Released: October 18, 2004
The Wealth of Hispanic Households: 1996 to 2002
VI. Net Worth by Type of Asset
As discussed in section 2 above, the median net worth of Hispanic households in 2002 was $7,932, or only nine percent of the median net worth of White households. But what is the amount of equity that Latinos have acquired in the homes they own and how does that compare with White households? What is the value of the financial assets owned by Latino households? And what is the relative importance of each asset in the portfolios of Hispanic and non-Hispanic households? It is shown that, just as homeownership is more important than the ownership of all other assets except vehicles, home equity is the single largest item in the portfolio of homeowners. Also, not only are White households more likely to own any given asset, they also possess more of each asset on average in comparison to Hispanics and Blacks.
By one measure the median value of home equity or any asset owned by Hispanic households, other than vehicles, is zero. That is because fewer than 50 percent of Latino households own any single asset other than vehicles. For example, since only 47.3 percent of Hispanic households owned a home in 2002, the remaining 52.7 percent of Latinos had, by definition, zero amount of home equity. It follows that for the entire population of Latino households, the median value of home equity is zero. The same logic applies to all other assets except vehicles. What is true for Hispanic households is also generally true for Black and White households. The only exceptions arise in the case of White households who own homes, interest earning assets and unsecured liabilities at rates in excess of 50 percent. Therefore, in gauging the value of individual assets, it makes sense to focus only on the households that own those assets.
Table 8 shows the median value of assets for households that own any particular asset. Among Hispanic households that owned a home, i.e., for the 47.3 percent of Latino households that owned a home, the median value of home equity was $49,840 in 2002. That was 60 percent of the median value of home equity—$81,191—owned by White households. So, not only is the proportion of White households that owns a home much higher, but the value of those homes is also higher. Black households, who have the same rate of homeownership as Hispanic households, have the lowest median value of home equity, namely, $40,685 in 2002.
With respect to financial assets, Latino and Black households have virtually the same median value of interest earning assets in 2002, about $1,500, which, in turn, is about one-third of the value owned by White households—$5,029. The same could be said of stocks and mutual funds, where the holdings of Latino households—$3,560—are roughly one-third of the $10,171 held by White households in 2002. With regard to retirement accounts in 2002, Latino and Black households owned in the range of $10,000 to $12,000 in IRA & Keogh accounts and 401(k) & Thrift accounts. White households owned approximately twice that amount—$20,343 in IRA & Keogh accounts and $20,298 in 401(k) & Thrift accounts.
It was noted earlier that the 2001 recession had a negative impact on the wealth of Hispanic and Black households. For Latino households, the erosion in wealth can be traced to the loss in value of financial assets. Between 1999 and 2002, the median values of the holdings of Hispanic households declined in all of the following categories: interest earning assets, other interest earning assets, U.S. savings bonds, IRA & Keogh accounts, 401(k) & Thrift accounts, and stocks and mutual funds.17 On the other hand, the median value of equity in owned homes and rental properties increased between 1999 and 2002. Thus, the strength of the housing market in the recent economic slowdown eased the reduction in median wealth of Hispanic homeowners.
The trends in the median value of assets were similar for White householders. Between 1999 and 2002, these households also saw an increase in the value of home equity and a reduction in the value of their financial assets. The fact that nearly three-quarters of White households own homes most likely prevented a reduction in the median net worth of this population. Black households were somehow able to buck these trends as, for them, the median values of all financial assets except stocks and mutual funds increased between 1999 and 2002.
How important are the various assets to the portfolio of the “typical” Latino and non-Latino households? Because not all households own all assets, and since several assets are owned by very few households, this question is open to more than one answer. Table 9 offers one perspective on the issue. In particular, Table 9 shows the distribution of the mean net worth of Hispanic households. In 2002, the mean net worth of Hispanic households is estimated to be $65,371. In the same year, the mean level of home equity for all Hispanic households, not just homeowners, was $39,864. Thus, as shown in Table 9, 61 percent of the average net worth of Latino households is derived from home equity. Other assets pale in comparison. The next most important assets on the list are rental properties and 401(k) & Thrift accounts and each of those accounts for only 7.3 percent of the mean net worth of Hispanic households.
Close behind are stocks and mutual funds which account for 7.2 percent of Latino wealth by this measure. Clearly, homeownership is a vital component of the wealth of Hispanic households.
The overwhelming importance of homeownership is also evident for Black households for whom home equity accounted for 63 percent of mean total net worth in 2002. Far behind are 401(k) & Thrift accounts which contributed 11.5 percent to the value of mean total net worth of Black households. Home equity is also important for White households but much less so. In 2002, home equity was only 38.5 percent of the mean net worth of $221,871 of White households. Stocks and mutual funds are also very important to White households and accounted for 21.9 percent of their mean wealth in 2002. By these measures, therefore, the average White household has a much more balanced portfolio than the average Hispanic and Black household.
