II. Introduction

The focus of this study is on the net worth of Hispanic households between 1996 and 2002. The wealth of these households, and its composition and distribution, is compared with that of non-Hispanic White and Black households. It is shown that, even though Latino and Black households earn two-thirds as much as White households, their net worth is only one-tenth as much. The net worth of all households is further analyzed by their economic and demographic characteristics, such as, homeownership, education, and immigrant status. One of the important developments in the 1996 to 2002 period was the recession in 2001 followed by the so-called “jobless recovery.” Thus, in addition to what is known about the effects of the recession on employment and income, this report contributes new information on the impact of the recession on the net worth of Hispanic and non-Hispanic households.1

Wealth, along with income, consumption and employment, is a key indicator of economic well-being. In particular, wealth provides protection against short-term economic shocks, such as recessions and spells of unemployment, and long-term security in the form of retirement income. It is a means of providing security and status for future generations in the form of inheritances and funds for higher education. One of the principal components of wealth—an owned home—is also a provider of shelter. Individual wealth is also known to provide access to superior health, education, and other services, and, as a community, relative wealth is also correlated with social and political influence. For these and related reasons, there is an increasing call among researchers to broaden the definition of poverty to encompass asset poverty.2 To the extent that asset accumulation is regarded as important for the alleviation of poverty, policy makers are increasingly looking beyond income transfers and are considering programs that promote homeownership, financial sector participation, and savings.

For the reasons stated above, it is important to study the wealth of households and its relationship to their economic and demographic characteristics. The Hispanic population in the U.S. has exploded in the past three decades, growing to 40 million from a base of just under 10 million in 1970. As a result, Hispanic workers currently account for more than one-half of the growth in the U.S. labor force and employment. In turn, more than 40 percent of the growth in the Hispanic population is attributable to immigration. Thus, first-generation workers have not only dominated employment growth in the Hispanic community but also in the overall labor force during the past two decades. On the other hand, the unemployment rate for Hispanics remains persistently higher than the national average. Moreover, Hispanic workers earn less than other workers and have not succeeded in closing the earnings gap even during the lengthy economic expansion in the 1990s.3 While much is known about the employment and income prospects of Hispanics, far less is known about the wealth status of Hispanics, especially of first-generation Hispanics. This report fills that gap and also considers the extent to which the latest recession may have contributed to the erosion of Hispanic wealth.

The two principal sources of data on the wealth of households are the Survey of Income and Program Participation (SIPP) conducted by the Census Bureau and the Survey of Consumer Finances (SCF) conducted by the Federal Reserve Board. This report uses SIPP data because it has a larger sample size and contains details on the immigration status of respondents.4 The SIPP is a longitudinal survey, i.e., it follows largely the same panel of households over several years. The estimates in this report are based on the 1996 SIPP panel, interviewed from April 1996 to March 2000, and the 2001 SIPP panel that was interviewed from February 2001 to January 2004. The former panel yields wealth estimates for 1996, 1997, 1998 and 1999, while the latter panel provides estimates for 2001 and 2002.5

Since the SIPP primarily follows the same households over time, the demographic composition of the sample remains relatively fixed while one panel is being surveyed. Therefore, the possibility arises that, as a panel ages, the SIPP sample may begin to diverge from the characteristics of the overall population that it is supposed to represent. A specific issue that arises in this study is that the 1996 SIPP panel, which was interviewed for four years, was bereft of immigrants who arrived in the U.S. between 1996 and 2000. That is an important point for a study of the Hispanic population whose rapid growth has been driven by immigration and the nuances of this issue are discussed in greater detail in a later section. It is sufficient to note for now that the estimates of Hispanic wealth in 1998 and 1999 are possibly subject to an upward bias, i.e., they are likely higher than the true level of Hispanic wealth in those years because they do not reflect the constant arrival of large numbers of new immigrants with low levels of wealth.

This report presents two sets of wealth estimates. One series of estimates is derived from the broadest possible SIPP samples of households. Those are most useful for studying the wealth of Hispanic and non-Hispanic households, and its composition and distribution, at a single point in time. However, the estimates derived from the latter points of a SIPP panel, especially the estimates for 1998 and 1999 that are taken from the waning years of the 1996 panel, may be subject to the type of sample bias discussed in the preceding paragraph. Such a bias would affect the perception of the change in wealth between 1999 and 2001, a period that encompasses the 2001 recession. Therefore, a second series of wealth estimates is also presented that controls for the effect of the sample bias. Those estimates are most useful for studying the change in wealth between 1999 and 2001, a period that spans the recession and two different SIPP panels.

The next section of the report presents estimates of the median net worth of households and its distribution. That is followed by a presentation on the effects of the 2001 recession on the wealth of households. This section also includes a discussion of the potential bias in the estimates of net worth in the latter years of the 1996 SIPP panel. The ownership of different types of assets and the values of the various assets held by households is examined in the fourth and fifth sections. The sixth section reports findings on how the wealth of households varies by selected demographic and economic characteristics. The wealth of immigrant households is the subject of the seventh section of the report. A concluding section summarizes the principal findings.