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Study: Discrimination Affects Minorities’ Financial Decisions

African-Americans, women, and members of the LGBTQ community are less likely to participate in the stock market and also allocate less of their wealth to equities, says new research from the University of Miami School of Business Administration.

The findings, presented during the School’s Behavioral Finance Conference this month, come from the impact of discrimination on how individuals belonging to minority groups perceive risk. According to the study, individuals who are discriminated against are likely to overestimate their exposure to risks, such as income risks, a press release states.

“Despite the strong evidence of discrimination, until now, there was little work on how it affects portfolio decisions,” said Alok Kumar, Gabelli Asset Management Professor of Finance and finance chair at the University of Miami, who conducted the work with George Korniotis and William Bazley from the University of Miami, and Yosef Bonaparte of the University of Colorado Denver. “Our work is related to the growing body of evidence that personal experiences affect economic decisions. Studies like this make a strong case for increased financial education and perhaps policy implications in our country, as such financial behavior does impact the nation’s economic health,” said Korniotis.

Key findings of the study are:

  • African-Americans who feel it has been difficult to get a good job due to discrimination are about 8 percent less likely to participate in the stock market, and allocate about 9 percent less of their wealth to equities.
  • Women who feel it has been difficult to get a good job due to discrimination are 4 percent less likely to participate in the stock market, and allocate about 4 percent less of their wealth to equities.
  • LGBTQ individuals who potentially have been discriminated or fear discrimination are about 40 percent less likely to participate in the stock market.

The analysis used multiple datasets, including a 2004 Los Angeles Times Poll (LATP) that addressed gay issues; the National Longitudinal Survey of Youth (NLSY), which surveyed participants about wealth, income, financial decisions, and exposure to discrimination; the Survey of Consumer Finances; and experimental data. Key findings show that the experience or fear of discrimination affects investment decisions.

Researchers conducted an experiment that showed that minorities like LGBTQ individuals, African-Americans and women, perceive the evolution of income differently.

Click here to read the full study.