Racial/Ethnic disparities in high return investment ownership: a Heckman selection model

ABSTRACT

This study investigates racial/ethnic differences in high return investment ownership in the U.S. Households with low levels of financial assets might not be able to meaningfully make investment choices, so a Heckman two-stage selection model was used to separate the minimum asset level status from the allocation decision, specifically in whether households owned at least one high return investment. We found that households with White respondents were more likely than households with Black and Hispanic respondents to have adequate financial assets for investment. Conditional on having adequate financial assets, and controlling for household characteristics and financial literacy, White households were more likely to own high return investments than Black, Hispanic and Asian/other households. Policies to nudge households to invest some wealth in high return investment assets would benefit minority households.

KEYWORDS:

• Racial/ethnic differences
• high return investments
• Heckman selection model
• survey of consumer finances

JEL CLASSIFICATION:

• D14
• G11
• J15

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We also tried using 6 and 12 months household income as the threshold, with similar results.