Three Things You Should Know About the Racial Wealth Divide Facing Latinos

For broad overview of Latino wealth outcomes, see this companion piece: Racial Wealth Snapshot: Latino Americans.

Since the Great Recession, the United States has enjoyed an extended period of recovery and growth. However, the benefits of this economic resurgence have not distributed equally among society. America’s inequality growth, slowed slightly by the Recession, now continues its upward trajectory to historic levels.

While much of the focus on racial disparity has rightly centered on disparities between White and Black families, Latino families also face a distinct set of socioeconomic challenges that should not be overlooked. Latinos make up a little over 18 percent of the population and account for half of the nation’s population growth since the turn of the millennium. As one of the youngest and fastest growing populations in the country, Latino financial well-being has a significant impact on the economy overall.

Latinos Have Not Shared in the Economic Growth of the Past 25 Years—Especially When It Comes to Wealth

When only considering income, Latinos already face difficult conditions: According to the Prosperity Now Scorecard, they are twice as likely to live in poverty as their White peers.

When we consider wealth, Latino families are facing an even more dire picture of inequality. Scorecard data shows that 61 percent of Latino households do not have enough savings—a key component of wealth—to survive at the federal poverty level for three months in the case of an unexpected financial crisis such as a job loss or medical emergency. Only 28 percent of Whites face that same level of instability.

Overall, the Federal Reserve estimates that White households own eight times the wealth of Latino households. However, when you remove durable goods, such as vehicles, electronics and furniture, from the wealth holdings of these households, median White households end up owning 22 times more wealth than median Latino households.

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Furthermore, growing wealth inequality has locked most Latinos out of the middle class. If entry into the middle class were defined by wealth, roughly two out of every three Latino families would not reach the middle class.

In contrast, two out of every three White families would reach the middle class, which is almost double the rate for Latinos.

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For Latinos, the Effects of Decades of Racial Discrimination Manifest in Everyday Life

For centuries, racial discrimination—ranging from disparities in hiring to unequal lending practices to selective criminal justice enforcement—has systematically created barriers to wealth for families of color, including Latinos.

One of the most well-known examples of racial discrimination is discriminatory housing policy. For example, a 2017 study by the Federal Reserve Bank of Chicago found that discriminatory policies such as redlining—the practice of systematically denying home loans to minority communities starting in the early 1930s and was not prohibited by law until 1968—had negative effects on wealth and homeownership that persist even today. These discriminatory policies hinged on denying or severely restricting credit, which created a legacy of insufficient credit for minorities, including Latinos. The Consumer Financial Protection Bureau (CFPB) has estimated that Latinos have the highest rate of credit invisibility, defined as having thin or no credit history, among all minority groups.

As the Scorecard shows, even once Latinos are able to buy or rent, their challenges continue. Homeownership is a key driver of wealth accumulation, but less than half of Latino families (46 percent) own their own homes, compared to 71 percent of White families. For Latino households own a home, two out of every five are cost-burdened, meaning they spend 30 percent or more of their income to pay for monthly costs associated with homeownership. Among all racial groups, Latino homeowners are the most likely to be in this unfortunate situation.

At the same time, almost three in five Latino renters are cost-burdened, bringing the total percentage of Latinos who are cost-burdened by housing to a staggering 48 percent. All of this comes on top of the fact that Latinos continue to face high levels of discrimination in the housing market. A poll commissioned by NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health found that as recently as 2017, 31 percent of Latinos have faced discrimination when seeking to rent a room or apartment, or buy a house.

Latinos also experience negative health outcomes because of financial instability. According to Scorecard data, one out of every five Latino households forgoes a visit to the doctor due to cost. Latino households are also three times more likely than White households to lack health insurance.

The Racial Wealth Divide Is Not Driven by Lifestyle Choices

A popular (but incorrect) narrative holds that racial inequality is due to lifestyle choices made by minorities. First, outcomes presented as the result of choices are heavily influenced by larger socioeconomic problems over which financially vulnerable families have essentially no control. Many of these issues are the result of exclusionary policy; Prosperity Now’s Road to Zero Wealth report outlines the many ways in which policy has perpetuated the Racial Wealth Divide. However, leaving this important caveat aside, traditional choice-based explanations for minority underachievement simply do not hold up to scrutiny.

One of the biggest misperceptions is that family structure explains the Racial Wealth Divide. According to this narrative, if minority family structures were stronger (i.e. two parents, marriage, etc.) the divide would not be as severe as it is today, or even exist. However, several recent studies have shown that is not the case. For example, a study published by Demos in 2017 found that single-parent White households have a higher median wealth than Latino two-parent households. Clearly, family structure does not explain the persistent and gaping wealth divide.

Another widespread misconception about the racial wealth divide is that it simply reflects differing levels of education. According to this narrative, if Latinos obtained a higher education or continued to build on their education beyond a four-year degree, the challenges of racial economic inequality could be solved.

However, education is only part of the road to financial stability. As shown below, White and Latino students have vastly different wealth prospects at every level of education, the wealth returns to education are much higher for White students and the inequality only grows with increased education. Ultimately, a 2017 report by the Federal Reserve of St. Louis found that accounting for age, family structure and education did not remove racial wealth disparity.

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As we close out Hispanic Heritage Month this week, we should not only continue to uplift the countless contributions so many Hispanic and Latino Americans have made to the country, but also remain vigilant of the troubling economic conditions facing a growing segment of our population. Without positive interventions, inequality will persist and Latino families will continue to be locked out of our economy. Given the ever-changing demographics of our country, this will inevitability have a detrimental impact on all of us.

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