Racial/Ethnic Disparities in Financial Advice Seeking: A Decomposition Analysis

Abstract

Financial advice seeking is associated with many positive benefits for consumers. Yet, most U.S. households are not working with a financial planner and research has pointed to the lack of racial and ethnic diversity among those who do. This study examines racial/ethnic disparities in using a financial planner. Logistic regression analyses show that Black and White consumers are more likely than Asian and Hispanic consumers to use financial planners for saving and investment decisions. A Fairlie decomposition analysis shows racial/ethnic differences among the determinants that are associated with financial advice seeking. The differences in the determinants were large between White and Hispanic consumers and much narrower between Black and Hispanic consumers. Risk tolerance, objective financial knowledge, and income were the most important determinants to explain racial/ethnic differences in financial planner use. This study provides insight into possible barriers to working with financial planners for a diverse group of consumers.