Raul Duplessi became intrigued with the stock market nearly 15 years ago, when he landed his first job as a hotel doorman in Manhattan and a TV near his workstation played financial news on a continuous loop.
But Mr. Duplessi, 36, a working-class native of the Bronx whose parents were from the Dominican Republic, wasn’t sure where or how to start investing. “I don’t have people to talk to about these kinds of things,” he said.
“I grew up with two hard-working parents. They both worked two jobs,” he said, adding that his father had only a fleeting window to enjoy retirement before he died. “My parents retired with nothing.”
The turning point, he said, was reading — at his father’s repeated urging — the book “Rich Dad Poor Dad,” which discusses the importance of financial literacy and how to build wealth through investing.
“It made me say, Having a job is just not enough,” Mr. Duplessi said.
But what were his options?
For a vast majority of working Americans who don’t have a defined-benefits pension, their 401(k) is the centerpiece of their retirement plan. But some young adults of color, like Mr. Duplessi, are putting their hopes — and their money — into alternatives like real estate, entrepreneurship or stock trading on their own. They see straying from the beaten path as offering them a better shot at financial security — even if that means figuring it out as they go, and taking big risks.
People who study systemic racism and barriers to access in the financial services industry say they aren’t surprised that people like Mr. Duplessi have little faith in the Wall Street machine.
“Black customers have a lot more distrust — rightfully so — of financial institutions,” said Mehrsa Baradaran, a law professor at the University of California, Irvine School of Law, who studies financial inclusion and inequality.
Ken Alozie, a former investment banker and member of Score, an executive mentoring program for entrepreneurs, agreed. “Some of them saw their parents lose their jobs or saw their parents’ retirement plans get eviscerated” during the financial crisis in 2008, Mr. Alozie said. “It makes sense, given all that they have seen, that they have less trust in the financial system.”
In addition, he said, he has found that people of color “tend to be less reliant on investing assets in traditional methods that are going to build wealth slowly,” especially if they’re the first generation in their family to try to create real financial security.
“If you’re trying to build wealth and you don’t already have a significant asset base, it’s hard to do that using mutual funds and E.T.F.s,” Mr. Alozie said. “Particularly with people of color, they want to build something they can pass down.”
Darrick Hamilton, a professor of economics and urban policy and the founding director of the Institute for the Study of Race, Stratification and Political Economy at The New School, also pointed to the financial crisis. “Black people were targeted with products that were subprime” or with products at different terms than white people got, and that, he said, “was intentional.”
And even if people of color had access to the same types of financial instruments as white investors, Dr. Hamilton said, “it’s not as if Blacks in general have access to the resources to get into that type of asset to begin with.” He added: “The main ingredient to people having a diverse portfolio is resources itself.”
According to the Federal Reserve, white families have a median wealth of $188,200, compared with $36,100 for Hispanic families and just $24,100 for Black families. Wealth is related to but not the same as income. It is a measure of the value of holdings like real estate, stock portfolios and other assets.
“If you’re busy thinking about, How am I going to have basic needs met, it’s harder to think about how to grow one’s wealth,” said John Campbell, a senior vice president at U.S. Bank Private Wealth Management. “At the end of the day, there may be a lack of time or lack of financial resources to take advantage of other investment and savings programs,” he said.
When the coronavirus pandemic struck, Carl Napoleon, 36, said he watched the collapse of his travel-concierge business, which he had built around his Haitian American heritage.
“One of our niches became to focus on carnivals around the Caribbean diaspora,” he said. Demand had been growing, but the pandemic hit the five-year-old business hard. And as he’s been trying to build it back, many of the islands have continued to maintain travel restrictions.
“We almost went bankrupt,” he said. “We lost almost $350,000.” To date, Mr. Napoleon has been able to replenish only a fraction of the savings he poured into the business, dealing a major setback to his long-term plan to buy property and create a stream of rental income.
“I’ve always made it my goal to be financially free,” Mr. Napoleon said. “My family is dirt poor,” he said. “Luck is what provides their stability.” It was frustrating now, he said, to realize that his credit score had sunk under the weight of the debt he accrued when his cash flow plunged. Now he effectively has to start over.
Mr. Napoleon said his family home in Brooklyn where he and his four siblings, one of whom has special needs, grew up has been in foreclosure for more than a decade. “They worked real hard as immigrant Americans to get their home,” he said. “One of my reasons for wanting to retire early is to spend time with my parents and provide something.”
A sense of obligation to provide for parents and sometimes extended families burdens the finances of many millennials with roots in immigrant communities, said Shellise Rogers, 30, who grew up in Trinidad and New York City and has gone to Score for advice. She now lives in New York and has her own business as an accountant and business coach.
“It’s more about building up for the family versus for the individual,” she said. “Definitely, as someone who’s in finance and accounting and has lots of clients of color, I notice that there’s a need for an immediate cash flow” for many people, she said. Compared with reinvesting in their business, “adding to a 401(k) doesn’t seem as fruitful.”
Mr. Duplessi said he had decided to put money in a 401(k) when he finally got the chance to open an account two years ago when he became eligible to do so through his union. But he said he’s not sure how much to trust it, since both of his parents lost money in their accounts during the financial crisis in 2008 and he was unable to make any contributions when the hotel where he worked closed during the pandemic.
Many Black and Hispanic workers don’t even have the option of opening a 401(k). Federal Reserve data shows that 68 percent of white working-age families have access to employer-sponsored defined-contribution plans such as 401(k)s compared with only 56 percent of Black workers and 44 percent of Hispanic workers who have access to such plans.
Mr. Duplessi said he devoured resources on markets and dove into the mechanics of trading equities, options and other assets. Alarmed at what he viewed as predatory targeting of young minority investors, he started an invitation-only online group on Instagram where they could share insights and strategies for free. He said he has been investing mostly in stocks, though he also dabbled in options and cryptocurrencies.
“I consider those guys to be the biggest scammers in the world,” Mr. Duplessi said of self-styled investment gurus, whom he described as exploiting young adults who don’t know where to turn for advice. “I knew no one had this place to find that information. I was so poor, I understand where they’re coming from.”
Ms. Baradaran, the law professor, suggested that the financial services industry recognized that young adults from marginalized groups might be better served by more inclusive strategies aimed at combating structural economic inequality.
“Because of the racial wealth gap and its history, there’s just much less wealth, much less of a buffer, which means fewer paths toward wealth creation,” she said, arguing that a 401(k) is not necessarily a one-size-fits-all solution. “A 401(k) is a privilege, a luxury,” she said. “A 401(k) was not designed for working-class wages.”