The Wealth of Hispanic Households: 1996 to 2002

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data.

The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.¹² The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants.

One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change.

The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households.

However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households.

The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.¹³¹⁴

Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time. ↩
This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above. ↩
Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances. ↩

h2>I. Overview h2>I. Overview Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

II. Introduction h2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distributionh2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealthh2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data. The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.[12. numoffset="12" Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time.] The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants. One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change. The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households. However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households. The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.[14. This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above.][15. Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances.]

V. The Ownership of Assetsh2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data. The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.[12. numoffset="12" Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time.] The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants. One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change. The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households. However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households. The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.[14. This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above.][15. Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances.]

V. The Ownership of Assets

Wealth may be accumulated in various forms and an analysis of the composition of wealth shows a key similarity as well as several differences across racial/ethnic groups. The single most important asset for all races and ethnicities is a house. Not surprisingly, households of all stripes are also quite likely to own vehicles. But Hispanic and Black households are much less likely than White households to own financial assets, including retirement accounts, and many minority households own no assets whatsoever. The SIPP data make it possible to distinguish across 14 major types of assets and liabilities. This section presents evidence on the ownership of these assets and liabilities by race and ethnicity. The assets most likely to be owned by American households are a car and a house. As shown in Table 6, nearly 90 percent of White households, over three-fourths of Hispanic households and more than two-thirds of Black households report owning at least one car in 2002. The highest rate of homeownership is among White households with 74.3 percent indicating they owned a home in 2002. This rate is much higher than among Hispanic and Black households whose rates of homeownership in 2002 were 47.3 percent and 47.7 percent respectively. The rate of homeownership among Whites has increased every year since 1996 and is presently 2.4 percentage points higher than in 1996. The homeownership rate for Hispanic households also increased over time and was 3.1 percentage points higher in 2002 in comparison to 1996. However, the rate of homeownership among Blacks has remained flat since 1996. While the homeownership rate among Hispanics and Blacks is relatively low, homes are the most likely asset to be owned by these households after vehicles.[16. The estimated rates of homeownership from the SIPP data are very similar to those reported by the Census Bureau from its annual Housing Vacancy Survey. According to that survey, the homeownership rates by race and ethnicity in 2002 were as follows: Hispanics—47 percent, Whites—74.7 percent, and Blacks—47.4 percent. One difference between SIPP and the Housing Vacancy Survey is that the latter indicates a 4.2 percentage point increase in the homeownership rate for Hispanics between 1996 and 2002 instead of the 3.1 percentage point increase derived from SIPP.] Other assets, mostly financial, are less likely to be owned than houses or vehicles. The leading financial assets are interest earning accounts at financial institutions and non-interest bearing checking accounts. The former includes assets such as interest-earning checking accounts, savings accounts, money market accounts, and certificates of deposit. White households lead the way once again, with 69 percent reporting ownership of interest-earning accounts at financial institutions in 2002. This was nearly 30 percentage points higher than the rate among Hispanic households—42.4 percent—and the rate among Black households—40.3 percent. Ownership rates for non-interest bearing checking accounts are lower for all types of households. White households are at the front with 36.3 percent of them owing such accounts in 2002. The rates for Hispanic and Black households are 29.9 percent and 25.1 percent respectively. Overall, it is apparent that the majority of Hispanic and Black households do not own even the basic instruments offered by financial services companies. Ownership of other financial assets among Hispanic and Black households is very low. Fewer than 10 percent of Hispanic households and only slightly more than 10 percent of Black households owned stocks and mutual funds in 2002. This contrasts with the 35 percent rate for White households. Hispanic and Black households are also less prepared for retirement as only about 20 percent of each group reports participation in a 401(k) or Thrift savings plans and fewer than 10 percent have IRA or Keogh accounts. Among White households, 34.5 percent had 401(k) or Thrift savings plans and 29.4 percent had IRA or Keogh accounts in 2002. Clearly, financial market participation for Hispanic and Black households is well below the norm for White households. While the ownership of assets, especially financial assets, lags among Hispanic and Black households, they are about as likely as White households to hold unsecured debt. In 2002, over 45 percent of Hispanic households, 47 percent of Black households and 53 percent of White households had unsecured liabilities. These rates represent improvements over 1996 for all three groups. Nonetheless, it is fair to say that about one-half of all households in the U.S. held unsecured debt during the entire 1996 to 2002 time period.

Another perspective on the gap between White and minority households is provided by looking at the proportions of households that own no assets. Table 7 shows that 10.5 percent of Hispanic households and 16.4 percent of Black households reported owning no assets other than unsecured liabilities in 2002. These are households with debt but no positive asset position. The similar proportion for White households is only 2.5 percent. If one considers households that own no assets other than a vehicle or unsecured liabilities, the proportions rise to 25.4 percent for Hispanics and 27.2 percent for Blacks. The same proportion for White households is only 6.3 percent in 2002. Thus, while virtually all White households own at least some real estate, business equity or financial instrument, over one-quarter of Hispanic and Black households own no such assets. On the positive side, there has been some improvement since 1996 when these proportions were slightly worse for both Hispanics and Blacks.

VI. Net Worth by Type of Asseth2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data. The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.[12. numoffset="12" Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time.] The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants. One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change. The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households. However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households. The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.[14. This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above.][15. Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances.]

V. The Ownership of Assets

Wealth may be accumulated in various forms and an analysis of the composition of wealth shows a key similarity as well as several differences across racial/ethnic groups. The single most important asset for all races and ethnicities is a house. Not surprisingly, households of all stripes are also quite likely to own vehicles. But Hispanic and Black households are much less likely than White households to own financial assets, including retirement accounts, and many minority households own no assets whatsoever. The SIPP data make it possible to distinguish across 14 major types of assets and liabilities. This section presents evidence on the ownership of these assets and liabilities by race and ethnicity. The assets most likely to be owned by American households are a car and a house. As shown in Table 6, nearly 90 percent of White households, over three-fourths of Hispanic households and more than two-thirds of Black households report owning at least one car in 2002. The highest rate of homeownership is among White households with 74.3 percent indicating they owned a home in 2002. This rate is much higher than among Hispanic and Black households whose rates of homeownership in 2002 were 47.3 percent and 47.7 percent respectively. The rate of homeownership among Whites has increased every year since 1996 and is presently 2.4 percentage points higher than in 1996. The homeownership rate for Hispanic households also increased over time and was 3.1 percentage points higher in 2002 in comparison to 1996. However, the rate of homeownership among Blacks has remained flat since 1996. While the homeownership rate among Hispanics and Blacks is relatively low, homes are the most likely asset to be owned by these households after vehicles.[16. The estimated rates of homeownership from the SIPP data are very similar to those reported by the Census Bureau from its annual Housing Vacancy Survey. According to that survey, the homeownership rates by race and ethnicity in 2002 were as follows: Hispanics—47 percent, Whites—74.7 percent, and Blacks—47.4 percent. One difference between SIPP and the Housing Vacancy Survey is that the latter indicates a 4.2 percentage point increase in the homeownership rate for Hispanics between 1996 and 2002 instead of the 3.1 percentage point increase derived from SIPP.] Other assets, mostly financial, are less likely to be owned than houses or vehicles. The leading financial assets are interest earning accounts at financial institutions and non-interest bearing checking accounts. The former includes assets such as interest-earning checking accounts, savings accounts, money market accounts, and certificates of deposit. White households lead the way once again, with 69 percent reporting ownership of interest-earning accounts at financial institutions in 2002. This was nearly 30 percentage points higher than the rate among Hispanic households—42.4 percent—and the rate among Black households—40.3 percent. Ownership rates for non-interest bearing checking accounts are lower for all types of households. White households are at the front with 36.3 percent of them owing such accounts in 2002. The rates for Hispanic and Black households are 29.9 percent and 25.1 percent respectively. Overall, it is apparent that the majority of Hispanic and Black households do not own even the basic instruments offered by financial services companies. Ownership of other financial assets among Hispanic and Black households is very low. Fewer than 10 percent of Hispanic households and only slightly more than 10 percent of Black households owned stocks and mutual funds in 2002. This contrasts with the 35 percent rate for White households. Hispanic and Black households are also less prepared for retirement as only about 20 percent of each group reports participation in a 401(k) or Thrift savings plans and fewer than 10 percent have IRA or Keogh accounts. Among White households, 34.5 percent had 401(k) or Thrift savings plans and 29.4 percent had IRA or Keogh accounts in 2002. Clearly, financial market participation for Hispanic and Black households is well below the norm for White households. While the ownership of assets, especially financial assets, lags among Hispanic and Black households, they are about as likely as White households to hold unsecured debt. In 2002, over 45 percent of Hispanic households, 47 percent of Black households and 53 percent of White households had unsecured liabilities. These rates represent improvements over 1996 for all three groups. Nonetheless, it is fair to say that about one-half of all households in the U.S. held unsecured debt during the entire 1996 to 2002 time period.

Another perspective on the gap between White and minority households is provided by looking at the proportions of households that own no assets. Table 7 shows that 10.5 percent of Hispanic households and 16.4 percent of Black households reported owning no assets other than unsecured liabilities in 2002. These are households with debt but no positive asset position. The similar proportion for White households is only 2.5 percent. If one considers households that own no assets other than a vehicle or unsecured liabilities, the proportions rise to 25.4 percent for Hispanics and 27.2 percent for Blacks. The same proportion for White households is only 6.3 percent in 2002. Thus, while virtually all White households own at least some real estate, business equity or financial instrument, over one-quarter of Hispanic and Black households own no such assets. On the positive side, there has been some improvement since 1996 when these proportions were slightly worse for both Hispanics and Blacks.

VI. Net Worth by Type of Asset

As discussed in section 2 above, the median net worth of Hispanic households in 2002 was $7,932, or only nine percent of the median net worth of White households. But what is the amount of equity that Latinos have acquired in the homes they own and how does that compare with White households? What is the value of the financial assets owned by Latino households? And what is the relative importance of each asset in the portfolios of Hispanic and non-Hispanic households? It is shown that, just as homeownership is more important than the ownership of all other assets except vehicles, home equity is the single largest item in the portfolio of homeowners. Also, not only are White households more likely to own any given asset, they also possess more of each asset on average in comparison to Hispanics and Blacks. By one measure the median value of home equity or any asset owned by Hispanic households, other than vehicles, is zero. That is because fewer than 50 percent of Latino households own any single asset other than vehicles. For example, since only 47.3 percent of Hispanic households owned a home in 2002, the remaining 52.7 percent of Latinos had, by definition, zero amount of home equity. It follows that for the entire population of Latino households, the median value of home equity is zero. The same logic applies to all other assets except vehicles. What is true for Hispanic households is also generally true for Black and White households. The only exceptions arise in the case of White households who own homes, interest earning assets and unsecured liabilities at rates in excess of 50 percent. Therefore, in gauging the value of individual assets, it makes sense to focus only on the households that own those assets. Table 8 shows the median value of assets for households that own any particular asset. Among Hispanic households that owned a home, i.e., for the 47.3 percent of Latino households that owned a home, the median value of home equity was $49,840 in 2002. That was 60 percent of the median value of home equity—$81,191—owned by White households. So, not only is the proportion of White households that owns a home much higher, but the value of those homes is also higher. Black households, who have the same rate of homeownership as Hispanic households, have the lowest median value of home equity, namely, $40,685 in 2002. With respect to financial assets, Latino and Black households have virtually the same median value of interest earning assets in 2002, about $1,500, which, in turn, is about one-third of the value owned by White households—$5,029. The same could be said of stocks and mutual funds, where the holdings of Latino households—$3,560—are roughly one-third of the $10,171 held by White households in 2002. With regard to retirement accounts in 2002, Latino and Black households owned in the range of $10,000 to $12,000 in IRA & Keogh accounts and 401(k) & Thrift accounts. White households owned approximately twice that amount—$20,343 in IRA & Keogh accounts and $20,298 in 401(k) & Thrift accounts. It was noted earlier that the 2001 recession had a negative impact on the wealth of Hispanic and Black households. For Latino households, the erosion in wealth can be traced to the loss in value of financial assets. Between 1999 and 2002, the median values of the holdings of Hispanic households declined in all of the following categories: interest earning assets, other interest earning assets, U.S. savings bonds, IRA & Keogh accounts, 401(k) & Thrift accounts, and stocks and mutual funds.[17. numoffset="17" The magnitudes of the declines in these asset values for Hispanics are likely to have been affected by the sample effect discussed in section 3 above. But the direction of the change is unlikely to have been the consequence of just the sample effect, especially since the same changes are observed for White households and the stock market began a slide in 1999 that lasted several years.] On the other hand, the median value of equity in owned homes and rental properties increased between 1999 and 2002. Thus, the strength of the housing market in the recent economic slowdown eased the reduction in median wealth of Hispanic homeowners. The trends in the median value of assets were similar for White householders. Between 1999 and 2002, these households also saw an increase in the value of home equity and a reduction in the value of their financial assets. The fact that nearly three-quarters of White households own homes most likely prevented a reduction in the median net worth of this population. Black households were somehow able to buck these trends as, for them, the median values of all financial assets except stocks and mutual funds increased between 1999 and 2002. How important are the various assets to the portfolio of the “typical” Latino and non-Latino households? Because not all households own all assets, and since several assets are owned by very few households, this question is open to more than one answer. Table 9 offers one perspective on the issue. In particular, Table 9 shows the distribution of the mean net worth of Hispanic households. In 2002, the mean net worth of Hispanic households is estimated to be $65,371. In the same year, the mean level of home equity for all Hispanic households, not just homeowners, was $39,864. Thus, as shown in Table 9, 61 percent of the average net worth of Latino households is derived from home equity. Other assets pale in comparison. The next most important assets on the list are rental properties and 401(k) & Thrift accounts and each of those accounts for only 7.3 percent of the mean net worth of Hispanic households. Close behind are stocks and mutual funds which account for 7.2 percent of Latino wealth by this measure. Clearly, homeownership is a vital component of the wealth of Hispanic households. The overwhelming importance of homeownership is also evident for Black households for whom home equity accounted for 63 percent of mean total net worth in 2002. Far behind are 401(k) & Thrift accounts which contributed 11.5 percent to the value of mean total net worth of Black households. Home equity is also important for White households but much less so. In 2002, home equity was only 38.5 percent of the mean net worth of $221,871 of White households. Stocks and mutual funds are also very important to White households and accounted for 21.9 percent of their mean wealth in 2002. By these measures, therefore, the average White household has a much more balanced portfolio than the average Hispanic and Black household. Another perspective on the importance of an asset may be gleaned by phrasing the question more narrowly. For example, what is the share of home equity in the total net worth of homeowners only? In other words, rather than estimating the distribution of net worth for the entire population, one can estimate the importance of an asset only to the segment of the population that owns that asset. Table 10 shows that home equity accounts for 88.4 percent or more of total net worth for one-half of Latino homeowners. Since 47.3 percent of Latino households currently own a home (Table 6), this implies that one-half of this number, or 23.7 percent of all Latino households, has 88.4 percent or more of net worth held in the form of a home. Almost exactly the same statements apply to the situation of Black households. The homeownership rate for Black households was 47.7 percent in 2002. Among the Black households that own a home, one-half had 88.1 percent or more of their total net worth in the form of home equity. In other words, nearly one-quarter of all Black households count home equity as the overwhelming portion of their portfolio. Whites that own homes have more diverse portfolios but home equity is still the major portion of their wealth. In particular, home equity accounts for 61.6 percent or more of the total net worth of one-half of White homeowners. It can be seen from Table 10 that most owners of rental and other properties would also count those properties as significant parts of the value of their total holdings. Thus, real estate is a key asset for those who own it. The significance of homeownership can also be assessed by comparing the wealth of homeowners with others. Table 11 shows the median net worth of Hispanic and non-Hispanic homeowners and others. The wealth advantage of homeowners over the rest of households is enormous. The median net worth of non-Hispanic homeowners in 2002 was $129,778.[18. The non-Hispanic category includes non-Hispanic Whites, non-Hispanic Blacks, and non-Hispanic Others (Asians and others).] In contrast, the median net worth of non-Hispanic renters and others was only $1,526, or just over 1 percent of the wealth of homeowners. Gaps of this size are present in all years since 1996. The median net worth of Hispanic renters and others is also very low. In 2002, the net worth of Hispanic renters and others was only $762. On the other hand, Hispanic homeowners had a net worth of $62,839, or 82 times the wealth of Hispanic renters and others.[19. Gaps of this magnitude also emerge from SCF data. Aizcorbe, Kennickell and Moore (see the citation in footnote 10) report that the median wealth of renters and others was less than three percent of the median wealth of homeowners in 2001.]

