likely to be investors compared to noninvestors. Based on the results, hypothesis H₂ is not rejected (Table 2). African American women who are financially knowledgeable are significantly (p = .000) more likely to be an investor compared to noninvestors. In fact, they are 1.42 times more likely to be an investor. Based on the results, hypothesis H₃ is not rejected (Table 2).

This study found that Generation X and younger investors status (M = 1.400, SD = .490) was smaller than the mean for Baby Boomer and older investors status (M = 1.494, SD = .500). We can therefore conclude that respondents in the Generation X and younger group were investing significantly less than the Baby Boomer and older group, t (818.412) = −2.901, p = .004. Based on the results of Table 3, hypothesis H₄ is rejected (Table 3).

Generation X and younger (M = 2.666, SD = 1.108) was found to be significantly more confident in controlling their financial situation than the Baby Boomer and older (M = 2.081, SD = 1.143) cohort—the p value for this group of African American women respondents is t(1,124) = 8.546, p = .000. Therefore, hypothesis H₅ is not rejected (Table 3). When considering the respondents’ attitude toward managing their money, Generation X and younger (M = 3.882, SD = 1.255) have a higher comfort level than the Baby Boomers and older (M = 3.566, SD = 1.376) cohort. The two cohort groups differed significantly according to the t-test, t (922.247) = 3.949, p = .000. On average, the difference of .316 scale units indicated a modest effect. These results support hypothesis H₆ and it is therefore not rejected (Table 3).

Financial knowledge for both cohort groups is significant when comparing their willingness to seek additional information (Table 2). However, the Generation X and younger cohort (M = 2.708, SD = 1.395) has a slight advantage over the Baby Boomer and older (M = 2.379, SD = 1.318) cohort, t (1,024) = 3.784, p = .000. The study findings indicate that hypothesis H₇ is not rejected (Table 3). The p value is 0.263 and, therefore, the difference between the two means is not statistically significantly different from zero at the 5% level of significance. However, there is insufficient evidence (p = .263) to suggest that Generation X and younger (M = .223, SD = .417) has a disadvantage compared to the Baby Boomer and older (M = .249, SD = .433) cohort, t (1,225.528) = −1.119, p = .263. We therefore cannot accept or reject hypothesis H₈ in the study (Table 3).

Implications and Conclusion

In this study of a sample of African American women, researchers found a significant relationship between African American women’s attitudes/feelings and investment behavior. African American women who felt sure of their ability to manage their finances were more likely to be investors than those who felt unsure of their skills. In addition, African American women who felt in control of their finances were more likely to be investors than those who felt that they were not in control. Furthermore, African American women who read up to increase their financial knowledge were more likely to be investors when compared to African American women who did no such reading. Within these three variables, no significant difference was detected between older and younger African American women.

African American women have recently made positive strides in the attainment of education and income (Hudson et al., 2018; Richard, 2014; Zan et al., 2017). Furthermore, African American women, more than other segments of the population, seek financial information and advice (Nielsen, 2017). African American women are therefore an untapped market for the financial services industry. Therefore, financial institutions and wealth advisors would be interested in the findings of this study. Furthermore, the findings could assist financial educators in customizing their financial education programs and seminars. This study shows that emotional factors play a role in investment behavior and that these should be addressed to allow African American women to become wealth creators.

The African American community would be interested in the findings of this study because knowledge is power. If African Americans, in particular, African American women, can understand what limits their investment behavior as well as what impedes their wealth accumulation, they can alter their behavior to divert their enormous buying power toward investing. Given the influence of African American women on their family and community, the increase in their wealth could expand communal wealth. Moreover, if more African American women invested, they would most certainly increase their wealth, closing the African American–white American wealth gap. On a macro scale, if that wealth gap could be narrowed, this could improve the U.S. economy (Noel et al., 2019).

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iDs

Crystal R. Hudson

John Young

Supplemental Material

Supplemental material for this article is available online.

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