NCPA - National Center for Policy Analysis

Following Daddy Into Stocks

January 29, 1999

Young families whose parents held bank accounts or invested in stocks were more likely than others to have a bank balance or invest, according to a survey completed some years ago by Frank Stafford, an economist at the University of Michigan's Institute for Social Research. Stafford speculates, however, that the influence of parents may be waning as financial news and investment data have been more widely reported in the past five years. So he is collecting more recent data.

In his earlier work, Stafford found that:

  • Some 82 percent of young families whose parents had held a bank account had one themselves -- versus only 52 percent among those whose parents didn't have an account.
  • Nearly 44 percent of young couples whose parents invested in stocks did so themselves -- compared to about 24 percent whose parents did not invest.
  • Just over one-third of black families in the survey carried bank accounts -- versus more than 80 percent of non-black households.
  • Non-blacks are three times as likely to invest in stocks as blacks -- and they have five times the holdings of blacks.

Blacks have traditionally used insurance as a form of savings. Stafford speculates that the insurance factor may explain in part the wealth disparity between blacks and whites -- since insurance is a relatively low-yielding asset.

A $10,000 investment in the Standard & Poor's 500 at the start of 1989 would be worth $44,500 today. But a 5 percent annuity or certificate of deposit would be worth only $16,300 now.

Source: Perspective, "Like Father, Like Son," Investor's Business Daily, January 29, 1999.


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