Released: October 18, 2004
The Wealth of Hispanic Households: 1996 to 2002
The net worth of Hispanic and Black households is less than one-tenth of the net worth of White households. Moreover, the wealth gap widened in recent years as the 2001 recession and the economic slowdown that followed was harder on minority and lower income households. Between 1999 and 2001, the net worth of Hispanic and Black households is estimated to have fallen by 27 percent each. This contrasted with a two percent gain for White households over the same time period. Hispanic households recouped much, but not all, of their loss in the year following the recession but the wealth of Black households remained stagnant through the end of 2002.
The distribution of wealth across minority households is also much more concentrated than among White households. Over one-quarter of Hispanic households and nearly one-third of Black households had zero or negative net worth in 2002, a rate that is two to three times higher than among White households. Also, four times as many minority households as White households own no assets other than a car or unsecured debt. Most Hispanic and Blacks fall into the lowest category of wealth and the size of their middle-class is relatively small in itself and in comparison to Whites. The result is that the wealthiest one-quarter of Hispanic and Black households control over 90 percent of their community’s total wealth. But even at the very highest rungs of the wealth distribution, the net worth of Hispanic households is less than one-half of the net worth of White households.
It was shown in the report that the wealth gap between White households and Hispanic and Black households is much larger than the income gap. Even though the median income of Latino and Black households is two-thirds as high as the income of White households, their wealth is only one-tenth as much. The reasons why this might happen include the lack of inheritances, limited access to financial markets, and barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Regardless of race or ethnicity, the house is the single most important asset in the portfolio of homeowners. Households that own homes are also more likely to own other assets and they enjoy an enormous wealth advantage over renters and other households. Hispanic homeowners are found to have a net worth that is one-half the level of the net worth of non-Hispanic homeowners, a ratio much closer to the gap in income between the two groups. However, non-Hispanic households are much more likely to own homes and that drives a much bigger wedge between the wealth of the two groups in the aggregate.
Other factors that contribute to the lower level of wealth among Hispanics are that they are relatively young, not as highly educated, and concentrated in high cost regions, such as New York and California, where homeownership can be less attainable. Net worth increases with age for Hispanics at almost the same rate as it does for non-Hispanics and as the Latino population ages to the U.S. norm it will also become wealthier in both absolute and relative terms. The wealth gap between those who have a college degree and those who do not is enormous, and increasing the level of education of minority communities is one key to shrinking both the income and wealth gaps. The Hispanic population is also increasingly moving to new settlement areas, such as, Raleigh, Omaha and Nashville, and this trend may contribute to increasing homeownership and net worth.
The high rate of immigration among Hispanics is another reason why their net worth is relatively low. Over 40 percent of the Hispanic community is first-generation American and many of these households arrived here only in the past two decades. The rapid rate of immigration means that many Hispanic households are still in the assimilation phase, culturally and economically. The rate of homeownership and the net worth of Hispanic households increases with time spent in the U.S. However, the evidence also shows that assimilation is not complete, i.e., even after two decades or more in the U.S., the wealth of immigrant Hispanic households remains below average. But, at least to some extent, the true wealth of Latino immigrants may be underestimated because they have shown a strong propensity to send remittances to their source countries. For many of these migrants the ability to support family members through remittances is a more important motive for coming to the U.S. than the prospect of accumulating wealth here. The Pew Hispanic Center estimates that remittance flows to Latin American and Caribbean countries exceed $30 billion per year. That amounts to over $2,500 per year for each Hispanic household in the U.S. If that sum were saved and invested within the U.S. it would have a significant impact on the measured wealth of Hispanic households, albeit not enough to close the gap between them and non- Hispanic households.