By GREGORY N. HEIRES
Racial disparities in the accumulation of wealth worsened during the Great Recession.
The 2007-09 recession hit Latinos and blacks harder than whites, exacerbating the vast wealth inequality that already existed in the United States before the downturn.
An Urban Institute study released in April examined the growing racial divide in wealth accumulation.
“Less than Equal: Racial Disparities in Wealth Accumulation” reports that the racial wealth divide is three times wider than the income gap, threatening economic opportunity for Latinos and blacks. Wealth is total assets, including bank and retirement accounts and homes, minus debts, such as mortgages, student loads and credit-card balances.
“Wealth isn’t just money in the bank, it’s insurance against tough times, tuition to get a better education and a better job, savings to retire on, and a springboard into the middle class,” the study’s authors, Signe-Mary McKernan, Caroline Ratcliffe, Eugene Steuerle, and Sisi Zhang, write. “In short, wealth translates into opportunity.”
Among the report’s findings:
× From 2007 to 2010, the bursting of the housing bubble accounted for most of the 44 percent drop in the wealth of Latino families. High unemployment and the loss of retirement savings largely explain black families’ loss of wealth. The wealth of whites dropped by 11 percent.
× In 2010, the typical white family had six times the wealth of Latino and black families ($632,000 compared to $110,000 and $98,000). Back in 1983, the disparity was 5-to-1.
The wealth disparity has widened over the years.
In 1983, white families in their early wealth-building years (32-40 years) had an average net worth of $184,000. By 2010, their net worth had grown to $1.1 million. During the same period, the wealth of black families rose from $54,000 to $161,000 and that of Latino families increased from $46,000 to $226,000.
The widening racial wealth disparity mirrors the growing overall gap in wealth in the United States, where economic polarization has returned to what it was around the time of the Great Depression of the last century. Government policies—tax breaks for the rich, trade policies encouraging business to seek cheaper labor overseas, the weakening of unions through deregulation and cuts in social services—have helped fuel the polarization.
Between 1983 and 2010, the total assets of high-wealth families— the top 20 percent by net worth—grew by 120 percent. The total assets of middle-wealth families went up 13 percent. The bottom 20 percent actually saw their wealth plummet below zero, turning them into debtors.
Homeownership among minorities increased during the housing bubble. Yet Latinos and blacks still remain far behind whites. In 2010, three quarters of white families owned homes while less than half of Latinos and blacks did.
One of the reasons minorities, particularly Latinos, took a bigger hit than whites during the Great Recession was that they purchased homes at artificially high prices and took out predatory loans. Because they took on more debt, Latinos were harder hit when home values tanked. Between 2007 and 1910, Latinos lost half of the equity in their homes, while blacks and whites lost a quarter.
To address the wealth gap, the Urban Institute recommends that the government adopt asset-building policies that help all Americans rather than just high-income families.
“The federal government spends hundreds of billions of dollars each year to support long-term asset development,” the study says. “But these asset-building subsidies primarily benefit high-income families while low-income families receive next to nothing. Reforming policies like the mortgage interest tax deduction so it benefits all families, and helping families enroll in automatic savings vehicles, will help improve wealth inequality and promote savings opportunities for all Americans,” the report concludes.
Posted on thenewcrossroads.com on May 2, 2013.