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Latinx Families Have Less Wealth, But Face More Risks Than White Families
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Many Latinx families have recovered from the wealth losses they suffered during and after the Great Recession. Yet wealth for Latinx families is still only a fraction of that of white families, while many Latinx families face more financial risks. Addressing the persistent wealth gap between Latinx and white families will require access to good, stable jobs with decent benefits that can help Latinx families save more. And it will require targeted financial market policies which provide Latinx families with access to adequate, low-risk and low-cost loans and other financial products.
Families rely on their own wealth to take advantage of economic opportunities and to help them out in an emergency. Having wealth allows families to start a business, move to a new job when a better opportunity arises, support their own and their children’s education, and enjoy a secure retirement after a lifetime of hard work. Wealth also helps families to pay the bills when things go wrong, they become sick, get laid off, and face unexpected caregiving demands for their loved ones. In fact, Latinx families face more risks, for instance, from unpredictable work schedules and unstable jobs and thus actually need more, not less, wealth than whites do to protect them from these risks.
Average wealth for Latinx families is far below that of whites. At the end of June 2019, Latinx families on average owned $250,467 in total wealth, including real estate, stocks, retirement accounts, cars and current and future income from defined-benefit (DB) pensions. White families, in comparison, owned an average of $1,126,445 – or almost five times as much as Latinx families – at the same time (see figure below).
Real Average Household Wealth (In 2019 Dollars)
Calculations Based on Federal Reserve. Distributional Financial Accounts And Survey Of Consumer Finances
The median wealth gap between Latinx and white families is similarly large, although median wealth levels are much smaller. In 2016, the last year, for which these data are available, Latinx families owned $28,610 (in 2016 dollars), or less than one-eighth of the median wealth of white families of $243,370.
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Many Latinx families lost a lot of their wealth during and after the Great Recession and it took years to recover from that financial drubbing. Latinx families’ average wealth reached a peak of $220,369 (in 2019 dollars) at the end of December 2006 before dropping by 42.6% to $126,353 (in 2019 dollars) in June 2013 (see figure above). Average Latinx wealth recovered to its pre-recession peak by September 2016 and by June 2019, Latinx families’ average wealth stood 13.7% above its pre-recession peak.
The wealth decline was larger for Latinx families and longer lasting than that for whites. The average wealth for white families peaked in March 2007 at $856,696, three months after the peak for Latinx wealth. It fell by 15.3% — or almost two-thirds less than the decline of Latinx wealth — to its lowest point of $724,042 in March 2009 (see figure above). By December 2013, white wealth had recovered to its pre-recession high, two and a half years before average wealth for Latinx families reached its pre-recession peak again. In 2019, white families’ wealth was 31.4% above its recession peak or more than 50% greater than the comparable gain for Latinx families.
Not only do white families own more wealth, they also experience fewer financial risks than Latinx families do, as witnessed in the most recent much smaller wealth decline for white families than for Latinx ones. The difference in financial risks between Latinx and white families stems from several factors that include more financial risks. First, Latinx families have a much larger share of their assets invested in real estate, in large part because they have less access to good retirement benefits and safe financial products. This makes it harder to save money outside of a house. It also exposes them much more to the risks of home ownership that come from holding a lot of money in an illiquid asset. Real estate made up 34.1% of all assets of Latinx families by the end of June 2019, while it accounted only for 22.8% of white families’ assets (see figure below). House prices then influence Latinx families’ wealth much more than is the case for whites, as was the case during and after the Great Recession.
Separate Asset Class And Total Debt Relative To Total Household Assets By Ethnicity In June 2019
Calculations Based on Federal Reserve, Distributional Financial Accounts And Survey Of Consumer Finances
Second, Latinx families owe a lot more debt relative to their assets. On average, total debt for Latinx families equaled 20.9% of their assets by the end of June 2019, while it was only 11.0% for white families (see figure above). And more than one-third of all debt, 36.1% to be exact, that Latinx families owed was consumer credit, mainly credit cards, student and car loans. For whites, this share averaged 23.1% at the same time. Latinx families are relatively deeper in debt and more of their debt is costly and risky debt than is the case for whites.
Third, Latinx workers are less likely to have retirement benefits at work. They do not get as much extra help in saving, for instance, from an employer match in a 401(k) plan, than white workers do. This requires Latinx families to navigate the complex and often riskier world of non-employer-based retirement savings in the form of Individual Retirement Accounts (IRAs) on their own.
Fourth, businesses owned and run by Latinx families operate with more debt and thus are at greater risk of failing when the economy sours. Latinx small businesses often find it difficult to secure adequate capital from financial service companies. They are also less likely to rely on familial assets, a major source of small business funding, due to the lack of wealth in Latinx families. Despite the increase in private business ownership, a key driver in raising wealth levels since the Great Recession, equity in noncorporate businesses only amounted to 6.0% of all Latinx assets in June 2019. At the same, white families held nearly twice as much, 11.6%, of their assets as equity in noncorporate businesses (see figure above). And this share dropped by 5.5 percentage points for Latinx families from the start of the Great Recession in June 2007 to June 2019, while it grew by 0.4 percentage points for whites. Latinx families clearly had a much harder time holding on to their family businesses than whites did, substantially dampening their wealth and contributing to the growing wealth gap between Latinx and white families.
Closing the wealth gap between Latinx and white families will require a number of key policy steps. These will have to focus on giving Latinx workers more access to good, stable jobs with decent benefits. In addition, policies will have to make sure Latinx families get a fairer shake in financial markets to avoid excessive fees and risks. Only a sustained and meaningful approach will ultimately give Latinx families a real shot at closing the wealth gap with whites.