The data in Table 11 also indicate that the wealth of Hispanic homeowners is almost 50 percent of the level of wealth of non-Hispanic homeowners. The same result also emerges for Hispanic renters and others when compared with non-Hispanic renters and others in recent years. However, the wealth of all Hispanic households combined is only about 10 percent of the level of wealth of all non-Hispanic households. That is a consequence of the much higher rate of homeownership among non-Hispanics (Table 6).[20. Table 6 shows data for non-Hispanic Whites and Blacks only. The homeownership rate of non-Hispanic Others was 57 percent in 2002.] While much of the wealth of homeowners is derived from home equity, homeownership as a trait is also associated with higher rates of ownership of other assets as well as higher levels of holdings of those assets. This can be seen in Appendix Tables A1 and A2 which report ownership rates and the median values of financial assets for Hispanic and non-Hispanic homeowners and others.[21. As is the case with previous tables, the median values are only computed over the set of households that own any particular asset.] For example, consider the gap that exists with respect to retirement accounts. Both Hispanic and non-Hispanic homeowners are about twice as likely as renters and others to own a 401(k) or Thrift account (see Table A1). Moreover, Hispanic homeowners with 401(k) and Thrift accounts had a median value of $15,020 in their accounts in 2002, but Hispanic renters and others with these accounts had only $6,061 (Table A2). Similarly, non-Hispanic homeowners with 401(k) and Thrift accounts maintain a median balance of $22,328 in contrast to the balance of $7,629 kept by non-Hispanic renters and others. Large gaps in ownership and asset values between homeowners and renters can also be observed in the case of IRA and Keogh accounts. Overall, homeowners are also more likely to own and maintain higher balances in checking and interest earning accounts, possess a greater value of savings bonds, own more in stocks and mutual funds, have more of other assets, and appear to drive better cars.

VII. Wealth by Household Characteristicsh2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data. The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.[12. numoffset="12" Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time.] The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants. One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change. The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households. However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households. The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.[14. This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above.][15. Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances.]

V. The Ownership of Assets

Wealth may be accumulated in various forms and an analysis of the composition of wealth shows a key similarity as well as several differences across racial/ethnic groups. The single most important asset for all races and ethnicities is a house. Not surprisingly, households of all stripes are also quite likely to own vehicles. But Hispanic and Black households are much less likely than White households to own financial assets, including retirement accounts, and many minority households own no assets whatsoever. The SIPP data make it possible to distinguish across 14 major types of assets and liabilities. This section presents evidence on the ownership of these assets and liabilities by race and ethnicity. The assets most likely to be owned by American households are a car and a house. As shown in Table 6, nearly 90 percent of White households, over three-fourths of Hispanic households and more than two-thirds of Black households report owning at least one car in 2002. The highest rate of homeownership is among White households with 74.3 percent indicating they owned a home in 2002. This rate is much higher than among Hispanic and Black households whose rates of homeownership in 2002 were 47.3 percent and 47.7 percent respectively. The rate of homeownership among Whites has increased every year since 1996 and is presently 2.4 percentage points higher than in 1996. The homeownership rate for Hispanic households also increased over time and was 3.1 percentage points higher in 2002 in comparison to 1996. However, the rate of homeownership among Blacks has remained flat since 1996. While the homeownership rate among Hispanics and Blacks is relatively low, homes are the most likely asset to be owned by these households after vehicles.[16. The estimated rates of homeownership from the SIPP data are very similar to those reported by the Census Bureau from its annual Housing Vacancy Survey. According to that survey, the homeownership rates by race and ethnicity in 2002 were as follows: Hispanics—47 percent, Whites—74.7 percent, and Blacks—47.4 percent. One difference between SIPP and the Housing Vacancy Survey is that the latter indicates a 4.2 percentage point increase in the homeownership rate for Hispanics between 1996 and 2002 instead of the 3.1 percentage point increase derived from SIPP.] Other assets, mostly financial, are less likely to be owned than houses or vehicles. The leading financial assets are interest earning accounts at financial institutions and non-interest bearing checking accounts. The former includes assets such as interest-earning checking accounts, savings accounts, money market accounts, and certificates of deposit. White households lead the way once again, with 69 percent reporting ownership of interest-earning accounts at financial institutions in 2002. This was nearly 30 percentage points higher than the rate among Hispanic households—42.4 percent—and the rate among Black households—40.3 percent. Ownership rates for non-interest bearing checking accounts are lower for all types of households. White households are at the front with 36.3 percent of them owing such accounts in 2002. The rates for Hispanic and Black households are 29.9 percent and 25.1 percent respectively. Overall, it is apparent that the majority of Hispanic and Black households do not own even the basic instruments offered by financial services companies. Ownership of other financial assets among Hispanic and Black households is very low. Fewer than 10 percent of Hispanic households and only slightly more than 10 percent of Black households owned stocks and mutual funds in 2002. This contrasts with the 35 percent rate for White households. Hispanic and Black households are also less prepared for retirement as only about 20 percent of each group reports participation in a 401(k) or Thrift savings plans and fewer than 10 percent have IRA or Keogh accounts. Among White households, 34.5 percent had 401(k) or Thrift savings plans and 29.4 percent had IRA or Keogh accounts in 2002. Clearly, financial market participation for Hispanic and Black households is well below the norm for White households. While the ownership of assets, especially financial assets, lags among Hispanic and Black households, they are about as likely as White households to hold unsecured debt. In 2002, over 45 percent of Hispanic households, 47 percent of Black households and 53 percent of White households had unsecured liabilities. These rates represent improvements over 1996 for all three groups. Nonetheless, it is fair to say that about one-half of all households in the U.S. held unsecured debt during the entire 1996 to 2002 time period.

Another perspective on the gap between White and minority households is provided by looking at the proportions of households that own no assets. Table 7 shows that 10.5 percent of Hispanic households and 16.4 percent of Black households reported owning no assets other than unsecured liabilities in 2002. These are households with debt but no positive asset position. The similar proportion for White households is only 2.5 percent. If one considers households that own no assets other than a vehicle or unsecured liabilities, the proportions rise to 25.4 percent for Hispanics and 27.2 percent for Blacks. The same proportion for White households is only 6.3 percent in 2002. Thus, while virtually all White households own at least some real estate, business equity or financial instrument, over one-quarter of Hispanic and Black households own no such assets. On the positive side, there has been some improvement since 1996 when these proportions were slightly worse for both Hispanics and Blacks.

VI. Net Worth by Type of Asset

As discussed in section 2 above, the median net worth of Hispanic households in 2002 was $7,932, or only nine percent of the median net worth of White households. But what is the amount of equity that Latinos have acquired in the homes they own and how does that compare with White households? What is the value of the financial assets owned by Latino households? And what is the relative importance of each asset in the portfolios of Hispanic and non-Hispanic households? It is shown that, just as homeownership is more important than the ownership of all other assets except vehicles, home equity is the single largest item in the portfolio of homeowners. Also, not only are White households more likely to own any given asset, they also possess more of each asset on average in comparison to Hispanics and Blacks. By one measure the median value of home equity or any asset owned by Hispanic households, other than vehicles, is zero. That is because fewer than 50 percent of Latino households own any single asset other than vehicles. For example, since only 47.3 percent of Hispanic households owned a home in 2002, the remaining 52.7 percent of Latinos had, by definition, zero amount of home equity. It follows that for the entire population of Latino households, the median value of home equity is zero. The same logic applies to all other assets except vehicles. What is true for Hispanic households is also generally true for Black and White households. The only exceptions arise in the case of White households who own homes, interest earning assets and unsecured liabilities at rates in excess of 50 percent. Therefore, in gauging the value of individual assets, it makes sense to focus only on the households that own those assets. Table 8 shows the median value of assets for households that own any particular asset. Among Hispanic households that owned a home, i.e., for the 47.3 percent of Latino households that owned a home, the median value of home equity was $49,840 in 2002. That was 60 percent of the median value of home equity—$81,191—owned by White households. So, not only is the proportion of White households that owns a home much higher, but the value of those homes is also higher. Black households, who have the same rate of homeownership as Hispanic households, have the lowest median value of home equity, namely, $40,685 in 2002. With respect to financial assets, Latino and Black households have virtually the same median value of interest earning assets in 2002, about $1,500, which, in turn, is about one-third of the value owned by White households—$5,029. The same could be said of stocks and mutual funds, where the holdings of Latino households—$3,560—are roughly one-third of the $10,171 held by White households in 2002. With regard to retirement accounts in 2002, Latino and Black households owned in the range of $10,000 to $12,000 in IRA & Keogh accounts and 401(k) & Thrift accounts. White households owned approximately twice that amount—$20,343 in IRA & Keogh accounts and $20,298 in 401(k) & Thrift accounts. It was noted earlier that the 2001 recession had a negative impact on the wealth of Hispanic and Black households. For Latino households, the erosion in wealth can be traced to the loss in value of financial assets. Between 1999 and 2002, the median values of the holdings of Hispanic households declined in all of the following categories: interest earning assets, other interest earning assets, U.S. savings bonds, IRA & Keogh accounts, 401(k) & Thrift accounts, and stocks and mutual funds.[17. numoffset="17" The magnitudes of the declines in these asset values for Hispanics are likely to have been affected by the sample effect discussed in section 3 above. But the direction of the change is unlikely to have been the consequence of just the sample effect, especially since the same changes are observed for White households and the stock market began a slide in 1999 that lasted several years.] On the other hand, the median value of equity in owned homes and rental properties increased between 1999 and 2002. Thus, the strength of the housing market in the recent economic slowdown eased the reduction in median wealth of Hispanic homeowners. The trends in the median value of assets were similar for White householders. Between 1999 and 2002, these households also saw an increase in the value of home equity and a reduction in the value of their financial assets. The fact that nearly three-quarters of White households own homes most likely prevented a reduction in the median net worth of this population. Black households were somehow able to buck these trends as, for them, the median values of all financial assets except stocks and mutual funds increased between 1999 and 2002. How important are the various assets to the portfolio of the “typical” Latino and non-Latino households? Because not all households own all assets, and since several assets are owned by very few households, this question is open to more than one answer. Table 9 offers one perspective on the issue. In particular, Table 9 shows the distribution of the mean net worth of Hispanic households. In 2002, the mean net worth of Hispanic households is estimated to be $65,371. In the same year, the mean level of home equity for all Hispanic households, not just homeowners, was $39,864. Thus, as shown in Table 9, 61 percent of the average net worth of Latino households is derived from home equity. Other assets pale in comparison. The next most important assets on the list are rental properties and 401(k) & Thrift accounts and each of those accounts for only 7.3 percent of the mean net worth of Hispanic households. Close behind are stocks and mutual funds which account for 7.2 percent of Latino wealth by this measure. Clearly, homeownership is a vital component of the wealth of Hispanic households. The overwhelming importance of homeownership is also evident for Black households for whom home equity accounted for 63 percent of mean total net worth in 2002. Far behind are 401(k) & Thrift accounts which contributed 11.5 percent to the value of mean total net worth of Black households. Home equity is also important for White households but much less so. In 2002, home equity was only 38.5 percent of the mean net worth of $221,871 of White households. Stocks and mutual funds are also very important to White households and accounted for 21.9 percent of their mean wealth in 2002. By these measures, therefore, the average White household has a much more balanced portfolio than the average Hispanic and Black household. Another perspective on the importance of an asset may be gleaned by phrasing the question more narrowly. For example, what is the share of home equity in the total net worth of homeowners only? In other words, rather than estimating the distribution of net worth for the entire population, one can estimate the importance of an asset only to the segment of the population that owns that asset. Table 10 shows that home equity accounts for 88.4 percent or more of total net worth for one-half of Latino homeowners. Since 47.3 percent of Latino households currently own a home (Table 6), this implies that one-half of this number, or 23.7 percent of all Latino households, has 88.4 percent or more of net worth held in the form of a home. Almost exactly the same statements apply to the situation of Black households. The homeownership rate for Black households was 47.7 percent in 2002. Among the Black households that own a home, one-half had 88.1 percent or more of their total net worth in the form of home equity. In other words, nearly one-quarter of all Black households count home equity as the overwhelming portion of their portfolio. Whites that own homes have more diverse portfolios but home equity is still the major portion of their wealth. In particular, home equity accounts for 61.6 percent or more of the total net worth of one-half of White homeowners. It can be seen from Table 10 that most owners of rental and other properties would also count those properties as significant parts of the value of their total holdings. Thus, real estate is a key asset for those who own it. The significance of homeownership can also be assessed by comparing the wealth of homeowners with others. Table 11 shows the median net worth of Hispanic and non-Hispanic homeowners and others. The wealth advantage of homeowners over the rest of households is enormous. The median net worth of non-Hispanic homeowners in 2002 was $129,778.[18. The non-Hispanic category includes non-Hispanic Whites, non-Hispanic Blacks, and non-Hispanic Others (Asians and others).] In contrast, the median net worth of non-Hispanic renters and others was only $1,526, or just over 1 percent of the wealth of homeowners. Gaps of this size are present in all years since 1996. The median net worth of Hispanic renters and others is also very low. In 2002, the net worth of Hispanic renters and others was only $762. On the other hand, Hispanic homeowners had a net worth of $62,839, or 82 times the wealth of Hispanic renters and others.[19. Gaps of this magnitude also emerge from SCF data. Aizcorbe, Kennickell and Moore (see the citation in footnote 10) report that the median wealth of renters and others was less than three percent of the median wealth of homeowners in 2001.]

