African-Americans Help Drive Growth in Financial Services, but Missed Opportunities Persist

African-Americans Help Drive Growth in Financial Services, but Missed Opportunities Persist

Between 2006 and 2016 African-Americans were responsible for a significant portion of the growth in several key categories of financial services, according to Packaged Facts in the report African-Americans: Demographic and Consumer Spending Trends, 10th Edition.  Black consumers accounted for 76% of the growth in the number of consumers with checking accounts and 25% of the growth in the number of those with credit cards and in the number of households with automotive insurance.  It’s no wonder financial service marketers such as JPMorgan Chase, Allstate Insurance Company, Prudential Financial, Inc., Wells Fargo Company and State Farm Insurance all focus heavily on building ties with the black community.

During the same ten-year time span, the number of African-Americans with checking accounts increased 30%, while growth in the number of other consumers with checking accounts was essentially flat.  Growth in the number of those using various financial services was also higher for African-Americans in the case of savings accounts, credit cards, and debit cards.

Mobile Banking Appeals to Black Consumers

Despite the growth, African-Americans remain less likely than other American consumers to have checking or savings accounts.  However, black consumers who do own bank accounts have a greater affinity for mobile banking.  They are much more likely than others with bank accounts to have used a smartphone app for banking/finance purposes. 

Higher-Income Black Consumers Present Major Opportunity for Financial Firms

Interestingly, marketers of financial services can expect a positive response to their messages from higher-income African-American consumers.  African-Americans with a household income of $75,000 or more are far more likely than their counterparts in other consumer segments to find advertising for financial services to be interesting.  They also are far more likely to read the financial pages of their newspaper.

Speaking of higher-income black consumers, data in the report indicates that higher-income black households are still less likely than other higher-income households to hold any form of financial investment, such as bonds, mutual funds, 401Ks or IRAs.  However, over the past decade the percentage of higher-income African-American households holding any form of financial investment has trended upward, a good sign. In fact, close to half of higher-income African-American households have investments. A similar trend can be seen in the case of 401Ks.  Although the percentage is down somewhat from its peak in 2010, and as of 2016 some 42% of African-Americans had a 401K.  This represented a five-point increase from 2006. 

Despite the Positives, African-Americans Still Underserved by Financial Services Industry

Although recent trends bode well for financial services firms targeting black consumers, African-Americans remain less likely than other American consumers to have a bank account or credit card.  One reason is that many black consumers are wary of banks.  They are more likely than other consumers to agree “I am uncomfortable trusting my money to a bank” (27% vs. 20%), according to survey results. 

Another reason for the relatively low level of use of banking services by African-Americans is the decrease in the number of black-owned banks.  Many black consumers long have enjoyed a close relationship with black-owned banks, which historically provided access to credit and other banking services denied by white-owned financial institutions.  However, the number of community-owned banks in general, and black-owned banks in particular, is dwindling as a result of more stringent regulations implemented in the aftermath of the recession. 

Ultimately, it will be up to the financial services industry to find ways to better connect with African-Americans and correct the long-standing realization by financial advisors that blacks—especially affluent blacks—are a “missed opportunity” for their industry.