Released: October 18, 2004
The Wealth of Hispanic Households: 1996 to 2002
VII. Wealth by Household Characteristics
There are many reasons why the net worth of Latino households is below the U.S. average. The Hispanic population in the U.S. is younger, not as highly educated, and earns less than the non-Hispanic population. Moreover, 40 percent of the Hispanic population is composed of immigrants who, along with previous generations of Latinos, are concentrated in a small handful of states in the U.S. This section examines how the median net worth of Hispanic and non-Hispanic households varies by their economic and demographic characteristics such as income, age, education, gender, and region of residence. The next section examines the wealth of immigrant groups.
The net worth of a household increases with its income. That fact emerges clearly in Table 12 which shows the net worth of Hispanic and non-Hispanic households grouped into quintiles of the income distribution.22 Among Hispanics, a wide gulf in net worth emerges with the fourth highest income quintile. In 2002, the median wealth of Latinos in the fourth income quintile was $38,402, or four times as high as the median wealth of Latinos in the third income quintile, namely, $9,629. Among non- Hispanics, the big jump in net worth occurs at much lower levels of income. The net worth of non- Hispanic households in the second income quintile was $40,194 in 2002, five times as high as the net worth of non-Hispanics in the lowest income quintile—$7,963. Table 12 also shows that, in the highest income ranges, Hispanic net worth in 2002 was 40 percent of non-Hispanic net worth. However, Hispanic households in the three lowest income quintiles have a net worth that is less than 20 percent of the net worth of non-Hispanic households in the same income quintiles. Thus, the gap in wealth between Latino and non-Latino households is much higher at lower levels of income.
Underlying the wealth gaps by income level is differences in homeownership across the quintiles of the income distribution. Even at the lowest rungs of the income distribution, nearly 50 percent of non- Hispanic households own a home. However, the same is true for fewer than 30 percent of Hispanic households in the lowest income quintile. For Latinos, the rate of homeownership does not cross the 50 percent threshold till the third income quintile. In 2002, this meant a monthly household income in the range of $2,552 to $4,020. Clearly, policies designed to promote homeownership among low- to mid-income Hispanics would have a large impact on closing the wealth gap between Latino and non-Latinos households.
Existing research shows that wealth increases with the age of a household head but only till about age 65. Household wealth diminishes thereafter as older households begin the process of consuming past savings.23 This pattern also emerges from the SIPP data for non-Hispanic households. Table 13 shows that the median wealth of non-Hispanic households peaks in the age group 55 to 64 years. In 2002, for example, the median wealth of these households was $145,131, nearly 14 times higher than the wealth of non-Hispanic households headed by persons of age 25 to 34 years—$10,705. Notably, the age wealth gap was much lower in 1996 when the wealth of non-Hispanic households in age group 55 to 64 years was only 8 times as high as the wealth of households in age group 25 to 34 years.
Among Hispanic households, wealth continues to grow through all age levels and peaks at ages beyond 65 years. In 2002, the median wealth of Hispanic households in age group 65 years or above was $51,934. This, too, is almost 14 times higher than the wealth of Hispanic households in age group 25 to 34 years, namely, $3,857. In the year 1996, this ratio was lower as the wealth of Hispanic households in age group 65 years and over—$39,155—was 10 times as high as the wealth of households in age group 25 to 34 years. As is the case with non-Hispanic households, the net worth of Hispanic households also increases rapidly with age, although it appears that it takes Hispanic households a decade longer than non- Hispanics to multiply their wealth by the same proportion.
As with income and age, the education of the household head is another factor positively related to net worth. The advantages of a college education are quite significant. In 2002, non-Hispanic households with college-educated heads had a median net worth of $161,613 (Table 14). This was nearly three times as high as the net worth of $56,428 owned by non-Hispanic households whose head had attended, but not graduated, from college. Hispanic households with a college-educated head have an even greater edge over those who attended but did not graduate from college. The net worth of the former group in 2002 was $58,145, nearly six times as high as the net worth of $10,166 for the latter group. Nonetheless, a college degree does not eliminate the significant disparity between non-Hispanic and Hispanic wealth as non-Hispanic households with a college educated head enjoyed a net worth ($161,613) nearly three times higher than Hispanic households with a college-educated head ($58,145).
Hispanic households whose head lacks a high school degree have very low net worth—$4,475 in 2002. This is less than 10 percent of the wealth owned by Hispanic households with a college-educated head. On the positive side, the least educated Hispanic households have partially closed the gap over time vis-à-vis the college-educated households. In 1996, if a Hispanic household head had less than a high school education, the net worth of that household—$2,882—was only five percent of the net worth of a Hispanic household with a college-educated head—$51,414. Latino households with less than a high school education have also somewhat narrowed the gap in comparison to similarly educated non-Latino households. In 1996, Latinos with less than a high school education owned only 10 percent of the wealth owned by their non-Latino counterparts—$2,882 versus $28,693. By 2002, this proportion had increased to 22 percent—$4,475 versus $20,343. Thus, at least in terms of net worth, less educated Hispanics outperformed their non-Hispanic counterparts as well as more educated Hispanics between 1996 and 2002, increasing their wealth from a very small base.