The data in Table 11 also indicate that the wealth of Hispanic homeowners is almost 50 percent of the level of wealth of non-Hispanic homeowners. The same result also emerges for Hispanic renters and others when compared with non-Hispanic renters and others in recent years. However, the wealth of all Hispanic households combined is only about 10 percent of the level of wealth of all non-Hispanic households. That is a consequence of the much higher rate of homeownership among non-Hispanics (Table 6).[20. Table 6 shows data for non-Hispanic Whites and Blacks only. The homeownership rate of non-Hispanic Others was 57 percent in 2002.] While much of the wealth of homeowners is derived from home equity, homeownership as a trait is also associated with higher rates of ownership of other assets as well as higher levels of holdings of those assets. This can be seen in Appendix Tables A1 and A2 which report ownership rates and the median values of financial assets for Hispanic and non-Hispanic homeowners and others.[21. As is the case with previous tables, the median values are only computed over the set of households that own any particular asset.] For example, consider the gap that exists with respect to retirement accounts. Both Hispanic and non-Hispanic homeowners are about twice as likely as renters and others to own a 401(k) or Thrift account (see Table A1). Moreover, Hispanic homeowners with 401(k) and Thrift accounts had a median value of $15,020 in their accounts in 2002, but Hispanic renters and others with these accounts had only $6,061 (Table A2). Similarly, non-Hispanic homeowners with 401(k) and Thrift accounts maintain a median balance of $22,328 in contrast to the balance of $7,629 kept by non-Hispanic renters and others. Large gaps in ownership and asset values between homeowners and renters can also be observed in the case of IRA and Keogh accounts. Overall, homeowners are also more likely to own and maintain higher balances in checking and interest earning accounts, possess a greater value of savings bonds, own more in stocks and mutual funds, have more of other assets, and appear to drive better cars.

VII. Wealth by Household Characteristics

There are many reasons why the net worth of Latino households is below the U.S. average. The Hispanic population in the U.S. is younger, not as highly educated, and earns less than the non-Hispanic population. Moreover, 40 percent of the Hispanic population is composed of immigrants who, along with previous generations of Latinos, are concentrated in a small handful of states in the U.S. This section examines how the median net worth of Hispanic and non-Hispanic households varies by their economic and demographic characteristics such as income, age, education, gender, and region of residence. The next section examines the wealth of immigrant groups. The net worth of a household increases with its income. That fact emerges clearly in Table 12 which shows the net worth of Hispanic and non-Hispanic households grouped into quintiles of the income distribution.[22. numoffset="22" The income quintile ranges are given in the footnote to Table 12.] Among Hispanics, a wide gulf in net worth emerges with the fourth highest income quintile. In 2002, the median wealth of Latinos in the fourth income quintile was $38,402, or four times as high as the median wealth of Latinos in the third income quintile, namely, $9,629. Among non- Hispanics, the big jump in net worth occurs at much lower levels of income. The net worth of non- Hispanic households in the second income quintile was $40,194 in 2002, five times as high as the net worth of non-Hispanics in the lowest income quintile—$7,963. Table 12 also shows that, in the highest income ranges, Hispanic net worth in 2002 was 40 percent of non-Hispanic net worth. However, Hispanic households in the three lowest income quintiles have a net worth that is less than 20 percent of the net worth of non-Hispanic households in the same income quintiles. Thus, the gap in wealth between Latino and non-Latino households is much higher at lower levels of income. Underlying the wealth gaps by income level is differences in homeownership across the quintiles of the income distribution. Even at the lowest rungs of the income distribution, nearly 50 percent of non- Hispanic households own a home. However, the same is true for fewer than 30 percent of Hispanic households in the lowest income quintile. For Latinos, the rate of homeownership does not cross the 50 percent threshold till the third income quintile. In 2002, this meant a monthly household income in the range of $2,552 to $4,020. Clearly, policies designed to promote homeownership among low- to mid-income Hispanics would have a large impact on closing the wealth gap between Latino and non-Latinos households. Existing research shows that wealth increases with the age of a household head but only till about age 65. Household wealth diminishes thereafter as older households begin the process of consuming past savings.[23. See the papers by Edward N. Wolff (cited in footnote 7) and Ana M. Aizcorbe, Arthur B. Kennickell and Kevin B. Moore (cited in footnote 10).] This pattern also emerges from the SIPP data for non-Hispanic households. Table 13 shows that the median wealth of non-Hispanic households peaks in the age group 55 to 64 years. In 2002, for example, the median wealth of these households was $145,131, nearly 14 times higher than the wealth of non-Hispanic households headed by persons of age 25 to 34 years—$10,705. Notably, the age wealth gap was much lower in 1996 when the wealth of non-Hispanic households in age group 55 to 64 years was only 8 times as high as the wealth of households in age group 25 to 34 years. Among Hispanic households, wealth continues to grow through all age levels and peaks at ages beyond 65 years. In 2002, the median wealth of Hispanic households in age group 65 years or above was $51,934. This, too, is almost 14 times higher than the wealth of Hispanic households in age group 25 to 34 years, namely, $3,857. In the year 1996, this ratio was lower as the wealth of Hispanic households in age group 65 years and over—$39,155—was 10 times as high as the wealth of households in age group 25 to 34 years. As is the case with non-Hispanic households, the net worth of Hispanic households also increases rapidly with age, although it appears that it takes Hispanic households a decade longer than non- Hispanics to multiply their wealth by the same proportion. As with income and age, the education of the household head is another factor positively related to net worth. The advantages of a college education are quite significant. In 2002, non-Hispanic households with college-educated heads had a median net worth of $161,613 (Table 14). This was nearly three times as high as the net worth of $56,428 owned by non-Hispanic households whose head had attended, but not graduated, from college. Hispanic households with a college-educated head have an even greater edge over those who attended but did not graduate from college. The net worth of the former group in 2002 was $58,145, nearly six times as high as the net worth of $10,166 for the latter group. Nonetheless, a college degree does not eliminate the significant disparity between non-Hispanic and Hispanic wealth as non-Hispanic households with a college educated head enjoyed a net worth ($161,613) nearly three times higher than Hispanic households with a college-educated head ($58,145).

Hispanic households whose head lacks a high school degree have very low net worth—$4,475 in 2002. This is less than 10 percent of the wealth owned by Hispanic households with a college-educated head. On the positive side, the least educated Hispanic households have partially closed the gap over time vis-à-vis the college-educated households. In 1996, if a Hispanic household head had less than a high school education, the net worth of that household—$2,882—was only five percent of the net worth of a Hispanic household with a college-educated head—$51,414. Latino households with less than a high school education have also somewhat narrowed the gap in comparison to similarly educated non-Latino households. In 1996, Latinos with less than a high school education owned only 10 percent of the wealth owned by their non-Latino counterparts—$2,882 versus $28,693. By 2002, this proportion had increased to 22 percent—$4,475 versus $20,343. Thus, at least in terms of net worth, less educated Hispanics outperformed their non-Hispanic counterparts as well as more educated Hispanics between 1996 and 2002, increasing their wealth from a very small base. Among non-Hispanics, the change in wealth between 1996 and 2002 was directly related to the level of education. As shown in Table 14, the wealth of non-Hispanics without a high school degree eroded from $28,693 in 1996 to $20,343 in 2002. Non-Hispanics with a high school degree realized a modest gain of 2.2 percent in net worth over the same time period, and those who attended some college increased their net worth by 5.7 percent. However, the largest gains among non-Hispanics were registered by college graduates whose net worth increased every year between 1996 and 2002, including through the recession in 2001. Starting at $124,841 in 1996, the median net worth of non-Hispanic college graduates increased 29.5 percent to stand at $161,613 in 2002. Thus, between 1996 and 2002, wealth accumulation proved to be easier for the better educated non-Hispanics. The wealth of college-educated Hispanics did not fare as well in the 1996 to 2002 time period. In 2001, the median wealth of Hispanics with college degrees—$50,097—was actually less than their median wealth of $51,414 in 1996. It recovered the next year, but by the end of 2002 the net worth of Hispanic college graduates was only 13 percent higher than in 1996. One consequence is that the relative standing of college-educated Hispanics also slipped during this time period. In 1996, the median net worth of Hispanics with a college degree was 41 percent of the wealth of their non-Hispanic counterparts. This ratio had slipped to 31 percent by the end of the recession in 2001 and then recovered somewhat to finish 2002 at 35 percent. Thus, a college education did not provide immunity from the economic downturn for Hispanics as both their absolute and relative wealth slipped backwards during the 2001 recession. The well known wage gap between women and men also translates into a wealth gap between households headed by women and men (Table 15). Among non-Hispanics, the net worth of a household, if headed by a woman, was $51,405 in 2002. This is 60 percent of the net worth of non-Hispanic households headed by a man, namely, $86,370 in 2002. This ratio has not changed in recent times as it has fluctuated between 55 and 60 percent since 1996. Hispanic households headed by a woman had just over one-third of the wealth of households headed by Latino men in 2002—$4,489 in comparison to $13,154. However, this ratio was much lower in the recent past, standing at less than one-fourth in 1996.

Table 16 shows how the wealth of households varies across the four principal regions. Non- Hispanic households located in the Northeast have the highest net worth—$91,540 in 2002—followed by non-Hispanic households in the West, the Midwest and the South. This ranking of regions has remained unchanged since 1996. Exactly the opposite pattern emerges for Hispanic households. The wealthiest Hispanic households are located in the South, followed by Latino households in the Midwest, the West and the Northeast. This pattern is explained in part by the predominance of Cuban households in Florida. Those households are the closest to White households in terms of income and education. Hispanic households in the Northeast are principally of Puerto Rican origin and reside mostly in the New York area. Because of its high cost, homeownership rates in New York are well below the rates in other states for households of all races and ethnicities. For Hispanics, in particular, the rate of homeownership in New York is estimated to be below 20 percent in 2002, well below the overall homeownership rate of 47.3 percent.[24. For non-Hispanics, the rate of homeownership in New York was 59.3 percent in 2002, much below the national average rate of 70 percent.] Given the overwhelming importance of home equity in shaping the net worth of low income individuals, it is not surprising that Hispanic households in the Northeast have very low net worth.[25. A recent report by the Tomás Rivera Policy Institute examines barriers to homeownership for Mexican-Americans in three large metropolitan areas in the South and West. See Jongho Lee, Louis Tornatzky and Celina Torres, “El Sueño de su Casa: The Homeownership Potential of Mexican-Heritage Families,” The Tomás Rivera Policy Institute, 2004.] In summary, the traits that influence household wealth include their level of income, the age, education and gender of the household head, and their region of residence. The characteristics of Hispanic households are typically associated with low levels of wealth. The income of Hispanic households is well below average and the heads of Hispanic households, while somewhat less likely to be female, are younger and less educated. Hispanic households are also concentrated in high cost areas within the Northeast and West regions of the country. This contributes to a lower rate of homeownership and overall net worth.

VII. The Wealth of Immigrant Groupsh2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data. The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.[12. numoffset="12" Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time.] The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants. One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change. The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households. However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households. The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.[14. This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above.][15. Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances.]

