Persistent racial and gender wealth gaps remain a major obstacle to building financial security for low- to moderate-income (LMI) households in the United States. The median Black family in the U.S. has $24,100 in wealth, just one-eighth the wealth of the median white family ($188,200). Single Black women under the age of 35 have a median wealth of just $101, compared with $1,550 for single Black men and $22,640 for single white men in the same age bracket.
Commonwealth is working to develop innovative ways to facilitate wealth building for LMI populations by creating opportunities and reducing barriers, with a particular focus on women of color. Our wealth building blueprint provides an overview of the various paths we are pursuing in this research, including collective ownership, access to credit, micro-businesses, and investing.
This post will provide an overview of preliminary findings from our ongoing research into how investing platforms can most effectively reduce barriers to participation in capital markets for women of color.
Three key insights
- Providing seed funding encourages first-time investors to get started and continue investing by “priming the pump,” facilitating further investment of their own funds after they have experimented with investing.
- Community experiences are crucial to investor identity. Providing resources that allow beginner investors to learn from and with others like themselves helps them feel like they belong in the investing space.
- First-time investors can learn by doing rather than learning before doing. Instead of treating investor education as a prerequisite for getting started, barriers to participation in capital markets may be more effectively reduced by providing opportunities to “learn by doing” through educational opportunities embedded in the investing experience. The popularization of “fractional investing” is fundamental to this experience, as it allows people to begin the journey at any financial level by starting small with lower barriers to entry at the onset.
Testing the impact of barrier-reducing interventions
Our preliminary research indicates that one of the most promising pathways to wealth building for LMI households is investing in capital markets. To that end, in August 2021, Commonwealth launched a pilot in partnership with investing platform Public.com in which 240 beginner investors–all women of color with incomes between $30,000 and $80,000–were invited to invest in the stock market. Earlier research from Commonwealth indicates that small-dollar investors are an untapped customer base with an appetite for learning more. Building on prior work showing a large gap between the number of LMI working women that want to invest and the number that actually do (with the highest interest among Black and Latinx women), this research aims to shed light on how platforms can most effectively reduce the barriers that prevent them from participating in capital markets.
As a part of this six-month pilot, each participant was provided with $250 in seed money in their Public.com account to start building a portfolio and connected with other program participants through peer discussion groups on the platform. Half of the participants were also assigned a mentor to provide support and guidance through their investing journey.
These interventions are designed to address the four primary barriers to capital market participation identified in Commonwealth’s report for the NASDAQ foundation on inclusive investing: resources, actionable knowledge, market access, and investor identity. In other words, making investing inclusive means working to ensure that women who want to invest have access to enough resources to create an investment fund, knowledge they need to make their own self-directed investing decisions, investing platforms that meet their needs and build their capabilities, and a social environment that allows them to develop the sense that investing is for them too, not just for other people.
Although the pilot will continue through spring 2022, preliminary results suggest that the barrier-reducing interventions implemented here are already having a significant positive impact. These preliminary findings include:
- Seed funds encourage first-time investors to get started and keep going. The first notable result emerging from this research is that the seed money provided to participants not only creates an opportunity to try investing that they otherwise would not have pursued, but also encourages them to continue investing using their own funds.
Participant surveys indicate that the seed money was an important factor in getting started, with 80% agreeing that “without the $250 in seed money I would not have been able to start investing.”
After getting started, the vast majority (over 90%) plan to continue investing on their own after the pilot ends and 25% have already added their own personal funds to the pilot seed money. These results suggest that for many LMI women, helping them get started with even a small amount of capital can engender a long-term interest in investing that benefits both them and investing platforms interested in reaching out to a relatively untapped consumer segment.
“I see investing as something for me, I have the ability to participate in investing activities. Where else would I have been able to buy portions of stocks? Now I see myself as an investor.”
–Pilot Participant
- Community experiences are critical to investor identity. This pilot also provides additional support for the hypothesis, drawn from earlier research, that the ability to engage with peer investors can play an important role in facilitating investing behavior and the development of an investor identity. Initial interviews with participants indicate that participation in peer group chats has played a significant role in moving them from feeling overwhelmed by investing to feeling like they are part of a community learning together–and that their lack of prior knowledge does not mean that they don’t belong.
Initial survey results also show a statistically significant relationship between knowing people who invest and the likelihood that women in our sample had tried investing before. This pilot will provide more insight into whether platforms may be able to facilitate investing for this population by creating supplementary social opportunities that support their investing journeys and reinforce an investor identity.
“If I was in this by myself I would have probably just left. I would have washed my hands with it the first week when I saw everything. I would have been like ‘I don’t belong here, I’m so sorry’. [But I’m] able to talk with other people and see ‘hey, not everyone’s an expert.’”
–Pilot Participant
- Incorporating learning opportunities into the investing experience allows users to learn by doing. The third area in which promising insights have already begun to emerge is the development of actionable knowledge. Participant surveys reinforce findings from our earlier work that a lack of actionable knowledge remains a significant barrier to investing.
At the start of the pilot, half of participants identified not knowing how the stock market works and not knowing how to get started investing as significant barriers, while 40% said they would feel ready to invest after learning more about it. Initial results suggest that rather than expecting people to learn about investing before they begin, incorporating learning opportunities into investing platforms can allow LMI women to learn as they go.
In the midline survey, participants report that the top three most useful information sources for them during the pilot have been (1) educational content from Public.com, (2) online groups (including their peer groups on Public.com), and (3) information from a financial coach/advisor/mentor (half of respondents were assigned an investing mentor during the pilot). This provides some evidence that investing platforms can play a significant role in reducing barriers to investing by ensuring that consumers have access to actionable knowledge–through social interaction or vetted resources–embedded in their investing experience.
“Now it’s not as intimidating because I feel like everyone is learning and not judging you.”
–Pilot Participant
Overall, preliminary results from this pilot indicate that investing platforms can play a significant role in reducing barriers to investing for LMI populations. Through this research, we hope to demonstrate not only that it is possible to make investing more inclusive, but also that there is a strong business case for making a greater effort to help LMI households build wealth through investing. Once the final analysis is complete, these results can help fintechs, product designers, and researchers understand how to more effectively facilitate inclusive investment opportunities for LMI women of color.
Stay tuned this spring for Commonwealth’s final report on results and insights from the investing pilot. This pilot is part of Commonwealth’s larger research initiative into reducing barriers to investing for LMI households. If you are an investing platform or organization interested in partnering with us to advance this crucial research reach out to Julianna Samper.
80% of survey participants agreed that “without the $250 in seed money I would not have been able to start investing.”
The vast majority (over 90%) plan to continue investing on their own after the pilot ends and 25% have already added their own personal funds to the pilot seed money.
Commonwealth’s partnership with Public.com is made possible with support from BlackRock’s Emergency Savings Initiative.
Public.com is an investing platform where members can build a diverse portfolio of stocks, funds, and crypto. On Public, ownership unlocks an experience of content and education, contextual to their portfolio, created by a million+ strong community of investors, creators and analysts.
BlackRock’s Emergency Savings Initiative
In 2019, BlackRock announced a multi-year, $50 million philanthropic commitment to help millions of people living on low- to- moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The Emergency Savings Initiative (ESI) is a key part of The BlackRock Foundation’s mission to help people beyond the firm’s core business to build financial security. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions at the individual and corporate levels. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give ESI a comprehensive and multilayered approach to addressing the savings crisis.
