Finally, there is a stock ownership gap by race. Black Americans are 35% less likely than whites of similar means to invest in the stock market, which has had a devastating effect on our ability to accumulate wealth when the market rises. Because many Americans lost faith in the markets during the great recession, it has kept them out of the recent positive period. We need to do better when it comes to involving more Americans – and particularly larger parts of our community – in the stock market.
Tom: And what about housing?
Mellody: As I have mentioned, our community holds a disproportionate amount of our wealth in housing, so an improving housing market is helping rebuild some of the black wealth lost in great recession. However, research does show that there is an appreciation gap based on racial factors. Homes in majority Black neighborhoods do not appreciate as much as homes in overwhelmingly white neighborhoods. And overall, homeownership does not generate the kind of returns that the market will. However, an improving housing sector does mean good things for black Americans.
Tom: So what does this increased wealth mean for the economy?
Mellody: Overall it is very good news, Tom. As I mentioned, the great recession has a big impact on the financial habits of many Americans. The savings rate went up across the board, and people began paying down their debts. Higher stock and home values can make people feel more financially secure. Now, with these improvements in household wealth, we can expect people will start to spend again. Considering that 70 percent of the economy is driven by consumer spending, this is good news for the economy. And it is not just household wealth that is rising – U.S. corporations are also seeing sharp improvements in their finances. Businesses amassed $2 trillion in cash by the end of last year— a record high — up from less than $1.9 trillion three months earlier. If balance sheets continue to improve, companies could start to raise wages, which would also benefit the economy.
Tom: That would be great, Mellody! Hopefully they are listening to you! Have a great week!
Mellody: You too, Tom!
Mellody is president of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.
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