V. The Ownership of Assets

Wealth may be accumulated in various forms and an analysis of the composition of wealth shows a key similarity as well as several differences across racial/ethnic groups. The single most important asset for all races and ethnicities is a house. Not surprisingly, households of all stripes are also quite likely to own vehicles. But Hispanic and Black households are much less likely than White households to own financial assets, including retirement accounts, and many minority households own no assets whatsoever. The SIPP data make it possible to distinguish across 14 major types of assets and liabilities. This section presents evidence on the ownership of these assets and liabilities by race and ethnicity. The assets most likely to be owned by American households are a car and a house. As shown in Table 6, nearly 90 percent of White households, over three-fourths of Hispanic households and more than two-thirds of Black households report owning at least one car in 2002. The highest rate of homeownership is among White households with 74.3 percent indicating they owned a home in 2002. This rate is much higher than among Hispanic and Black households whose rates of homeownership in 2002 were 47.3 percent and 47.7 percent respectively. The rate of homeownership among Whites has increased every year since 1996 and is presently 2.4 percentage points higher than in 1996. The homeownership rate for Hispanic households also increased over time and was 3.1 percentage points higher in 2002 in comparison to 1996. However, the rate of homeownership among Blacks has remained flat since 1996. While the homeownership rate among Hispanics and Blacks is relatively low, homes are the most likely asset to be owned by these households after vehicles.[16. The estimated rates of homeownership from the SIPP data are very similar to those reported by the Census Bureau from its annual Housing Vacancy Survey. According to that survey, the homeownership rates by race and ethnicity in 2002 were as follows: Hispanics—47 percent, Whites—74.7 percent, and Blacks—47.4 percent. One difference between SIPP and the Housing Vacancy Survey is that the latter indicates a 4.2 percentage point increase in the homeownership rate for Hispanics between 1996 and 2002 instead of the 3.1 percentage point increase derived from SIPP.] Other assets, mostly financial, are less likely to be owned than houses or vehicles. The leading financial assets are interest earning accounts at financial institutions and non-interest bearing checking accounts. The former includes assets such as interest-earning checking accounts, savings accounts, money market accounts, and certificates of deposit. White households lead the way once again, with 69 percent reporting ownership of interest-earning accounts at financial institutions in 2002. This was nearly 30 percentage points higher than the rate among Hispanic households—42.4 percent—and the rate among Black households—40.3 percent. Ownership rates for non-interest bearing checking accounts are lower for all types of households. White households are at the front with 36.3 percent of them owing such accounts in 2002. The rates for Hispanic and Black households are 29.9 percent and 25.1 percent respectively. Overall, it is apparent that the majority of Hispanic and Black households do not own even the basic instruments offered by financial services companies. Ownership of other financial assets among Hispanic and Black households is very low. Fewer than 10 percent of Hispanic households and only slightly more than 10 percent of Black households owned stocks and mutual funds in 2002. This contrasts with the 35 percent rate for White households. Hispanic and Black households are also less prepared for retirement as only about 20 percent of each group reports participation in a 401(k) or Thrift savings plans and fewer than 10 percent have IRA or Keogh accounts. Among White households, 34.5 percent had 401(k) or Thrift savings plans and 29.4 percent had IRA or Keogh accounts in 2002. Clearly, financial market participation for Hispanic and Black households is well below the norm for White households. While the ownership of assets, especially financial assets, lags among Hispanic and Black households, they are about as likely as White households to hold unsecured debt. In 2002, over 45 percent of Hispanic households, 47 percent of Black households and 53 percent of White households had unsecured liabilities. These rates represent improvements over 1996 for all three groups. Nonetheless, it is fair to say that about one-half of all households in the U.S. held unsecured debt during the entire 1996 to 2002 time period.

Another perspective on the gap between White and minority households is provided by looking at the proportions of households that own no assets. Table 7 shows that 10.5 percent of Hispanic households and 16.4 percent of Black households reported owning no assets other than unsecured liabilities in 2002. These are households with debt but no positive asset position. The similar proportion for White households is only 2.5 percent. If one considers households that own no assets other than a vehicle or unsecured liabilities, the proportions rise to 25.4 percent for Hispanics and 27.2 percent for Blacks. The same proportion for White households is only 6.3 percent in 2002. Thus, while virtually all White households own at least some real estate, business equity or financial instrument, over one-quarter of Hispanic and Black households own no such assets. On the positive side, there has been some improvement since 1996 when these proportions were slightly worse for both Hispanics and Blacks.

VI. Net Worth by Type of Asset

As discussed in section 2 above, the median net worth of Hispanic households in 2002 was $7,932, or only nine percent of the median net worth of White households. But what is the amount of equity that Latinos have acquired in the homes they own and how does that compare with White households? What is the value of the financial assets owned by Latino households? And what is the relative importance of each asset in the portfolios of Hispanic and non-Hispanic households? It is shown that, just as homeownership is more important than the ownership of all other assets except vehicles, home equity is the single largest item in the portfolio of homeowners. Also, not only are White households more likely to own any given asset, they also possess more of each asset on average in comparison to Hispanics and Blacks. By one measure the median value of home equity or any asset owned by Hispanic households, other than vehicles, is zero. That is because fewer than 50 percent of Latino households own any single asset other than vehicles. For example, since only 47.3 percent of Hispanic households owned a home in 2002, the remaining 52.7 percent of Latinos had, by definition, zero amount of home equity. It follows that for the entire population of Latino households, the median value of home equity is zero. The same logic applies to all other assets except vehicles. What is true for Hispanic households is also generally true for Black and White households. The only exceptions arise in the case of White households who own homes, interest earning assets and unsecured liabilities at rates in excess of 50 percent. Therefore, in gauging the value of individual assets, it makes sense to focus only on the households that own those assets. Table 8 shows the median value of assets for households that own any particular asset. Among Hispanic households that owned a home, i.e., for the 47.3 percent of Latino households that owned a home, the median value of home equity was $49,840 in 2002. That was 60 percent of the median value of home equity—$81,191—owned by White households. So, not only is the proportion of White households that owns a home much higher, but the value of those homes is also higher. Black households, who have the same rate of homeownership as Hispanic households, have the lowest median value of home equity, namely, $40,685 in 2002. With respect to financial assets, Latino and Black households have virtually the same median value of interest earning assets in 2002, about $1,500, which, in turn, is about one-third of the value owned by White households—$5,029. The same could be said of stocks and mutual funds, where the holdings of Latino households—$3,560—are roughly one-third of the $10,171 held by White households in 2002. With regard to retirement accounts in 2002, Latino and Black households owned in the range of $10,000 to $12,000 in IRA & Keogh accounts and 401(k) & Thrift accounts. White households owned approximately twice that amount—$20,343 in IRA & Keogh accounts and $20,298 in 401(k) & Thrift accounts. It was noted earlier that the 2001 recession had a negative impact on the wealth of Hispanic and Black households. For Latino households, the erosion in wealth can be traced to the loss in value of financial assets. Between 1999 and 2002, the median values of the holdings of Hispanic households declined in all of the following categories: interest earning assets, other interest earning assets, U.S. savings bonds, IRA & Keogh accounts, 401(k) & Thrift accounts, and stocks and mutual funds.[17. numoffset="17" The magnitudes of the declines in these asset values for Hispanics are likely to have been affected by the sample effect discussed in section 3 above. But the direction of the change is unlikely to have been the consequence of just the sample effect, especially since the same changes are observed for White households and the stock market began a slide in 1999 that lasted several years.] On the other hand, the median value of equity in owned homes and rental properties increased between 1999 and 2002. Thus, the strength of the housing market in the recent economic slowdown eased the reduction in median wealth of Hispanic homeowners. The trends in the median value of assets were similar for White householders. Between 1999 and 2002, these households also saw an increase in the value of home equity and a reduction in the value of their financial assets. The fact that nearly three-quarters of White households own homes most likely prevented a reduction in the median net worth of this population. Black households were somehow able to buck these trends as, for them, the median values of all financial assets except stocks and mutual funds increased between 1999 and 2002. How important are the various assets to the portfolio of the “typical” Latino and non-Latino households? Because not all households own all assets, and since several assets are owned by very few households, this question is open to more than one answer. Table 9 offers one perspective on the issue. In particular, Table 9 shows the distribution of the mean net worth of Hispanic households. In 2002, the mean net worth of Hispanic households is estimated to be $65,371. In the same year, the mean level of home equity for all Hispanic households, not just homeowners, was $39,864. Thus, as shown in Table 9, 61 percent of the average net worth of Latino households is derived from home equity. Other assets pale in comparison. The next most important assets on the list are rental properties and 401(k) & Thrift accounts and each of those accounts for only 7.3 percent of the mean net worth of Hispanic households. Close behind are stocks and mutual funds which account for 7.2 percent of Latino wealth by this measure. Clearly, homeownership is a vital component of the wealth of Hispanic households. The overwhelming importance of homeownership is also evident for Black households for whom home equity accounted for 63 percent of mean total net worth in 2002. Far behind are 401(k) & Thrift accounts which contributed 11.5 percent to the value of mean total net worth of Black households. Home equity is also important for White households but much less so. In 2002, home equity was only 38.5 percent of the mean net worth of $221,871 of White households. Stocks and mutual funds are also very important to White households and accounted for 21.9 percent of their mean wealth in 2002. By these measures, therefore, the average White household has a much more balanced portfolio than the average Hispanic and Black household. Another perspective on the importance of an asset may be gleaned by phrasing the question more narrowly. For example, what is the share of home equity in the total net worth of homeowners only? In other words, rather than estimating the distribution of net worth for the entire population, one can estimate the importance of an asset only to the segment of the population that owns that asset. Table 10 shows that home equity accounts for 88.4 percent or more of total net worth for one-half of Latino homeowners. Since 47.3 percent of Latino households currently own a home (Table 6), this implies that one-half of this number, or 23.7 percent of all Latino households, has 88.4 percent or more of net worth held in the form of a home. Almost exactly the same statements apply to the situation of Black households. The homeownership rate for Black households was 47.7 percent in 2002. Among the Black households that own a home, one-half had 88.1 percent or more of their total net worth in the form of home equity. In other words, nearly one-quarter of all Black households count home equity as the overwhelming portion of their portfolio. Whites that own homes have more diverse portfolios but home equity is still the major portion of their wealth. In particular, home equity accounts for 61.6 percent or more of the total net worth of one-half of White homeowners. It can be seen from Table 10 that most owners of rental and other properties would also count those properties as significant parts of the value of their total holdings. Thus, real estate is a key asset for those who own it. The significance of homeownership can also be assessed by comparing the wealth of homeowners with others. Table 11 shows the median net worth of Hispanic and non-Hispanic homeowners and others. The wealth advantage of homeowners over the rest of households is enormous. The median net worth of non-Hispanic homeowners in 2002 was $129,778.[18. The non-Hispanic category includes non-Hispanic Whites, non-Hispanic Blacks, and non-Hispanic Others (Asians and others).] In contrast, the median net worth of non-Hispanic renters and others was only $1,526, or just over 1 percent of the wealth of homeowners. Gaps of this size are present in all years since 1996. The median net worth of Hispanic renters and others is also very low. In 2002, the net worth of Hispanic renters and others was only $762. On the other hand, Hispanic homeowners had a net worth of $62,839, or 82 times the wealth of Hispanic renters and others.[19. Gaps of this magnitude also emerge from SCF data. Aizcorbe, Kennickell and Moore (see the citation in footnote 10) report that the median wealth of renters and others was less than three percent of the median wealth of homeowners in 2001.]

The data in Table 11 also indicate that the wealth of Hispanic homeowners is almost 50 percent of the level of wealth of non-Hispanic homeowners. The same result also emerges for Hispanic renters and others when compared with non-Hispanic renters and others in recent years. However, the wealth of all Hispanic households combined is only about 10 percent of the level of wealth of all non-Hispanic households. That is a consequence of the much higher rate of homeownership among non-Hispanics (Table 6).[20. Table 6 shows data for non-Hispanic Whites and Blacks only. The homeownership rate of non-Hispanic Others was 57 percent in 2002.] While much of the wealth of homeowners is derived from home equity, homeownership as a trait is also associated with higher rates of ownership of other assets as well as higher levels of holdings of those assets. This can be seen in Appendix Tables A1 and A2 which report ownership rates and the median values of financial assets for Hispanic and non-Hispanic homeowners and others.[21. As is the case with previous tables, the median values are only computed over the set of households that own any particular asset.] For example, consider the gap that exists with respect to retirement accounts. Both Hispanic and non-Hispanic homeowners are about twice as likely as renters and others to own a 401(k) or Thrift account (see Table A1). Moreover, Hispanic homeowners with 401(k) and Thrift accounts had a median value of $15,020 in their accounts in 2002, but Hispanic renters and others with these accounts had only $6,061 (Table A2). Similarly, non-Hispanic homeowners with 401(k) and Thrift accounts maintain a median balance of $22,328 in contrast to the balance of $7,629 kept by non-Hispanic renters and others. Large gaps in ownership and asset values between homeowners and renters can also be observed in the case of IRA and Keogh accounts. Overall, homeowners are also more likely to own and maintain higher balances in checking and interest earning accounts, possess a greater value of savings bonds, own more in stocks and mutual funds, have more of other assets, and appear to drive better cars.

VII. Wealth by Household Characteristics

There are many reasons why the net worth of Latino households is below the U.S. average. The Hispanic population in the U.S. is younger, not as highly educated, and earns less than the non-Hispanic population. Moreover, 40 percent of the Hispanic population is composed of immigrants who, along with previous generations of Latinos, are concentrated in a small handful of states in the U.S. This section examines how the median net worth of Hispanic and non-Hispanic households varies by their economic and demographic characteristics such as income, age, education, gender, and region of residence. The next section examines the wealth of immigrant groups. The net worth of a household increases with its income. That fact emerges clearly in Table 12 which shows the net worth of Hispanic and non-Hispanic households grouped into quintiles of the income distribution.[22. numoffset="22" The income quintile ranges are given in the footnote to Table 12.] Among Hispanics, a wide gulf in net worth emerges with the fourth highest income quintile. In 2002, the median wealth of Latinos in the fourth income quintile was $38,402, or four times as high as the median wealth of Latinos in the third income quintile, namely, $9,629. Among non- Hispanics, the big jump in net worth occurs at much lower levels of income. The net worth of non- Hispanic households in the second income quintile was $40,194 in 2002, five times as high as the net worth of non-Hispanics in the lowest income quintile—$7,963. Table 12 also shows that, in the highest income ranges, Hispanic net worth in 2002 was 40 percent of non-Hispanic net worth. However, Hispanic households in the three lowest income quintiles have a net worth that is less than 20 percent of the net worth of non-Hispanic households in the same income quintiles. Thus, the gap in wealth between Latino and non-Latino households is much higher at lower levels of income. Underlying the wealth gaps by income level is differences in homeownership across the quintiles of the income distribution. Even at the lowest rungs of the income distribution, nearly 50 percent of non- Hispanic households own a home. However, the same is true for fewer than 30 percent of Hispanic households in the lowest income quintile. For Latinos, the rate of homeownership does not cross the 50 percent threshold till the third income quintile. In 2002, this meant a monthly household income in the range of $2,552 to $4,020. Clearly, policies designed to promote homeownership among low- to mid-income Hispanics would have a large impact on closing the wealth gap between Latino and non-Latinos households. Existing research shows that wealth increases with the age of a household head but only till about age 65. Household wealth diminishes thereafter as older households begin the process of consuming past savings.[23. See the papers by Edward N. Wolff (cited in footnote 7) and Ana M. Aizcorbe, Arthur B. Kennickell and Kevin B. Moore (cited in footnote 10).] This pattern also emerges from the SIPP data for non-Hispanic households. Table 13 shows that the median wealth of non-Hispanic households peaks in the age group 55 to 64 years. In 2002, for example, the median wealth of these households was $145,131, nearly 14 times higher than the wealth of non-Hispanic households headed by persons of age 25 to 34 years—$10,705. Notably, the age wealth gap was much lower in 1996 when the wealth of non-Hispanic households in age group 55 to 64 years was only 8 times as high as the wealth of households in age group 25 to 34 years. Among Hispanic households, wealth continues to grow through all age levels and peaks at ages beyond 65 years. In 2002, the median wealth of Hispanic households in age group 65 years or above was $51,934. This, too, is almost 14 times higher than the wealth of Hispanic households in age group 25 to 34 years, namely, $3,857. In the year 1996, this ratio was lower as the wealth of Hispanic households in age group 65 years and over—$39,155—was 10 times as high as the wealth of households in age group 25 to 34 years. As is the case with non-Hispanic households, the net worth of Hispanic households also increases rapidly with age, although it appears that it takes Hispanic households a decade longer than non- Hispanics to multiply their wealth by the same proportion. As with income and age, the education of the household head is another factor positively related to net worth. The advantages of a college education are quite significant. In 2002, non-Hispanic households with college-educated heads had a median net worth of $161,613 (Table 14). This was nearly three times as high as the net worth of $56,428 owned by non-Hispanic households whose head had attended, but not graduated, from college. Hispanic households with a college-educated head have an even greater edge over those who attended but did not graduate from college. The net worth of the former group in 2002 was $58,145, nearly six times as high as the net worth of $10,166 for the latter group. Nonetheless, a college degree does not eliminate the significant disparity between non-Hispanic and Hispanic wealth as non-Hispanic households with a college educated head enjoyed a net worth ($161,613) nearly three times higher than Hispanic households with a college-educated head ($58,145).

