Released: October 18, 2004
The Wealth of Hispanic Households: 1996 to 2002
VII. The Wealth of Immigrant Groups
Nearly 50 percent of Hispanic households are headed by first-generation Americans and many of them arrived in the U.S. only in the past two decades. It is of interest, therefore, to examine the wealth of Hispanic immigrants and chart their progress over time as well as with respect to the native-born. Since immigration is typically followed by a period of adjustment to the U.S. labor and financial markets, one would expect that the savings and wealth of first-generation Americans lag behind their native-born counterparts. That impression is confirmed by the evidence presented below. However, it is also shown that it is not immigrant status per se but the region of origin for immigrants that is a more important predictor of net worth of foreign-born households.
The wealth of native and foreign-born households is shown in Table 17.26 As discussed in section 3 above, the estimates for 1997 to 1999 are based on the 1996 SIPP panel that does not encompass immigrants entering the U.S. in 1996 or later years. Thus, the trend in the wealth of immigrants from 1997 to 1999 should be understood to represent the net worth of immigrants who were present in the U.S. in 1996. The estimates for 2001 and 2002 come from the 2001 SIPP panel that does include immigrants who reached the U.S. between 1996 and 2000. It is still valid to draw comparisons between 1996 and 2001 (or 2002) because the data for these points in time is reflective of the populations of immigrants in the U.S. in those years. However, the comparability of data for immigrants between 1999 and 2001 is affected because the former does not fully reflect the presence of all immigrants present in the U.S. in 1999. To preserve comparability between 1999 and later years, Table 17 presents a second set of estimates for 2001 and 2002. In these estimates, immigrants who entered the U.S. between 1996 and 2002 are eliminated from the 2001 SIPP panel. This is the same as the procedure that was used in section 3 to measure the change in wealth between 2001 and 2002.
The wealth of all immigrants combined is well below one-half of the wealth of native-born households. In 2002, foreign-born households had a median net worth of $24,357, or only 37 percent of $66,281, the median net worth of native-born households (Table 17). Still, that was an improvement over 1996 when the median wealth of immigrants—$18,327—was 32 percent of the net worth of native-born households—$57,882. But when households are placed into groups by ethnicity, the gap between immigrant and native-born households shrinks considerably.
The foreign- and native-born wealth gap virtually disappears when non-Hispanic immigrant households are compared with their native-born counterparts. The median net worth of non-Hispanic immigrant households was $61,740 in 2002. This was 87 percent of the median net worth of native-born non-Hispanics—$71,260. In 1996, non-Hispanic immigrants had a net worth of $46,767. That was 77 percent of $61,049, the net worth of native-born non-Hispanic households in 1996.
A similar result emerges when Hispanic immigrants are compared only to native-born Hispanic households. In 1996, the ratio of wealth was only 43 percent, when the net worth of immigrant and native-born Hispanic households was $4,815 and $11,234 respectively. In 2002, first-generation Hispanic households had a net worth of $6,800. This was 65 percent of the level of wealth belonging to native-born Hispanic households in 2002, namely, $10,425. Thus, when immigrant households are compared to their own native-born ethnic counterparts, Hispanic or non-Hispanic, they are found to have a net worth that is two-thirds or more as much.
If Hispanic and non-Hispanic immigrants, considered individually, possess nearly as much wealth as similar native-born households, why is the net worth of all immigrant households combined only 37 percent of the median wealth of all native-born households combined? The explanation for this phenomenon lies in the composition and characteristics of immigrant and native-born households. Over 40 percent of immigrant households but only 5 percent of native-born households are Hispanic. Thus, Hispanics have a large role in determining immigrant wealth, whereas the comparison group of nativeborn households consists almost entirely of non-Hispanics. As has been shown above, the net worth of Hispanics is relatively low, which, in turn, is due to the fact that they have lower than average age, education and income.27 That is especially true of first-generation Hispanics. Thus, differences in the characteristics of immigrant and native-born households are the underlying reason for the wealth gap between foreign-born and native-born households.28
What can one say about the year-to-year change in the wealth of immigrant and native-born households, especially between 1999 and 2001? To answer this question, it is necessary to turn to the second set of estimates which are derived from the sub-sample of the 2001 SIPP panel that excludes immigrants arriving in the U.S. after 1996. This way one can learn about the changing fortunes of immigrants who were present in the U.S. before and during 1996. No adjustment is called for in the sample of native-born households.
