The Wealth Gap Persists

A significant issue is the gap between Whites and minorities in household wealth. The average wealth of black households is 23% of the average wealth of white households in the Survey of Consumer Finances despite the fact that the average black income is 50% of the average white income (Altonji, Doraszelski, and Segal 2000). A key contributor to wealth accumulation is investment in risky, high yield investments such as stocks and the savings rate of a household (Wang and Hanna 2007). However, it is not clear what factors contribute to the disparity in financial risk behavior among ethnic groups. African-Americans and Hispanic consumers are significantly different from their White counterparts in their financial product preference and investment asset portfolio (Plath and Stevenson 2000). They tend to prefer near-term savings, favoring liquidity and low investment risk and have a strong affinity for insurance and shy away from financial assets with higher risk and returns, such as common stock, mutual funds, brokerage accounts, and corporate bonds (Plath and Stevenson 2005). Interestingly, a review of studies shows that while African Americans and Hispanics are less likely to take on investment risk than Whites, they may be more likely to take on substantial investment risk than Whites (Yao, Gutter, and Hanna 2005). In addition, White households are more likely to have higher stock ownership than minority households even after controlling for variables such as income (Schooley and Worden 1996; Wang and Hanna 2007; Wang and Hanna 2006; Zhong and Xiao 1995). There are also differences in savings behavior for minority households and are less likely to invest in riskier, high yield assets (Choudhury 2002). Thus, there is a pressing need for consumer behavior researchers to develop a better understanding of the factors impacting financial decision making (Bazerman 2001) especially for vulnerable populations such as ethnic minorities.

Culture and Money: Solomon Islands

One of my research interests is how culture impacts financial decision making. Culture has a strong influence on how money is used and valued. A recent Wall Street Journal article (4/30/08, pg. A1) detailed how Solomon Islanders are returning to a traditional currency, the teeth of the spinner dolphin. The price for 1 dolphin tooth has gone up 300% and is now worth about $.26 U.S. It takes about 1000 teeth to be able to afford a bride which as a feminist I think is a nice turn on the dowery families in other cultures have to pay to have their daughters marry but I'm not quite sure if I'm 100% on it.

Savings with a Kick

Getting people to save is extremely important for their personal finances and the economic health of society as a whole. The savings rate in the U.S. is currently negative which means on average Americans spend more than they bring in and save. Harvard business school professor Peter Tufano used his research on creating innovative financial products to create a website (http://www.d2dfund.org/) that looks at ways to help low income folks save and invest more. One idea is "prize-linked savings." It would offer people the chance to win prizes for saving their money. No loss and a chance for a gain! This is Kahneman and Tversky's prospect theory in action!

Keeping Track of Your Money...Easy!

People struggle with managing their money. Studies say one of the best ways to control spending and become a better money manager is to keep tabs on how you spend, save and invest your money. Then implementing small changes that yield big results become easy. Technology is helping to make personal money management super easy! I saw an article in the Wall Street Journal this week on Mint.com which is a fantastic website that links with banks to automatically give you the running tab on your spending. Sign up is super fast and you can even look at trends in your spending and compare what you spend to the averages in your city, state or in the U.S. This is a tool that can help make money one less thing to worry about!