Hispanic households whose head lacks a high school degree have very low net worth—$4,475 in 2002. This is less than 10 percent of the wealth owned by Hispanic households with a college-educated head. On the positive side, the least educated Hispanic households have partially closed the gap over time vis-à-vis the college-educated households. In 1996, if a Hispanic household head had less than a high school education, the net worth of that household—$2,882—was only five percent of the net worth of a Hispanic household with a college-educated head—$51,414. Latino households with less than a high school education have also somewhat narrowed the gap in comparison to similarly educated non-Latino households. In 1996, Latinos with less than a high school education owned only 10 percent of the wealth owned by their non-Latino counterparts—$2,882 versus $28,693. By 2002, this proportion had increased to 22 percent—$4,475 versus $20,343. Thus, at least in terms of net worth, less educated Hispanics outperformed their non-Hispanic counterparts as well as more educated Hispanics between 1996 and 2002, increasing their wealth from a very small base. Among non-Hispanics, the change in wealth between 1996 and 2002 was directly related to the level of education. As shown in Table 14, the wealth of non-Hispanics without a high school degree eroded from $28,693 in 1996 to $20,343 in 2002. Non-Hispanics with a high school degree realized a modest gain of 2.2 percent in net worth over the same time period, and those who attended some college increased their net worth by 5.7 percent. However, the largest gains among non-Hispanics were registered by college graduates whose net worth increased every year between 1996 and 2002, including through the recession in 2001. Starting at $124,841 in 1996, the median net worth of non-Hispanic college graduates increased 29.5 percent to stand at $161,613 in 2002. Thus, between 1996 and 2002, wealth accumulation proved to be easier for the better educated non-Hispanics. The wealth of college-educated Hispanics did not fare as well in the 1996 to 2002 time period. In 2001, the median wealth of Hispanics with college degrees—$50,097—was actually less than their median wealth of $51,414 in 1996. It recovered the next year, but by the end of 2002 the net worth of Hispanic college graduates was only 13 percent higher than in 1996. One consequence is that the relative standing of college-educated Hispanics also slipped during this time period. In 1996, the median net worth of Hispanics with a college degree was 41 percent of the wealth of their non-Hispanic counterparts. This ratio had slipped to 31 percent by the end of the recession in 2001 and then recovered somewhat to finish 2002 at 35 percent. Thus, a college education did not provide immunity from the economic downturn for Hispanics as both their absolute and relative wealth slipped backwards during the 2001 recession. The well known wage gap between women and men also translates into a wealth gap between households headed by women and men (Table 15). Among non-Hispanics, the net worth of a household, if headed by a woman, was $51,405 in 2002. This is 60 percent of the net worth of non-Hispanic households headed by a man, namely, $86,370 in 2002. This ratio has not changed in recent times as it has fluctuated between 55 and 60 percent since 1996. Hispanic households headed by a woman had just over one-third of the wealth of households headed by Latino men in 2002—$4,489 in comparison to $13,154. However, this ratio was much lower in the recent past, standing at less than one-fourth in 1996.

Table 16 shows how the wealth of households varies across the four principal regions. Non- Hispanic households located in the Northeast have the highest net worth—$91,540 in 2002—followed by non-Hispanic households in the West, the Midwest and the South. This ranking of regions has remained unchanged since 1996. Exactly the opposite pattern emerges for Hispanic households. The wealthiest Hispanic households are located in the South, followed by Latino households in the Midwest, the West and the Northeast. This pattern is explained in part by the predominance of Cuban households in Florida. Those households are the closest to White households in terms of income and education. Hispanic households in the Northeast are principally of Puerto Rican origin and reside mostly in the New York area. Because of its high cost, homeownership rates in New York are well below the rates in other states for households of all races and ethnicities. For Hispanics, in particular, the rate of homeownership in New York is estimated to be below 20 percent in 2002, well below the overall homeownership rate of 47.3 percent.[24. For non-Hispanics, the rate of homeownership in New York was 59.3 percent in 2002, much below the national average rate of 70 percent.] Given the overwhelming importance of home equity in shaping the net worth of low income individuals, it is not surprising that Hispanic households in the Northeast have very low net worth.[25. A recent report by the Tomás Rivera Policy Institute examines barriers to homeownership for Mexican-Americans in three large metropolitan areas in the South and West. See Jongho Lee, Louis Tornatzky and Celina Torres, “El Sueño de su Casa: The Homeownership Potential of Mexican-Heritage Families,” The Tomás Rivera Policy Institute, 2004.] In summary, the traits that influence household wealth include their level of income, the age, education and gender of the household head, and their region of residence. The characteristics of Hispanic households are typically associated with low levels of wealth. The income of Hispanic households is well below average and the heads of Hispanic households, while somewhat less likely to be female, are younger and less educated. Hispanic households are also concentrated in high cost areas within the Northeast and West regions of the country. This contributes to a lower rate of homeownership and overall net worth.

VII. The Wealth of Immigrant Groups

Nearly 50 percent of Hispanic households are headed by first-generation Americans and many of them arrived in the U.S. only in the past two decades. It is of interest, therefore, to examine the wealth of Hispanic immigrants and chart their progress over time as well as with respect to the native-born. Since immigration is typically followed by a period of adjustment to the U.S. labor and financial markets, one would expect that the savings and wealth of first-generation Americans lag behind their native-born counterparts. That impression is confirmed by the evidence presented below. However, it is also shown that it is not immigrant status per se but the region of origin for immigrants that is a more important predictor of net worth of foreign-born households.

The wealth of native and foreign-born households is shown in Table 17.[26. numoffset="26" The sample of households used to derive the estimates in Tables 17 to 20 is different from the sample for all preceding estimates except for the estimates in section 3. The immigrant status of a person in the SIPP sample is ascertained only during the second wave (Wave 2) of interviews. Thus, in Tables 17 to 20 the sample consists only of persons who were also present and interviewed during Wave 2. The size of this sample shrinks over time as households attrite from the SIPP panel for a variety of reasons.] As discussed in section 3 above, the estimates for 1997 to 1999 are based on the 1996 SIPP panel that does not encompass immigrants entering the U.S. in 1996 or later years. Thus, the trend in the wealth of immigrants from 1997 to 1999 should be understood to represent the net worth of immigrants who were present in the U.S. in 1996. The estimates for 2001 and 2002 come from the 2001 SIPP panel that does include immigrants who reached the U.S. between 1996 and 2000. It is still valid to draw comparisons between 1996 and 2001 (or 2002) because the data for these points in time is reflective of the populations of immigrants in the U.S. in those years. However, the comparability of data for immigrants between 1999 and 2001 is affected because the former does not fully reflect the presence of all immigrants present in the U.S. in 1999. To preserve comparability between 1999 and later years, Table 17 presents a second set of estimates for 2001 and 2002. In these estimates, immigrants who entered the U.S. between 1996 and 2002 are eliminated from the 2001 SIPP panel. This is the same as the procedure that was used in section 3 to measure the change in wealth between 2001 and 2002. The wealth of all immigrants combined is well below one-half of the wealth of native-born households. In 2002, foreign-born households had a median net worth of $24,357, or only 37 percent of $66,281, the median net worth of native-born households (Table 17). Still, that was an improvement over 1996 when the median wealth of immigrants—$18,327—was 32 percent of the net worth of native-born households—$57,882. But when households are placed into groups by ethnicity, the gap between immigrant and native-born households shrinks considerably. The foreign- and native-born wealth gap virtually disappears when non-Hispanic immigrant households are compared with their native-born counterparts. The median net worth of non-Hispanic immigrant households was $61,740 in 2002. This was 87 percent of the median net worth of native-born non-Hispanics—$71,260. In 1996, non-Hispanic immigrants had a net worth of $46,767. That was 77 percent of $61,049, the net worth of native-born non-Hispanic households in 1996. A similar result emerges when Hispanic immigrants are compared only to native-born Hispanic households. In 1996, the ratio of wealth was only 43 percent, when the net worth of immigrant and native-born Hispanic households was $4,815 and $11,234 respectively. In 2002, first-generation Hispanic households had a net worth of $6,800. This was 65 percent of the level of wealth belonging to native-born Hispanic households in 2002, namely, $10,425. Thus, when immigrant households are compared to their own native-born ethnic counterparts, Hispanic or non-Hispanic, they are found to have a net worth that is two-thirds or more as much. If Hispanic and non-Hispanic immigrants, considered individually, possess nearly as much wealth as similar native-born households, why is the net worth of all immigrant households combined only 37 percent of the median wealth of all native-born households combined? The explanation for this phenomenon lies in the composition and characteristics of immigrant and native-born households. Over 40 percent of immigrant households but only 5 percent of native-born households are Hispanic. Thus, Hispanics have a large role in determining immigrant wealth, whereas the comparison group of nativeborn households consists almost entirely of non-Hispanics. As has been shown above, the net worth of Hispanics is relatively low, which, in turn, is due to the fact that they have lower than average age, education and income.[27. Data on the age, education and income of Hispanics by generation are available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] That is especially true of first-generation Hispanics. Thus, differences in the characteristics of immigrant and native-born households are the underlying reason for the wealth gap between foreign-born and native-born households.[28. Other studies that have looked at the role of the characteristics of immigrants in determining relative wealth are Deborah A. Cobb-Clark and Vinvent Hildebrand, “The Wealth and Asset Holdings of U.S.-Born and Foreign-Born Households: Evidence from SIPP Data,” Australian National University, December 9, 2002, and Lingxin Hao, “Immigrants and Wealth Stratification in the U.S.,” Johns Hopkins University, January 2001.] What can one say about the year-to-year change in the wealth of immigrant and native-born households, especially between 1999 and 2001? To answer this question, it is necessary to turn to the second set of estimates which are derived from the sub-sample of the 2001 SIPP panel that excludes immigrants arriving in the U.S. after 1996. This way one can learn about the changing fortunes of immigrants who were present in the U.S. before and during 1996. No adjustment is called for in the sample of native-born households. Using the full sample from 2001, it has already been observed that the wealth gap between immigrant and native-born households shrank considerably between 1996 and 2002. Much of this growth took place prior to the 2001 recession. By 1999, non-Hispanic immigrants, who were in the U.S. before 1996, had achieved a higher level of net worth—$71,727—than native-born non-Hispanic households— $68,213. The wealth of these immigrants continued to grow through and beyond the 2001 recession and, by 2002, was nearly double its level in 1996. What about the wealth of Hispanic immigrants who entered the U.S. before 1996? Their net worth fluctuated in the period prior to the recession, falling from $4,815 in 1996 to $3,761 in 1998. But their wealth nearly doubled in 1999, rising to $6,529 in the space of a year. The growth in the wealth of this group of Hispanic immigrants leveled off during the recession but picked up again in 2002. Their net worth of $8,242 in 2002 was 71 percent higher than their net worth in 1996. Native-born Hispanic households fared the worst during the 1996 to 2002 time period. Starting at $11,234 in 1996, the wealth of these households fluctuated from one year to the next. They ended 1999 with a promising note as their net worth peaked at $15,405 in that year. However, the wealth of native-born Hispanic households shrank by over 42 percent between 1999 and 2001, falling from $15,405 to $8,875. In fact, native-born Hispanic households were the only one of the four groups in Table 15 to suffer a loss in wealth between 1999 and 2001. This finding echoes previous findings on the labor market outcomes for first and later generations of Hispanic households in the recent past. For example, previous research conducted by the Pew Hispanic Center showed that the first generation has been more successful in gaining jobs and maintaining a lower rate of unemployment than the second and third generations over the past several years.[29. See the citations in footnote 3.] Despite the many nuances, the fact remains that the wealth of the entire population of immigrants is less than the wealth of the native-born. One reason behind the gap is the homeownership rate (see Table 17). When Hispanic households are considered in isolation, the homeownership gap between immigrant and native-born households is only six percentage points in 2002, but the rate is low for both the nativeborn (50.9 percent) and the immigrant (45.1 percent). At the same time, native-born non-Hispanic households had a homeownership rate of 71.5 percent, or nearly 14 percentage points higher than the homeownership rate of 57.7 percent for immigrant non-Hispanic households. When Hispanic and non- Hispanic households are combined, the homeownership rate for immigrants—52.4 percent in 2002—is 18 percentage points below the homeownership rate for native-born households—70.3 percent in 2002.[30. Homeownership by immigrants is studied in detail in Demetrios Papademetriou and Brian Ray, “From Homeland to a Home: Immigrants and Homeownership in Urban America,” Fannie Mae Papers, Vol. 3, Issue 1, March 2004. Another detailed study is by George J. Borjas, “Homeownership in the Immigrant Population,” Research Institute for Housing America, Working Paper No. 02-01, March 2002. Their estimates of the gap in homeownership between native-born and foreign-born households are similar to those reported in Table 17.] Given the strong relationship between homeownership and net worth (see section 5 and 6 above), increasing the rate of homeownership among immigrants is the key to shrinking the gap in wealth between them and native-born households.