Using the full sample from 2001, it has already been observed that the wealth gap between immigrant and native-born households shrank considerably between 1996 and 2002. Much of this growth took place prior to the 2001 recession. By 1999, non-Hispanic immigrants, who were in the U.S. before 1996, had achieved a higher level of net worth—$71,727—than native-born non-Hispanic households— $68,213. The wealth of these immigrants continued to grow through and beyond the 2001 recession and, by 2002, was nearly double its level in 1996.
What about the wealth of Hispanic immigrants who entered the U.S. before 1996? Their net worth fluctuated in the period prior to the recession, falling from $4,815 in 1996 to $3,761 in 1998. But their wealth nearly doubled in 1999, rising to $6,529 in the space of a year. The growth in the wealth of this group of Hispanic immigrants leveled off during the recession but picked up again in 2002. Their net worth of $8,242 in 2002 was 71 percent higher than their net worth in 1996.
Native-born Hispanic households fared the worst during the 1996 to 2002 time period. Starting at $11,234 in 1996, the wealth of these households fluctuated from one year to the next. They ended 1999 with a promising note as their net worth peaked at $15,405 in that year. However, the wealth of native-born Hispanic households shrank by over 42 percent between 1999 and 2001, falling from $15,405 to $8,875. In fact, native-born Hispanic households were the only one of the four groups in Table 15 to suffer a loss in wealth between 1999 and 2001. This finding echoes previous findings on the labor market outcomes for first and later generations of Hispanic households in the recent past. For example, previous research conducted by the Pew Hispanic Center showed that the first generation has been more successful in gaining jobs and maintaining a lower rate of unemployment than the second and third generations over the past several years.29
Despite the many nuances, the fact remains that the wealth of the entire population of immigrants is less than the wealth of the native-born. One reason behind the gap is the homeownership rate (see Table 17). When Hispanic households are considered in isolation, the homeownership gap between immigrant and native-born households is only six percentage points in 2002, but the rate is low for both the nativeborn (50.9 percent) and the immigrant (45.1 percent). At the same time, native-born non-Hispanic households had a homeownership rate of 71.5 percent, or nearly 14 percentage points higher than the homeownership rate of 57.7 percent for immigrant non-Hispanic households. When Hispanic and non- Hispanic households are combined, the homeownership rate for immigrants—52.4 percent in 2002—is 18 percentage points below the homeownership rate for native-born households—70.3 percent in 2002.30 Given the strong relationship between homeownership and net worth (see section 5 and 6 above), increasing the rate of homeownership among immigrants is the key to shrinking the gap in wealth between them and native-born households.
The relationship between net worth and country of origin is evident in the estimates presented in Table 18. Immigrants from non-Hispanic countries tend to have the highest net worth and those from Central and South America the lowest. Approximately 85 percent of immigrant non-Hispanic households arrive from Asia and Europe, Canada, Israel, Australia or New Zealand. Similarly, about 90 percent of immigrant Hispanic households originated from Mexico, Cuba and Central American or Caribbean countries. It can be seen in Table 18 that the median net worth of immigrant households varies quite significantly across these different points of origin. Immigrant households from Europe, Canada, Israel, Australia or New Zealand had a net worth of $104,026 in 2002. These households have consistently the highest level of wealth of any other immigrant group in every year from 1996 to 2002. Immigrant households from Asia currently have the second highest level of net worth—$58,313 in 2002. Asian-born households did not always hold this distinction. Until 1998, the second rank belonged to households from Cuba who, with a net worth of $39,787 in 2002, are easily the wealthiest among immigrant Hispanic households. Immigrant households from Mexico have a net worth of $7,602 and the median wealth of households from Central American and Caribbean countries is only $2,508 in 2002. Although the net worth of households from Mexico is fairly low, it has risen rapidly in recent years and is presently just more than double its level of $3,782 in 1996. In contrast, the wealth of Cuban households appears to have flattened out, hovering in the vicinity of $40,000 in the 1996 to 2002 period. It appears likely that the wealth profile of Hispanic households in the future will be shaped primarily by immigrants from Mexico.
