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FINRA report examines investors of color entering the market

On Behalf of | Jan 23, 2024 | FINRA Compliance

A new report focusing on the behavior and attitudes of investors of color in the United States has been released by the FINRA Investor Education Foundation.

The primary finding was that these investors are entering the market at a faster pace than white investors and tend to be much younger.  The report was based on data from FINRA Foundation’s National Financial Capability Study along with focus groups conducted with young Black/African American, Hispanic/Latino and Asian American/Pacific Islander investors.

The research found that nearly half of Black/African American and Hispanic/Latino investors are under age 35 and exhibit behaviors characteristic of younger investors, including relying on social media for investment information and trading risky investments such as cryptocurrencies, options, and so-called meme stocks.

“With a large number of young investors entering the markets, financial education leaders will need to adapt, including providing relatable and trustworthy resources on channels these new investors use,” said FINRA Foundation President Gerri Walsh. “While conducting this research, we learned from investors of color about barriers they or their families faced previously in building wealth through investing. Seeing an influx of new investors of color is encouraging and highlights the importance of our markets becoming more accessible.”

The report found that over the past six years, the percentage of new investors has increased for all three groups analyzed — nine percentage points for Black/African American respondents, seven points for Asian American/Pacific Islander respondents and six points for Hispanic/Latino respondents, while the percentage of white respondents who are new investors has not changed substantially.  The FINRA researchers noted the need for the industry to evolve to meet the needs of these investors.

“While the increase is encouraging, these new investors of color are navigating uncharted waters with little guidance and are actively looking for someone who understands their situation to help them learn more about investing,” the report said. “Financial education leaders, policymakers and regulators will need to adapt in order to reach these audiences (non-white investors, younger investors).”

The report also explored the motivations for investing among people of color.  It found they are more likely than white investors to be motivated by reasons beyond long-term profit, including short-term gains, a desire to learn more about investing, entertainment and excitement, and because their peers are doing it.  In addition, they are more likely to rely on friends, family and colleagues for information about investing, as well as suggestions provided in a mobile trading app.

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