The relationship between net worth and country of origin is evident in the estimates presented in Table 18. Immigrants from non-Hispanic countries tend to have the highest net worth and those from Central and South America the lowest. Approximately 85 percent of immigrant non-Hispanic households arrive from Asia and Europe, Canada, Israel, Australia or New Zealand. Similarly, about 90 percent of immigrant Hispanic households originated from Mexico, Cuba and Central American or Caribbean countries. It can be seen in Table 18 that the median net worth of immigrant households varies quite significantly across these different points of origin. Immigrant households from Europe, Canada, Israel, Australia or New Zealand had a net worth of $104,026 in 2002. These households have consistently the highest level of wealth of any other immigrant group in every year from 1996 to 2002. Immigrant households from Asia currently have the second highest level of net worth—$58,313 in 2002. Asian-born households did not always hold this distinction. Until 1998, the second rank belonged to households from Cuba who, with a net worth of $39,787 in 2002, are easily the wealthiest among immigrant Hispanic households. Immigrant households from Mexico have a net worth of $7,602 and the median wealth of households from Central American and Caribbean countries is only $2,508 in 2002. Although the net worth of households from Mexico is fairly low, it has risen rapidly in recent years and is presently just more than double its level of $3,782 in 1996. In contrast, the wealth of Cuban households appears to have flattened out, hovering in the vicinity of $40,000 in the 1996 to 2002 period. It appears likely that the wealth profile of Hispanic households in the future will be shaped primarily by immigrants from Mexico. The number of years an immigrant has been in the U.S. and whether or not a transition has been made into citizenship are two other predictors of the wealth of immigrant households. Tables 19 and 20 show net worth and homeownership rates for immigrant households grouped by their year of entry into the U.S. and citizenship status. For both Hispanic and non-Hispanic households, net worth is found to be higher the longer the household has been in the U.S. Consider, for example, Hispanic households who migrated to the U.S. between 1996 and 2001. Their net worth in 2002 was $1,221 (Table 19). At the same time, Hispanic households who had arrived between 1991 and 1995 had a net worth of $3,151. This pattern continues with earlier years of entry and, finally, Hispanic households who arrived prior to 1980 are found to have a net worth of $37,380 in 2002. Thus, in 2002, as well as in other years, the wealth of an immigrant household is found to be higher the longer that household has been in the U.S. Looking at the wealth of households in different year-of-entry cohorts within a single year can, however, yield a misleading picture of the financial assimilation of immigrants. That is because each cohort may consist of households with varying characteristics that are also related to wealth accumulation. For instance, immigrants who arrived prior to 1980 may have different levels of education or come from different source countries than the latest arriving immigrants.[31. This issue was first raised by George Borjas, “Assimilation, Changes in Cohort Quality, and the Earnings of Immigrants,” Journal of Labor Economics, Vol. 3, No. 4, 1985.] An alternative is to look at the change in net worth of the same set of immigrant households over time. That is possible with the SIPP data since it follows the same households for a number of years. In particular, in Table 19, the data for 1996 to 1999 come from a single SIPP panel and cover the same immigrant households within each cohort subject only to sample attrition.[32. Sample attrition can cause a bias in estimates of the change in wealth of a cohort if more wealthy (or less wealthy) households are systematically more or less likely to exit the sample over time.] There are signs of wealth assimilation for Hispanic households as, subject to some fluctuation, the wealth of all four cohorts is observed to increase between 1996 and 1999.[33. The data for 2001 and 2002 come from a different SIPP sample and also utilize somewhat different definitions for immigrant cohorts. Therefore, the data for these two years should not be compared with the earlier years for judging the assimilation of a specific cohort.] But the growth in net worth is not impressive, except for the cohort of Hispanic households that arrived in the U.S. prior to 1980. Their net worth increased from $16,162 to $25,884 from 1996 to 1999. Signs of growth in net worth are also present for all cohorts of non-Hispanic immigrants, with the most impressive increases recorded by immigrants who entered the U.S. between 1980 and 1989. Thus, following the same cohorts of immigrants between 1996 and 1999 confirms the impression that the initial wealth of foreign-born households is low and that it follows an upward trajectory thereafter. But even after several decades in the U.S., the wealth of immigrant Hispanic households is well below the national norm.

Evidence of wealth assimilation among immigrant households also emerges in the data on homeownership rates (Table 19). Homeownership rates are highest among immigrant households who arrived in the U.S. before 1980—73 percent for non-Hispanic households and 66.5 percent for Hispanic households in 2002. On the other hand, Hispanic immigrants who arrived after 1996 had a homeownership rate of only 22.1 percent in 2002. Non-Hispanic immigrants who landed after 1996 were only slightly better off by this yardstick with 28.4 percent of them owning homes in 2002. In other words, the homeownership rate among immigrants who arrived over two decades ago was two to three times as high as the rate among immigrants who arrived in the past five years. Signs of a transition into homeownership are also present in the sample of immigrants that can be followed continuously from 1996 to 1999. For example, the homeownership rate for Hispanic immigrants arriving between 1990 and 1996 increased from 17.3 percent in 1996 to 30.2 percent in 1999. But the rate of increase levels off within a few years. Latinos who arrived a decade earlier, i.e., between 1980 and 1984, had a homeownership rate of just over 40 percent and that did not change from 1996 to 1999. The homeownership rate for Hispanic immigrants arriving before 1980 was stationary around 55 percent. The same general pattern describes the behavior of homeownership rates among non-Hispanic immigrants. It is interesting to note that non-Hispanic immigrants assimilate into homeownership at a much more rapid rate than Hispanics. In 1996, non-Hispanic and Hispanic immigrants who arrived between 1990 and 1996 had very similar homeownership rates—20.6 percent and 17.3 percent respectively. However, by 1999, the gap between the groups had grown to seven percentage points in favor of non- Hispanics. Also, the non-Hispanic cohort that arrived between 1985 and 1989 crossed the 40 percent threshold in homeownership by 1997 while the same Hispanic cohort had not crossed the 30 percent mark by 1999. The slower rate of assimilation into homeownership is echoed in the slower rate of assimilation into wealth among Hispanic immigrants. Citizenship, a milestone for many immigrants, is also a marker for greater wealth. Since it typically takes a few years of residency in the U.S. to acquire citizenship it is, in part, an indicator of assimilation. But it is also an indicator of greater immersion in American labor and financial markets, as well as in the social and cultural institutions of the country. Among non-Hispanic immigrants, the net worth of naturalized citizens was $111,240 in 2002 (Table 20), nearly five times as high as the net worth of other non-Hispanic immigrants at the same time—$23,205. The proportional gap was even higher in the case of Hispanic immigrants. Naturalized Hispanic citizens had a net worth nearly 10 times as high as the net worth of other Hispanic immigrants—$36,011 versus $3,857 in 2002. Thus, there is a striking gap in net worth between immigrants who are naturalized citizens and those who are not. The rate of homeownership is one of the factors explaining the wealth advantage of naturalized citizens. As shown in Table 20, naturalized non-Hispanic citizen have a rate of homeownership close to 70 percent. That is about 25 percentage points higher than the 44.7 percent homeownership rate among non-Hispanic immigrants who are not yet American citizens. Naturalized Hispanic citizens also have high homeownership rates—63.5 percent in 2002. Hispanic immigrants who are non-citizens have much lower homeownership rates—only 34.5 percent in 2002. Overall, immigrants who are also naturalized citizens resemble native-born households more than other immigrants with respect to their success in attaining homeownership.[34. A similar conclusion is reached by Sherrie Kossoudji and Stan Sedo, “Immigrants, Natives, and Home Ownership,” paper presented at the conference on Financial Access for Immigrants: Learning from Diverse Perspectives, Federal Reserve Bank of Chicago, April 15-16, 2004.]

IX. Conclusionsh2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data. The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.[12. numoffset="12" Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time.] The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants. One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change. The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households. However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households. The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.[14. This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above.][15. Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances.]

V. The Ownership of Assets

Wealth may be accumulated in various forms and an analysis of the composition of wealth shows a key similarity as well as several differences across racial/ethnic groups. The single most important asset for all races and ethnicities is a house. Not surprisingly, households of all stripes are also quite likely to own vehicles. But Hispanic and Black households are much less likely than White households to own financial assets, including retirement accounts, and many minority households own no assets whatsoever. The SIPP data make it possible to distinguish across 14 major types of assets and liabilities. This section presents evidence on the ownership of these assets and liabilities by race and ethnicity. The assets most likely to be owned by American households are a car and a house. As shown in Table 6, nearly 90 percent of White households, over three-fourths of Hispanic households and more than two-thirds of Black households report owning at least one car in 2002. The highest rate of homeownership is among White households with 74.3 percent indicating they owned a home in 2002. This rate is much higher than among Hispanic and Black households whose rates of homeownership in 2002 were 47.3 percent and 47.7 percent respectively. The rate of homeownership among Whites has increased every year since 1996 and is presently 2.4 percentage points higher than in 1996. The homeownership rate for Hispanic households also increased over time and was 3.1 percentage points higher in 2002 in comparison to 1996. However, the rate of homeownership among Blacks has remained flat since 1996. While the homeownership rate among Hispanics and Blacks is relatively low, homes are the most likely asset to be owned by these households after vehicles.[16. The estimated rates of homeownership from the SIPP data are very similar to those reported by the Census Bureau from its annual Housing Vacancy Survey. According to that survey, the homeownership rates by race and ethnicity in 2002 were as follows: Hispanics—47 percent, Whites—74.7 percent, and Blacks—47.4 percent. One difference between SIPP and the Housing Vacancy Survey is that the latter indicates a 4.2 percentage point increase in the homeownership rate for Hispanics between 1996 and 2002 instead of the 3.1 percentage point increase derived from SIPP.] Other assets, mostly financial, are less likely to be owned than houses or vehicles. The leading financial assets are interest earning accounts at financial institutions and non-interest bearing checking accounts. The former includes assets such as interest-earning checking accounts, savings accounts, money market accounts, and certificates of deposit. White households lead the way once again, with 69 percent reporting ownership of interest-earning accounts at financial institutions in 2002. This was nearly 30 percentage points higher than the rate among Hispanic households—42.4 percent—and the rate among Black households—40.3 percent. Ownership rates for non-interest bearing checking accounts are lower for all types of households. White households are at the front with 36.3 percent of them owing such accounts in 2002. The rates for Hispanic and Black households are 29.9 percent and 25.1 percent respectively. Overall, it is apparent that the majority of Hispanic and Black households do not own even the basic instruments offered by financial services companies. Ownership of other financial assets among Hispanic and Black households is very low. Fewer than 10 percent of Hispanic households and only slightly more than 10 percent of Black households owned stocks and mutual funds in 2002. This contrasts with the 35 percent rate for White households. Hispanic and Black households are also less prepared for retirement as only about 20 percent of each group reports participation in a 401(k) or Thrift savings plans and fewer than 10 percent have IRA or Keogh accounts. Among White households, 34.5 percent had 401(k) or Thrift savings plans and 29.4 percent had IRA or Keogh accounts in 2002. Clearly, financial market participation for Hispanic and Black households is well below the norm for White households. While the ownership of assets, especially financial assets, lags among Hispanic and Black households, they are about as likely as White households to hold unsecured debt. In 2002, over 45 percent of Hispanic households, 47 percent of Black households and 53 percent of White households had unsecured liabilities. These rates represent improvements over 1996 for all three groups. Nonetheless, it is fair to say that about one-half of all households in the U.S. held unsecured debt during the entire 1996 to 2002 time period.

Another perspective on the gap between White and minority households is provided by looking at the proportions of households that own no assets. Table 7 shows that 10.5 percent of Hispanic households and 16.4 percent of Black households reported owning no assets other than unsecured liabilities in 2002. These are households with debt but no positive asset position. The similar proportion for White households is only 2.5 percent. If one considers households that own no assets other than a vehicle or unsecured liabilities, the proportions rise to 25.4 percent for Hispanics and 27.2 percent for Blacks. The same proportion for White households is only 6.3 percent in 2002. Thus, while virtually all White households own at least some real estate, business equity or financial instrument, over one-quarter of Hispanic and Black households own no such assets. On the positive side, there has been some improvement since 1996 when these proportions were slightly worse for both Hispanics and Blacks.