The number of years an immigrant has been in the U.S. and whether or not a transition has been made into citizenship are two other predictors of the wealth of immigrant households. Tables 19 and 20 show net worth and homeownership rates for immigrant households grouped by their year of entry into the U.S. and citizenship status. For both Hispanic and non-Hispanic households, net worth is found to be higher the longer the household has been in the U.S. Consider, for example, Hispanic households who migrated to the U.S. between 1996 and 2001. Their net worth in 2002 was $1,221 (Table 19). At the same time, Hispanic households who had arrived between 1991 and 1995 had a net worth of $3,151. This pattern continues with earlier years of entry and, finally, Hispanic households who arrived prior to 1980 are found to have a net worth of $37,380 in 2002. Thus, in 2002, as well as in other years, the wealth of an immigrant household is found to be higher the longer that household has been in the U.S.
Looking at the wealth of households in different year-of-entry cohorts within a single year can, however, yield a misleading picture of the financial assimilation of immigrants. That is because each cohort may consist of households with varying characteristics that are also related to wealth accumulation. For instance, immigrants who arrived prior to 1980 may have different levels of education or come from different source countries than the latest arriving immigrants.31 An alternative is to look at the change in net worth of the same set of immigrant households over time. That is possible with the SIPP data since it follows the same households for a number of years. In particular, in Table 19, the data for 1996 to 1999 come from a single SIPP panel and cover the same immigrant households within each cohort subject only to sample attrition.32 There are signs of wealth assimilation for Hispanic households as, subject to some fluctuation, the wealth of all four cohorts is observed to increase between 1996 and 1999.33 But the growth in net worth is not impressive, except for the cohort of Hispanic households that arrived in the U.S. prior to 1980. Their net worth increased from $16,162 to $25,884 from 1996 to 1999. Signs of growth in net worth are also present for all cohorts of non-Hispanic immigrants, with the most impressive increases recorded by immigrants who entered the U.S. between 1980 and 1989. Thus, following the same cohorts of immigrants between 1996 and 1999 confirms the impression that the initial wealth of foreign-born households is low and that it follows an upward trajectory thereafter. But even after several decades in the U.S., the wealth of immigrant Hispanic households is well below the national norm.
Evidence of wealth assimilation among immigrant households also emerges in the data on homeownership rates (Table 19). Homeownership rates are highest among immigrant households who arrived in the U.S. before 1980—73 percent for non-Hispanic households and 66.5 percent for Hispanic households in 2002. On the other hand, Hispanic immigrants who arrived after 1996 had a homeownership rate of only 22.1 percent in 2002. Non-Hispanic immigrants who landed after 1996 were only slightly better off by this yardstick with 28.4 percent of them owning homes in 2002. In other words, the homeownership rate among immigrants who arrived over two decades ago was two to three times as high as the rate among immigrants who arrived in the past five years.
Signs of a transition into homeownership are also present in the sample of immigrants that can be followed continuously from 1996 to 1999. For example, the homeownership rate for Hispanic immigrants arriving between 1990 and 1996 increased from 17.3 percent in 1996 to 30.2 percent in 1999. But the rate of increase levels off within a few years. Latinos who arrived a decade earlier, i.e., between 1980 and 1984, had a homeownership rate of just over 40 percent and that did not change from 1996 to 1999. The homeownership rate for Hispanic immigrants arriving before 1980 was stationary around 55 percent. The same general pattern describes the behavior of homeownership rates among non-Hispanic immigrants.
It is interesting to note that non-Hispanic immigrants assimilate into homeownership at a much more rapid rate than Hispanics. In 1996, non-Hispanic and Hispanic immigrants who arrived between 1990 and 1996 had very similar homeownership rates—20.6 percent and 17.3 percent respectively. However, by 1999, the gap between the groups had grown to seven percentage points in favor of non- Hispanics. Also, the non-Hispanic cohort that arrived between 1985 and 1989 crossed the 40 percent threshold in homeownership by 1997 while the same Hispanic cohort had not crossed the 30 percent mark by 1999. The slower rate of assimilation into homeownership is echoed in the slower rate of assimilation into wealth among Hispanic immigrants.
