Good morning,
Younger generations are increasingly investing in crypto. But what does that mean for their financial futures? And do CFOs have a responsibility to educate employees about the risks and rewards of different types of investments?
For more than 20 years, Ariel Investments and Charles Schwab Corp. have studied the investing and saving attitudes and behaviors of Black and white Americans. Historically, their survey has shown that 401(k) plans have been the entry point to investing for many Black Americans. In 2020, 63% of Black investors reported first investing through a retirement plan, and 55% of white Americans. But that seems to be changing.
“This year’s survey showed that workplace retirement plans are no longer the only gateway to investing, with only 31% of Black Americans and 33% of white Americans reporting first investing through a workplace plan,” says Kelly Johnson, portfolio manager of fixed income at Charles Schwab. In fact, cryptocurrencies served as some investors’ first exposure to investing.
About 11% of Black investors named crypto as an entry point, compared to 4% of white Americans surveyed. And 23% of Black investors under 40 began investing through crypto. One-quarter of Black Americans surveyed currently own crypto. That figure increases to 38% among Black investors under age 40. In comparison, 15% of white investors surveyed own crypto, and 29% of white investors under 40. Many Black investors have turned to crypto out of distrust for financial institutions and the stock market, the survey found. The findings are based on a survey of just over 2,000 people ages 18 and older. About half of the respondents are Black Americans. The average household income of Black participants was $99,000, and $106,000 for white participants.
401(k) and crypto
When it comes to 401(k) employer-sponsored retirement plans, is there a way to provide a safe crypto option? I asked Timothy S. Klimpl, counsel at Carmody Torrance Sandak & Hennessey LLP.
The Employee Retirement Income Security Act (ERISA) is a federal law that protects the interests of employee benefit plan participants, Klimpl told me. In adherence to ERISA, the U.S. Department of Labor Employee Benefits Security Administration released compliance assistance in March that addressed 401(k) plan investments in crypto, he says.
“The agency has taken a position (without regulation) that employers should exercise what they say is extreme caution in offering cryptocurrency as an investment option in 401(k) and other employer-sponsored retirement plans,” Klimpl explains. “They didn’t say that it cannot be done, or that there’s anything in of itself improper by doing it. But it raises some of the very common concerns and considerations that employers need to consider when they are responsible for 401(k) plan.”
Inclusive initiatives to understand crypto and investing
About 41% of Black investors are now having discussions about the stock market with their families compared to 43% of white investors, Arielle Patrick, chief communications officer at Ariel Investments, told me. “That’s almost exactly the same,” Patrick says. The rate has increased for Black families, compared to prior years.
A lot of young Black people feel like they can take control of their future by using technology, Johnson says. “‘Frankly, dad, we haven’t had such a great run for a long time in this country, and we want to do this our way,'” he said his son in his 20’s told him. But crypto’s volatility should be explained to young Black investors, Johnson says. About 51% of Black investors under age 40 believe investing in crypto is safe.
“The concern is what we’re actually seeing is that people are putting up probably too much in crypto,” he says. “They probably don’t truly understand it, and they’re not using it correctly. They will get burned. And if they get burned, they will just shun investing, which we’ve seen historically.”
“The thing that gives me the most pause is a third of Black investors decided to invest based on social media,” Patrick says.
“This data shines a light on the opportunity and responsibility that companies and executives have to support their employee’s financial education,” Johnson says. His advice for CFOs: “As financial executives, you are the leaders who can champion financial wellness and literacy within your company, creating initiatives that are inclusive and meet your employees where they are.”
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
Big deal
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Courtesy of ADP
Going deeper
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Leaderboard
Julie Gao was named CFO at ByteDance (owned by TikTok), according to an internal memo seen by Reuters. Gao is reported to join ByteDance in May. She is currently a Hong Kong-based capital markets attorney at law firm Skadden. Shou Zi Chew, ByteDance's former CFO who joined the company in March 2021, stepped down in November from the CFO role to focus on being TikTok's CEO.
Kavita Suthar will step down from her role as CFO at Redbox (Nasdaq: RDBX), an entertainment company, effective May 16 to spend more time with her family, according to the company. She joined Redbox in 2015, became CFO in 2020 and played an integral role in navigating the company’s SPAC merger and public listing in 2021. Mitchell Cohen, who has served as COO and CFO at several public and private companies, will serve as interim CFO.
Overheard
"The S&P 500 appears ready to join the ongoing bear market ... In short, the market has been so picked over at this point, it's not clear where the next rotation lies. In our experience, when that happens, it usually means the overall index is about to fall sharply, with almost all stocks falling in unison."
—Morgan Stanley strategists, led by Michael J. Wilson, wrote in a note on Monday, as reported by Fortune.
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