Another perspective on the importance of an asset may be gleaned by phrasing the question more narrowly. For example, what is the share of home equity in the total net worth of homeowners only? In other words, rather than estimating the distribution of net worth for the entire population, one can estimate the importance of an asset only to the segment of the population that owns that asset. Table 10 shows that home equity accounts for 88.4 percent or more of total net worth for one-half of Latino homeowners. Since 47.3 percent of Latino households currently own a home (Table 6), this implies that one-half of this number, or 23.7 percent of all Latino households, has 88.4 percent or more of net worth held in the form of a home.
Almost exactly the same statements apply to the situation of Black households. The homeownership rate for Black households was 47.7 percent in 2002. Among the Black households that own a home, one-half had 88.1 percent or more of their total net worth in the form of home equity. In other words, nearly one-quarter of all Black households count home equity as the overwhelming portion of their portfolio. Whites that own homes have more diverse portfolios but home equity is still the major portion of their wealth. In particular, home equity accounts for 61.6 percent or more of the total net worth of one-half of White homeowners. It can be seen from Table 10 that most owners of rental and other properties would also count those properties as significant parts of the value of their total holdings. Thus, real estate is a key asset for those who own it.
The significance of homeownership can also be assessed by comparing the wealth of homeowners with others. Table 11 shows the median net worth of Hispanic and non-Hispanic homeowners and others. The wealth advantage of homeowners over the rest of households is enormous. The median net worth of non-Hispanic homeowners in 2002 was $129,778.18 In contrast, the median net worth of non-Hispanic renters and others was only $1,526, or just over 1 percent of the wealth of homeowners. Gaps of this size are present in all years since 1996. The median net worth of Hispanic renters and others is also very low. In 2002, the net worth of Hispanic renters and others was only $762. On the other hand, Hispanic homeowners had a net worth of $62,839, or 82 times the wealth of Hispanic renters and others.19
The data in Table 11 also indicate that the wealth of Hispanic homeowners is almost 50 percent of the level of wealth of non-Hispanic homeowners. The same result also emerges for Hispanic renters and others when compared with non-Hispanic renters and others in recent years. However, the wealth of all Hispanic households combined is only about 10 percent of the level of wealth of all non-Hispanic households. That is a consequence of the much higher rate of homeownership among non-Hispanics (Table 6).20
While much of the wealth of homeowners is derived from home equity, homeownership as a trait is also associated with higher rates of ownership of other assets as well as higher levels of holdings of those assets. This can be seen in Appendix Tables A1 and A2 which report ownership rates and the median values of financial assets for Hispanic and non-Hispanic homeowners and others.21 For example, consider the gap that exists with respect to retirement accounts. Both Hispanic and non-Hispanic homeowners are about twice as likely as renters and others to own a 401(k) or Thrift account (see Table A1). Moreover, Hispanic homeowners with 401(k) and Thrift accounts had a median value of $15,020 in their accounts in 2002, but Hispanic renters and others with these accounts had only $6,061 (Table A2). Similarly, non-Hispanic homeowners with 401(k) and Thrift accounts maintain a median balance of $22,328 in contrast to the balance of $7,629 kept by non-Hispanic renters and others. Large gaps in ownership and asset values between homeowners and renters can also be observed in the case of IRA and Keogh accounts. Overall, homeowners are also more likely to own and maintain higher balances in checking and interest earning accounts, possess a greater value of savings bonds, own more in stocks and mutual funds, have more of other assets, and appear to drive better cars.
- The magnitudes of the declines in these asset values for Hispanics are likely to have been affected by the sample effect discussed in section 3 above. But the direction of the change is unlikely to have been the consequence of just the sample effect, especially since the same changes are observed for White households and the stock market began a slide in 1999 that lasted several years. ↩
- The non-Hispanic category includes non-Hispanic Whites, non-Hispanic Blacks, and non-Hispanic Others (Asians and others). ↩
- Gaps of this magnitude also emerge from SCF data. Aizcorbe, Kennickell and Moore (see the citation in footnote 10) report that the median wealth of renters and others was less than three percent of the median wealth of homeowners in 2001. ↩
- Table 6 shows data for non-Hispanic Whites and Blacks only. The homeownership rate of non-Hispanic Others was 57 percent in 2002. ↩
- As is the case with previous tables, the median values are only computed over the set of households that own any particular asset. ↩