Citizenship, a milestone for many immigrants, is also a marker for greater wealth. Since it typically takes a few years of residency in the U.S. to acquire citizenship it is, in part, an indicator of assimilation. But it is also an indicator of greater immersion in American labor and financial markets, as well as in the social and cultural institutions of the country. Among non-Hispanic immigrants, the net worth of naturalized citizens was $111,240 in 2002 (Table 20), nearly five times as high as the net worth of other non-Hispanic immigrants at the same time—$23,205. The proportional gap was even higher in the case of Hispanic immigrants. Naturalized Hispanic citizens had a net worth nearly 10 times as high as the net worth of other Hispanic immigrants—$36,011 versus $3,857 in 2002. Thus, there is a striking gap in net worth between immigrants who are naturalized citizens and those who are not.
The rate of homeownership is one of the factors explaining the wealth advantage of naturalized citizens. As shown in Table 20, naturalized non-Hispanic citizen have a rate of homeownership close to 70 percent. That is about 25 percentage points higher than the 44.7 percent homeownership rate among non-Hispanic immigrants who are not yet American citizens. Naturalized Hispanic citizens also have high homeownership rates—63.5 percent in 2002. Hispanic immigrants who are non-citizens have much lower homeownership rates—only 34.5 percent in 2002. Overall, immigrants who are also naturalized citizens resemble native-born households more than other immigrants with respect to their success in attaining homeownership.34
- The sample of households used to derive the estimates in Tables 17 to 20 is different from the sample for all preceding estimates except for the estimates in section 3. The immigrant status of a person in the SIPP sample is ascertained only during the second wave (Wave 2) of interviews. Thus, in Tables 17 to 20 the sample consists only of persons who were also present and interviewed during Wave 2. The size of this sample shrinks over time as households attrite from the SIPP panel for a variety of reasons. ↩
- Data on the age, education and income of Hispanics by generation are available on the Web site of the Pew Hispanic Center (pewhispanic.org). ↩
- Other studies that have looked at the role of the characteristics of immigrants in determining relative wealth are Deborah A. Cobb-Clark and Vinvent Hildebrand, “The Wealth and Asset Holdings of U.S.-Born and Foreign-Born Households: Evidence from SIPP Data,” Australian National University, December 9, 2002, and Lingxin Hao, “Immigrants and Wealth Stratification in the U.S.,” Johns Hopkins University, January 2001. ↩
- See the citations in footnote 3. ↩
- Homeownership by immigrants is studied in detail in Demetrios Papademetriou and Brian Ray, “From Homeland to a Home: Immigrants and Homeownership in Urban America,” Fannie Mae Papers, Vol. 3, Issue 1, March 2004. Another detailed study is by George J. Borjas, “Homeownership in the Immigrant Population,” Research Institute for Housing America, Working Paper No. 02-01, March 2002. Their estimates of the gap in homeownership between native-born and foreign-born households are similar to those reported in Table 17. ↩
- This issue was first raised by George Borjas, “Assimilation, Changes in Cohort Quality, and the Earnings of Immigrants,” Journal of Labor Economics, Vol. 3, No. 4, 1985. ↩
- Sample attrition can cause a bias in estimates of the change in wealth of a cohort if more wealthy (or less wealthy) households are systematically more or less likely to exit the sample over time. ↩
- The data for 2001 and 2002 come from a different SIPP sample and also utilize somewhat different definitions for immigrant cohorts. Therefore, the data for these two years should not be compared with the earlier years for judging the assimilation of a specific cohort. ↩
- A similar conclusion is reached by Sherrie Kossoudji and Stan Sedo, “Immigrants, Natives, and Home Ownership,” paper presented at the conference on Financial Access for Immigrants: Learning from Diverse Perspectives, Federal Reserve Bank of Chicago, April 15-16, 2004. ↩