Among non-Hispanics, the change in wealth between 1996 and 2002 was directly related to the level of education. As shown in Table 14, the wealth of non-Hispanics without a high school degree eroded from $28,693 in 1996 to $20,343 in 2002. Non-Hispanics with a high school degree realized a modest gain of 2.2 percent in net worth over the same time period, and those who attended some college increased their net worth by 5.7 percent. However, the largest gains among non-Hispanics were registered by college graduates whose net worth increased every year between 1996 and 2002, including through the recession in 2001. Starting at $124,841 in 1996, the median net worth of non-Hispanic college graduates increased 29.5 percent to stand at $161,613 in 2002. Thus, between 1996 and 2002, wealth accumulation proved to be easier for the better educated non-Hispanics.
The wealth of college-educated Hispanics did not fare as well in the 1996 to 2002 time period. In 2001, the median wealth of Hispanics with college degrees—$50,097—was actually less than their median wealth of $51,414 in 1996. It recovered the next year, but by the end of 2002 the net worth of Hispanic college graduates was only 13 percent higher than in 1996. One consequence is that the relative standing of college-educated Hispanics also slipped during this time period. In 1996, the median net worth of Hispanics with a college degree was 41 percent of the wealth of their non-Hispanic counterparts. This ratio had slipped to 31 percent by the end of the recession in 2001 and then recovered somewhat to finish 2002 at 35 percent. Thus, a college education did not provide immunity from the economic downturn for Hispanics as both their absolute and relative wealth slipped backwards during the 2001 recession.
The well known wage gap between women and men also translates into a wealth gap between households headed by women and men (Table 15). Among non-Hispanics, the net worth of a household, if headed by a woman, was $51,405 in 2002. This is 60 percent of the net worth of non-Hispanic households headed by a man, namely, $86,370 in 2002. This ratio has not changed in recent times as it has fluctuated between 55 and 60 percent since 1996. Hispanic households headed by a woman had just over one-third of the wealth of households headed by Latino men in 2002—$4,489 in comparison to $13,154. However, this ratio was much lower in the recent past, standing at less than one-fourth in 1996.
Table 16 shows how the wealth of households varies across the four principal regions. Non- Hispanic households located in the Northeast have the highest net worth—$91,540 in 2002—followed by non-Hispanic households in the West, the Midwest and the South. This ranking of regions has remained unchanged since 1996. Exactly the opposite pattern emerges for Hispanic households. The wealthiest Hispanic households are located in the South, followed by Latino households in the Midwest, the West and the Northeast. This pattern is explained in part by the predominance of Cuban households in Florida. Those households are the closest to White households in terms of income and education. Hispanic households in the Northeast are principally of Puerto Rican origin and reside mostly in the New York area. Because of its high cost, homeownership rates in New York are well below the rates in other states for households of all races and ethnicities. For Hispanics, in particular, the rate of homeownership in New York is estimated to be below 20 percent in 2002, well below the overall homeownership rate of 47.3 percent.24 Given the overwhelming importance of home equity in shaping the net worth of low income individuals, it is not surprising that Hispanic households in the Northeast have very low net worth.25
In summary, the traits that influence household wealth include their level of income, the age, education and gender of the household head, and their region of residence. The characteristics of Hispanic households are typically associated with low levels of wealth. The income of Hispanic households is well below average and the heads of Hispanic households, while somewhat less likely to be female, are younger and less educated. Hispanic households are also concentrated in high cost areas within the Northeast and West regions of the country. This contributes to a lower rate of homeownership and overall net worth.
- The income quintile ranges are given in the footnote to Table 12. ↩
- See the papers by Edward N. Wolff (cited in footnote 7) and Ana M. Aizcorbe, Arthur B. Kennickell and Kevin B. Moore (cited in footnote 10). ↩
- For non-Hispanics, the rate of homeownership in New York was 59.3 percent in 2002, much below the national average rate of 70 percent. ↩
- A recent report by the Tomás Rivera Policy Institute examines barriers to homeownership for Mexican-Americans in three large metropolitan areas in the South and West. See Jongho Lee, Louis Tornatzky and Celina Torres, “El Sueño de su Casa: The Homeownership Potential of Mexican-Heritage Families,” The Tomás Rivera Policy Institute, 2004. ↩