Retirement plans can advance race and gender equity

Of the many inequities highlighted through the pandemic and racial reckoning of 2020, none is more pertinent to the retirement industry than the enormous wealth gaps by race, gender and income. After all, wealth creation is the retirement industry’s core business.

Black households had just 13% of the median net worth of white households in 2019, according to the Federal Reserve. Hispanic households had just 19%. Women had scarcely more than half (55%) the median net worth of men, the St. Louis Fed found earlier this year. And lower-income families had just 1.3% of the wealth that upper-income families had in 2016, Pew reports.

Looking at race, gender and other factors together yields even more startling disparities. Among those under age 35, white men have 224 times the median net worth of Black women, The Brookings Institution found. 

These statistics may feel depressingly, even numbingly, familiar. As professional wealth creators, it’s natural for those in the retirement industry to consider what role they might play in addressing these disparities. Investing in capital markets is widely understood to be one of the most effective long-term avenues to build wealth.

As importantly, following George Floyd’s murder, many plan sponsors are on record in support of addressing racial inequity. It’s a safe bet that many employees, especially millennials, are watching for signs of real action on racial inequity from their employers.

With these issues in mind, earlier this year Commonwealth and Logica Research surveyed 1,500 working women earning between $30,000 and $80,000 annually, with a particular focus on Black and Latina women. Our goal was to better understand their investment needs, wants and aspirations, and find ways to help enable them to build wealth through capital markets.

We found that the majority – 65% – of low and moderate-income working women want to invest in capital markets, with interest highest among Black (78%) and Latina (72%) women surveyed. Yet over 60% of these women are not currently investing today.

Notably, interest in investing was high regardless of household income. Some 63% of those in our sample with lower household incomes, $30,000 to $50,000, were interested in investing, compared to 68% of those with higher incomes, $50,000 to $80,000.

Crucially, retirement was only the third-most highly cited reason these women wish to invest, at just 52%. This is what we hear anecdotally all the time: Many working people simply don’t see retirement as an attainable goal.

We sought to understand what’s holding these women back. Tight budgets are an issue – but only 55% cited not having enough money left over after paying expenses as a reason they haven’t started investing. Nearly as many (47%) said a primary reason was not knowing where to start. Another 25% said that investing is too complicated, too risky (24%) and that the language of investing is too confusing (21%).

Notably, 76% could not recall their family investing when they were young.

What does this mean for plan sponsors and retirement providers that want to help to close the starkest wealth gaps? While not a panacea, a first step is lifting participation rates for Black, Latinx and women employees, especially those with low and moderate incomes. And two changes in how we market retirement plans can help.

First, we need to meet people where they are. Retirement security may not feel relevant or attainable for a majority of those with the least wealth. This has implications for both how we explain and communicate about retirement plans. It may be time to reimagine retirement plans as simply wealth creation plans – or even wealth equality plans – and communicate them to workers accordingly.

Second, we should recognize that for many, the path to investing may not begin with participation in qualified plans. The women we surveyed were much more likely to begin investing outside a retirement plan, whether through an established provider or a new fintech app. Plan sponsors and providers will need to make the case to these new investors that plan participation is a natural next step in their investing journey.

Against an enormous, entrenched problem these are modest steps. In future columns we’ll look at some additional ideas.

[MORE: Congress must help make emergency savings automatic]

Timothy Flacke is executive director of Commonwealth, a national nonprofit building financial security and opportunity for financially vulnerable people through innovation and partnerships to change systems.