VI. Net Worth by Type of Asset

As discussed in section 2 above, the median net worth of Hispanic households in 2002 was $7,932, or only nine percent of the median net worth of White households. But what is the amount of equity that Latinos have acquired in the homes they own and how does that compare with White households? What is the value of the financial assets owned by Latino households? And what is the relative importance of each asset in the portfolios of Hispanic and non-Hispanic households? It is shown that, just as homeownership is more important than the ownership of all other assets except vehicles, home equity is the single largest item in the portfolio of homeowners. Also, not only are White households more likely to own any given asset, they also possess more of each asset on average in comparison to Hispanics and Blacks. By one measure the median value of home equity or any asset owned by Hispanic households, other than vehicles, is zero. That is because fewer than 50 percent of Latino households own any single asset other than vehicles. For example, since only 47.3 percent of Hispanic households owned a home in 2002, the remaining 52.7 percent of Latinos had, by definition, zero amount of home equity. It follows that for the entire population of Latino households, the median value of home equity is zero. The same logic applies to all other assets except vehicles. What is true for Hispanic households is also generally true for Black and White households. The only exceptions arise in the case of White households who own homes, interest earning assets and unsecured liabilities at rates in excess of 50 percent. Therefore, in gauging the value of individual assets, it makes sense to focus only on the households that own those assets. Table 8 shows the median value of assets for households that own any particular asset. Among Hispanic households that owned a home, i.e., for the 47.3 percent of Latino households that owned a home, the median value of home equity was $49,840 in 2002. That was 60 percent of the median value of home equity—$81,191—owned by White households. So, not only is the proportion of White households that owns a home much higher, but the value of those homes is also higher. Black households, who have the same rate of homeownership as Hispanic households, have the lowest median value of home equity, namely, $40,685 in 2002. With respect to financial assets, Latino and Black households have virtually the same median value of interest earning assets in 2002, about $1,500, which, in turn, is about one-third of the value owned by White households—$5,029. The same could be said of stocks and mutual funds, where the holdings of Latino households—$3,560—are roughly one-third of the $10,171 held by White households in 2002. With regard to retirement accounts in 2002, Latino and Black households owned in the range of $10,000 to $12,000 in IRA & Keogh accounts and 401(k) & Thrift accounts. White households owned approximately twice that amount—$20,343 in IRA & Keogh accounts and $20,298 in 401(k) & Thrift accounts. It was noted earlier that the 2001 recession had a negative impact on the wealth of Hispanic and Black households. For Latino households, the erosion in wealth can be traced to the loss in value of financial assets. Between 1999 and 2002, the median values of the holdings of Hispanic households declined in all of the following categories: interest earning assets, other interest earning assets, U.S. savings bonds, IRA & Keogh accounts, 401(k) & Thrift accounts, and stocks and mutual funds.[17. numoffset="17" The magnitudes of the declines in these asset values for Hispanics are likely to have been affected by the sample effect discussed in section 3 above. But the direction of the change is unlikely to have been the consequence of just the sample effect, especially since the same changes are observed for White households and the stock market began a slide in 1999 that lasted several years.] On the other hand, the median value of equity in owned homes and rental properties increased between 1999 and 2002. Thus, the strength of the housing market in the recent economic slowdown eased the reduction in median wealth of Hispanic homeowners. The trends in the median value of assets were similar for White householders. Between 1999 and 2002, these households also saw an increase in the value of home equity and a reduction in the value of their financial assets. The fact that nearly three-quarters of White households own homes most likely prevented a reduction in the median net worth of this population. Black households were somehow able to buck these trends as, for them, the median values of all financial assets except stocks and mutual funds increased between 1999 and 2002. How important are the various assets to the portfolio of the “typical” Latino and non-Latino households? Because not all households own all assets, and since several assets are owned by very few households, this question is open to more than one answer. Table 9 offers one perspective on the issue. In particular, Table 9 shows the distribution of the mean net worth of Hispanic households. In 2002, the mean net worth of Hispanic households is estimated to be $65,371. In the same year, the mean level of home equity for all Hispanic households, not just homeowners, was $39,864. Thus, as shown in Table 9, 61 percent of the average net worth of Latino households is derived from home equity. Other assets pale in comparison. The next most important assets on the list are rental properties and 401(k) & Thrift accounts and each of those accounts for only 7.3 percent of the mean net worth of Hispanic households. Close behind are stocks and mutual funds which account for 7.2 percent of Latino wealth by this measure. Clearly, homeownership is a vital component of the wealth of Hispanic households. The overwhelming importance of homeownership is also evident for Black households for whom home equity accounted for 63 percent of mean total net worth in 2002. Far behind are 401(k) & Thrift accounts which contributed 11.5 percent to the value of mean total net worth of Black households. Home equity is also important for White households but much less so. In 2002, home equity was only 38.5 percent of the mean net worth of $221,871 of White households. Stocks and mutual funds are also very important to White households and accounted for 21.9 percent of their mean wealth in 2002. By these measures, therefore, the average White household has a much more balanced portfolio than the average Hispanic and Black household. Another perspective on the importance of an asset may be gleaned by phrasing the question more narrowly. For example, what is the share of home equity in the total net worth of homeowners only? In other words, rather than estimating the distribution of net worth for the entire population, one can estimate the importance of an asset only to the segment of the population that owns that asset. Table 10 shows that home equity accounts for 88.4 percent or more of total net worth for one-half of Latino homeowners. Since 47.3 percent of Latino households currently own a home (Table 6), this implies that one-half of this number, or 23.7 percent of all Latino households, has 88.4 percent or more of net worth held in the form of a home. Almost exactly the same statements apply to the situation of Black households. The homeownership rate for Black households was 47.7 percent in 2002. Among the Black households that own a home, one-half had 88.1 percent or more of their total net worth in the form of home equity. In other words, nearly one-quarter of all Black households count home equity as the overwhelming portion of their portfolio. Whites that own homes have more diverse portfolios but home equity is still the major portion of their wealth. In particular, home equity accounts for 61.6 percent or more of the total net worth of one-half of White homeowners. It can be seen from Table 10 that most owners of rental and other properties would also count those properties as significant parts of the value of their total holdings. Thus, real estate is a key asset for those who own it. The significance of homeownership can also be assessed by comparing the wealth of homeowners with others. Table 11 shows the median net worth of Hispanic and non-Hispanic homeowners and others. The wealth advantage of homeowners over the rest of households is enormous. The median net worth of non-Hispanic homeowners in 2002 was $129,778.[18. The non-Hispanic category includes non-Hispanic Whites, non-Hispanic Blacks, and non-Hispanic Others (Asians and others).] In contrast, the median net worth of non-Hispanic renters and others was only $1,526, or just over 1 percent of the wealth of homeowners. Gaps of this size are present in all years since 1996. The median net worth of Hispanic renters and others is also very low. In 2002, the net worth of Hispanic renters and others was only $762. On the other hand, Hispanic homeowners had a net worth of $62,839, or 82 times the wealth of Hispanic renters and others.[19. Gaps of this magnitude also emerge from SCF data. Aizcorbe, Kennickell and Moore (see the citation in footnote 10) report that the median wealth of renters and others was less than three percent of the median wealth of homeowners in 2001.]

The data in Table 11 also indicate that the wealth of Hispanic homeowners is almost 50 percent of the level of wealth of non-Hispanic homeowners. The same result also emerges for Hispanic renters and others when compared with non-Hispanic renters and others in recent years. However, the wealth of all Hispanic households combined is only about 10 percent of the level of wealth of all non-Hispanic households. That is a consequence of the much higher rate of homeownership among non-Hispanics (Table 6).[20. Table 6 shows data for non-Hispanic Whites and Blacks only. The homeownership rate of non-Hispanic Others was 57 percent in 2002.] While much of the wealth of homeowners is derived from home equity, homeownership as a trait is also associated with higher rates of ownership of other assets as well as higher levels of holdings of those assets. This can be seen in Appendix Tables A1 and A2 which report ownership rates and the median values of financial assets for Hispanic and non-Hispanic homeowners and others.[21. As is the case with previous tables, the median values are only computed over the set of households that own any particular asset.] For example, consider the gap that exists with respect to retirement accounts. Both Hispanic and non-Hispanic homeowners are about twice as likely as renters and others to own a 401(k) or Thrift account (see Table A1). Moreover, Hispanic homeowners with 401(k) and Thrift accounts had a median value of $15,020 in their accounts in 2002, but Hispanic renters and others with these accounts had only $6,061 (Table A2). Similarly, non-Hispanic homeowners with 401(k) and Thrift accounts maintain a median balance of $22,328 in contrast to the balance of $7,629 kept by non-Hispanic renters and others. Large gaps in ownership and asset values between homeowners and renters can also be observed in the case of IRA and Keogh accounts. Overall, homeowners are also more likely to own and maintain higher balances in checking and interest earning accounts, possess a greater value of savings bonds, own more in stocks and mutual funds, have more of other assets, and appear to drive better cars.

VII. Wealth by Household Characteristics

There are many reasons why the net worth of Latino households is below the U.S. average. The Hispanic population in the U.S. is younger, not as highly educated, and earns less than the non-Hispanic population. Moreover, 40 percent of the Hispanic population is composed of immigrants who, along with previous generations of Latinos, are concentrated in a small handful of states in the U.S. This section examines how the median net worth of Hispanic and non-Hispanic households varies by their economic and demographic characteristics such as income, age, education, gender, and region of residence. The next section examines the wealth of immigrant groups. The net worth of a household increases with its income. That fact emerges clearly in Table 12 which shows the net worth of Hispanic and non-Hispanic households grouped into quintiles of the income distribution.[22. numoffset="22" The income quintile ranges are given in the footnote to Table 12.] Among Hispanics, a wide gulf in net worth emerges with the fourth highest income quintile. In 2002, the median wealth of Latinos in the fourth income quintile was $38,402, or four times as high as the median wealth of Latinos in the third income quintile, namely, $9,629. Among non- Hispanics, the big jump in net worth occurs at much lower levels of income. The net worth of non- Hispanic households in the second income quintile was $40,194 in 2002, five times as high as the net worth of non-Hispanics in the lowest income quintile—$7,963. Table 12 also shows that, in the highest income ranges, Hispanic net worth in 2002 was 40 percent of non-Hispanic net worth. However, Hispanic households in the three lowest income quintiles have a net worth that is less than 20 percent of the net worth of non-Hispanic households in the same income quintiles. Thus, the gap in wealth between Latino and non-Latino households is much higher at lower levels of income. Underlying the wealth gaps by income level is differences in homeownership across the quintiles of the income distribution. Even at the lowest rungs of the income distribution, nearly 50 percent of non- Hispanic households own a home. However, the same is true for fewer than 30 percent of Hispanic households in the lowest income quintile. For Latinos, the rate of homeownership does not cross the 50 percent threshold till the third income quintile. In 2002, this meant a monthly household income in the range of $2,552 to $4,020. Clearly, policies designed to promote homeownership among low- to mid-income Hispanics would have a large impact on closing the wealth gap between Latino and non-Latinos households. Existing research shows that wealth increases with the age of a household head but only till about age 65. Household wealth diminishes thereafter as older households begin the process of consuming past savings.[23. See the papers by Edward N. Wolff (cited in footnote 7) and Ana M. Aizcorbe, Arthur B. Kennickell and Kevin B. Moore (cited in footnote 10).] This pattern also emerges from the SIPP data for non-Hispanic households. Table 13 shows that the median wealth of non-Hispanic households peaks in the age group 55 to 64 years. In 2002, for example, the median wealth of these households was $145,131, nearly 14 times higher than the wealth of non-Hispanic households headed by persons of age 25 to 34 years—$10,705. Notably, the age wealth gap was much lower in 1996 when the wealth of non-Hispanic households in age group 55 to 64 years was only 8 times as high as the wealth of households in age group 25 to 34 years. Among Hispanic households, wealth continues to grow through all age levels and peaks at ages beyond 65 years. In 2002, the median wealth of Hispanic households in age group 65 years or above was $51,934. This, too, is almost 14 times higher than the wealth of Hispanic households in age group 25 to 34 years, namely, $3,857. In the year 1996, this ratio was lower as the wealth of Hispanic households in age group 65 years and over—$39,155—was 10 times as high as the wealth of households in age group 25 to 34 years. As is the case with non-Hispanic households, the net worth of Hispanic households also increases rapidly with age, although it appears that it takes Hispanic households a decade longer than non- Hispanics to multiply their wealth by the same proportion. As with income and age, the education of the household head is another factor positively related to net worth. The advantages of a college education are quite significant. In 2002, non-Hispanic households with college-educated heads had a median net worth of $161,613 (Table 14). This was nearly three times as high as the net worth of $56,428 owned by non-Hispanic households whose head had attended, but not graduated, from college. Hispanic households with a college-educated head have an even greater edge over those who attended but did not graduate from college. The net worth of the former group in 2002 was $58,145, nearly six times as high as the net worth of $10,166 for the latter group. Nonetheless, a college degree does not eliminate the significant disparity between non-Hispanic and Hispanic wealth as non-Hispanic households with a college educated head enjoyed a net worth ($161,613) nearly three times higher than Hispanic households with a college-educated head ($58,145).

Hispanic households whose head lacks a high school degree have very low net worth—$4,475 in 2002. This is less than 10 percent of the wealth owned by Hispanic households with a college-educated head. On the positive side, the least educated Hispanic households have partially closed the gap over time vis-à-vis the college-educated households. In 1996, if a Hispanic household head had less than a high school education, the net worth of that household—$2,882—was only five percent of the net worth of a Hispanic household with a college-educated head—$51,414. Latino households with less than a high school education have also somewhat narrowed the gap in comparison to similarly educated non-Latino households. In 1996, Latinos with less than a high school education owned only 10 percent of the wealth owned by their non-Latino counterparts—$2,882 versus $28,693. By 2002, this proportion had increased to 22 percent—$4,475 versus $20,343. Thus, at least in terms of net worth, less educated Hispanics outperformed their non-Hispanic counterparts as well as more educated Hispanics between 1996 and 2002, increasing their wealth from a very small base. Among non-Hispanics, the change in wealth between 1996 and 2002 was directly related to the level of education. As shown in Table 14, the wealth of non-Hispanics without a high school degree eroded from $28,693 in 1996 to $20,343 in 2002. Non-Hispanics with a high school degree realized a modest gain of 2.2 percent in net worth over the same time period, and those who attended some college increased their net worth by 5.7 percent. However, the largest gains among non-Hispanics were registered by college graduates whose net worth increased every year between 1996 and 2002, including through the recession in 2001. Starting at $124,841 in 1996, the median net worth of non-Hispanic college graduates increased 29.5 percent to stand at $161,613 in 2002. Thus, between 1996 and 2002, wealth accumulation proved to be easier for the better educated non-Hispanics. The wealth of college-educated Hispanics did not fare as well in the 1996 to 2002 time period. In 2001, the median wealth of Hispanics with college degrees—$50,097—was actually less than their median wealth of $51,414 in 1996. It recovered the next year, but by the end of 2002 the net worth of Hispanic college graduates was only 13 percent higher than in 1996. One consequence is that the relative standing of college-educated Hispanics also slipped during this time period. In 1996, the median net worth of Hispanics with a college degree was 41 percent of the wealth of their non-Hispanic counterparts. This ratio had slipped to 31 percent by the end of the recession in 2001 and then recovered somewhat to finish 2002 at 35 percent. Thus, a college education did not provide immunity from the economic downturn for Hispanics as both their absolute and relative wealth slipped backwards during the 2001 recession. The well known wage gap between women and men also translates into a wealth gap between households headed by women and men (Table 15). Among non-Hispanics, the net worth of a household, if headed by a woman, was $51,405 in 2002. This is 60 percent of the net worth of non-Hispanic households headed by a man, namely, $86,370 in 2002. This ratio has not changed in recent times as it has fluctuated between 55 and 60 percent since 1996. Hispanic households headed by a woman had just over one-third of the wealth of households headed by Latino men in 2002—$4,489 in comparison to $13,154. However, this ratio was much lower in the recent past, standing at less than one-fourth in 1996.

