Released: October 18, 2004
The Wealth of Hispanic Households: 1996 to 2002
III. Median Net Worth and its Distribution
This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.6 It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996.
The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.7 Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.
Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.
The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.8 Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt.
Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.
The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households.
Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.
Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession.
Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years.
As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996.
Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996.
The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996.
Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.9 As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.10
This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.11 The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.
- The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth. ↩
- A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households. ↩
- Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt. ↩
- It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003. ↩
- The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003. ↩
- “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income. ↩