Table 16 shows how the wealth of households varies across the four principal regions. Non- Hispanic households located in the Northeast have the highest net worth—$91,540 in 2002—followed by non-Hispanic households in the West, the Midwest and the South. This ranking of regions has remained unchanged since 1996. Exactly the opposite pattern emerges for Hispanic households. The wealthiest Hispanic households are located in the South, followed by Latino households in the Midwest, the West and the Northeast. This pattern is explained in part by the predominance of Cuban households in Florida. Those households are the closest to White households in terms of income and education. Hispanic households in the Northeast are principally of Puerto Rican origin and reside mostly in the New York area. Because of its high cost, homeownership rates in New York are well below the rates in other states for households of all races and ethnicities. For Hispanics, in particular, the rate of homeownership in New York is estimated to be below 20 percent in 2002, well below the overall homeownership rate of 47.3 percent.[24. For non-Hispanics, the rate of homeownership in New York was 59.3 percent in 2002, much below the national average rate of 70 percent.] Given the overwhelming importance of home equity in shaping the net worth of low income individuals, it is not surprising that Hispanic households in the Northeast have very low net worth.[25. A recent report by the Tomás Rivera Policy Institute examines barriers to homeownership for Mexican-Americans in three large metropolitan areas in the South and West. See Jongho Lee, Louis Tornatzky and Celina Torres, “El Sueño de su Casa: The Homeownership Potential of Mexican-Heritage Families,” The Tomás Rivera Policy Institute, 2004.] In summary, the traits that influence household wealth include their level of income, the age, education and gender of the household head, and their region of residence. The characteristics of Hispanic households are typically associated with low levels of wealth. The income of Hispanic households is well below average and the heads of Hispanic households, while somewhat less likely to be female, are younger and less educated. Hispanic households are also concentrated in high cost areas within the Northeast and West regions of the country. This contributes to a lower rate of homeownership and overall net worth.

VII. The Wealth of Immigrant Groups

Nearly 50 percent of Hispanic households are headed by first-generation Americans and many of them arrived in the U.S. only in the past two decades. It is of interest, therefore, to examine the wealth of Hispanic immigrants and chart their progress over time as well as with respect to the native-born. Since immigration is typically followed by a period of adjustment to the U.S. labor and financial markets, one would expect that the savings and wealth of first-generation Americans lag behind their native-born counterparts. That impression is confirmed by the evidence presented below. However, it is also shown that it is not immigrant status per se but the region of origin for immigrants that is a more important predictor of net worth of foreign-born households.

The wealth of native and foreign-born households is shown in Table 17.[26. numoffset="26" The sample of households used to derive the estimates in Tables 17 to 20 is different from the sample for all preceding estimates except for the estimates in section 3. The immigrant status of a person in the SIPP sample is ascertained only during the second wave (Wave 2) of interviews. Thus, in Tables 17 to 20 the sample consists only of persons who were also present and interviewed during Wave 2. The size of this sample shrinks over time as households attrite from the SIPP panel for a variety of reasons.] As discussed in section 3 above, the estimates for 1997 to 1999 are based on the 1996 SIPP panel that does not encompass immigrants entering the U.S. in 1996 or later years. Thus, the trend in the wealth of immigrants from 1997 to 1999 should be understood to represent the net worth of immigrants who were present in the U.S. in 1996. The estimates for 2001 and 2002 come from the 2001 SIPP panel that does include immigrants who reached the U.S. between 1996 and 2000. It is still valid to draw comparisons between 1996 and 2001 (or 2002) because the data for these points in time is reflective of the populations of immigrants in the U.S. in those years. However, the comparability of data for immigrants between 1999 and 2001 is affected because the former does not fully reflect the presence of all immigrants present in the U.S. in 1999. To preserve comparability between 1999 and later years, Table 17 presents a second set of estimates for 2001 and 2002. In these estimates, immigrants who entered the U.S. between 1996 and 2002 are eliminated from the 2001 SIPP panel. This is the same as the procedure that was used in section 3 to measure the change in wealth between 2001 and 2002. The wealth of all immigrants combined is well below one-half of the wealth of native-born households. In 2002, foreign-born households had a median net worth of $24,357, or only 37 percent of $66,281, the median net worth of native-born households (Table 17). Still, that was an improvement over 1996 when the median wealth of immigrants—$18,327—was 32 percent of the net worth of native-born households—$57,882. But when households are placed into groups by ethnicity, the gap between immigrant and native-born households shrinks considerably. The foreign- and native-born wealth gap virtually disappears when non-Hispanic immigrant households are compared with their native-born counterparts. The median net worth of non-Hispanic immigrant households was $61,740 in 2002. This was 87 percent of the median net worth of native-born non-Hispanics—$71,260. In 1996, non-Hispanic immigrants had a net worth of $46,767. That was 77 percent of $61,049, the net worth of native-born non-Hispanic households in 1996. A similar result emerges when Hispanic immigrants are compared only to native-born Hispanic households. In 1996, the ratio of wealth was only 43 percent, when the net worth of immigrant and native-born Hispanic households was $4,815 and $11,234 respectively. In 2002, first-generation Hispanic households had a net worth of $6,800. This was 65 percent of the level of wealth belonging to native-born Hispanic households in 2002, namely, $10,425. Thus, when immigrant households are compared to their own native-born ethnic counterparts, Hispanic or non-Hispanic, they are found to have a net worth that is two-thirds or more as much. If Hispanic and non-Hispanic immigrants, considered individually, possess nearly as much wealth as similar native-born households, why is the net worth of all immigrant households combined only 37 percent of the median wealth of all native-born households combined? The explanation for this phenomenon lies in the composition and characteristics of immigrant and native-born households. Over 40 percent of immigrant households but only 5 percent of native-born households are Hispanic. Thus, Hispanics have a large role in determining immigrant wealth, whereas the comparison group of nativeborn households consists almost entirely of non-Hispanics. As has been shown above, the net worth of Hispanics is relatively low, which, in turn, is due to the fact that they have lower than average age, education and income.[27. Data on the age, education and income of Hispanics by generation are available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] That is especially true of first-generation Hispanics. Thus, differences in the characteristics of immigrant and native-born households are the underlying reason for the wealth gap between foreign-born and native-born households.[28. Other studies that have looked at the role of the characteristics of immigrants in determining relative wealth are Deborah A. Cobb-Clark and Vinvent Hildebrand, “The Wealth and Asset Holdings of U.S.-Born and Foreign-Born Households: Evidence from SIPP Data,” Australian National University, December 9, 2002, and Lingxin Hao, “Immigrants and Wealth Stratification in the U.S.,” Johns Hopkins University, January 2001.] What can one say about the year-to-year change in the wealth of immigrant and native-born households, especially between 1999 and 2001? To answer this question, it is necessary to turn to the second set of estimates which are derived from the sub-sample of the 2001 SIPP panel that excludes immigrants arriving in the U.S. after 1996. This way one can learn about the changing fortunes of immigrants who were present in the U.S. before and during 1996. No adjustment is called for in the sample of native-born households. Using the full sample from 2001, it has already been observed that the wealth gap between immigrant and native-born households shrank considerably between 1996 and 2002. Much of this growth took place prior to the 2001 recession. By 1999, non-Hispanic immigrants, who were in the U.S. before 1996, had achieved a higher level of net worth—$71,727—than native-born non-Hispanic households— $68,213. The wealth of these immigrants continued to grow through and beyond the 2001 recession and, by 2002, was nearly double its level in 1996. What about the wealth of Hispanic immigrants who entered the U.S. before 1996? Their net worth fluctuated in the period prior to the recession, falling from $4,815 in 1996 to $3,761 in 1998. But their wealth nearly doubled in 1999, rising to $6,529 in the space of a year. The growth in the wealth of this group of Hispanic immigrants leveled off during the recession but picked up again in 2002. Their net worth of $8,242 in 2002 was 71 percent higher than their net worth in 1996. Native-born Hispanic households fared the worst during the 1996 to 2002 time period. Starting at $11,234 in 1996, the wealth of these households fluctuated from one year to the next. They ended 1999 with a promising note as their net worth peaked at $15,405 in that year. However, the wealth of native-born Hispanic households shrank by over 42 percent between 1999 and 2001, falling from $15,405 to $8,875. In fact, native-born Hispanic households were the only one of the four groups in Table 15 to suffer a loss in wealth between 1999 and 2001. This finding echoes previous findings on the labor market outcomes for first and later generations of Hispanic households in the recent past. For example, previous research conducted by the Pew Hispanic Center showed that the first generation has been more successful in gaining jobs and maintaining a lower rate of unemployment than the second and third generations over the past several years.[29. See the citations in footnote 3.] Despite the many nuances, the fact remains that the wealth of the entire population of immigrants is less than the wealth of the native-born. One reason behind the gap is the homeownership rate (see Table 17). When Hispanic households are considered in isolation, the homeownership gap between immigrant and native-born households is only six percentage points in 2002, but the rate is low for both the nativeborn (50.9 percent) and the immigrant (45.1 percent). At the same time, native-born non-Hispanic households had a homeownership rate of 71.5 percent, or nearly 14 percentage points higher than the homeownership rate of 57.7 percent for immigrant non-Hispanic households. When Hispanic and non- Hispanic households are combined, the homeownership rate for immigrants—52.4 percent in 2002—is 18 percentage points below the homeownership rate for native-born households—70.3 percent in 2002.[30. Homeownership by immigrants is studied in detail in Demetrios Papademetriou and Brian Ray, “From Homeland to a Home: Immigrants and Homeownership in Urban America,” Fannie Mae Papers, Vol. 3, Issue 1, March 2004. Another detailed study is by George J. Borjas, “Homeownership in the Immigrant Population,” Research Institute for Housing America, Working Paper No. 02-01, March 2002. Their estimates of the gap in homeownership between native-born and foreign-born households are similar to those reported in Table 17.] Given the strong relationship between homeownership and net worth (see section 5 and 6 above), increasing the rate of homeownership among immigrants is the key to shrinking the gap in wealth between them and native-born households.

The relationship between net worth and country of origin is evident in the estimates presented in Table 18. Immigrants from non-Hispanic countries tend to have the highest net worth and those from Central and South America the lowest. Approximately 85 percent of immigrant non-Hispanic households arrive from Asia and Europe, Canada, Israel, Australia or New Zealand. Similarly, about 90 percent of immigrant Hispanic households originated from Mexico, Cuba and Central American or Caribbean countries. It can be seen in Table 18 that the median net worth of immigrant households varies quite significantly across these different points of origin. Immigrant households from Europe, Canada, Israel, Australia or New Zealand had a net worth of $104,026 in 2002. These households have consistently the highest level of wealth of any other immigrant group in every year from 1996 to 2002. Immigrant households from Asia currently have the second highest level of net worth—$58,313 in 2002. Asian-born households did not always hold this distinction. Until 1998, the second rank belonged to households from Cuba who, with a net worth of $39,787 in 2002, are easily the wealthiest among immigrant Hispanic households. Immigrant households from Mexico have a net worth of $7,602 and the median wealth of households from Central American and Caribbean countries is only $2,508 in 2002. Although the net worth of households from Mexico is fairly low, it has risen rapidly in recent years and is presently just more than double its level of $3,782 in 1996. In contrast, the wealth of Cuban households appears to have flattened out, hovering in the vicinity of $40,000 in the 1996 to 2002 period. It appears likely that the wealth profile of Hispanic households in the future will be shaped primarily by immigrants from Mexico. The number of years an immigrant has been in the U.S. and whether or not a transition has been made into citizenship are two other predictors of the wealth of immigrant households. Tables 19 and 20 show net worth and homeownership rates for immigrant households grouped by their year of entry into the U.S. and citizenship status. For both Hispanic and non-Hispanic households, net worth is found to be higher the longer the household has been in the U.S. Consider, for example, Hispanic households who migrated to the U.S. between 1996 and 2001. Their net worth in 2002 was $1,221 (Table 19). At the same time, Hispanic households who had arrived between 1991 and 1995 had a net worth of $3,151. This pattern continues with earlier years of entry and, finally, Hispanic households who arrived prior to 1980 are found to have a net worth of $37,380 in 2002. Thus, in 2002, as well as in other years, the wealth of an immigrant household is found to be higher the longer that household has been in the U.S. Looking at the wealth of households in different year-of-entry cohorts within a single year can, however, yield a misleading picture of the financial assimilation of immigrants. That is because each cohort may consist of households with varying characteristics that are also related to wealth accumulation. For instance, immigrants who arrived prior to 1980 may have different levels of education or come from different source countries than the latest arriving immigrants.[31. This issue was first raised by George Borjas, “Assimilation, Changes in Cohort Quality, and the Earnings of Immigrants,” Journal of Labor Economics, Vol. 3, No. 4, 1985.] An alternative is to look at the change in net worth of the same set of immigrant households over time. That is possible with the SIPP data since it follows the same households for a number of years. In particular, in Table 19, the data for 1996 to 1999 come from a single SIPP panel and cover the same immigrant households within each cohort subject only to sample attrition.[32. Sample attrition can cause a bias in estimates of the change in wealth of a cohort if more wealthy (or less wealthy) households are systematically more or less likely to exit the sample over time.] There are signs of wealth assimilation for Hispanic households as, subject to some fluctuation, the wealth of all four cohorts is observed to increase between 1996 and 1999.[33. The data for 2001 and 2002 come from a different SIPP sample and also utilize somewhat different definitions for immigrant cohorts. Therefore, the data for these two years should not be compared with the earlier years for judging the assimilation of a specific cohort.] But the growth in net worth is not impressive, except for the cohort of Hispanic households that arrived in the U.S. prior to 1980. Their net worth increased from $16,162 to $25,884 from 1996 to 1999. Signs of growth in net worth are also present for all cohorts of non-Hispanic immigrants, with the most impressive increases recorded by immigrants who entered the U.S. between 1980 and 1989. Thus, following the same cohorts of immigrants between 1996 and 1999 confirms the impression that the initial wealth of foreign-born households is low and that it follows an upward trajectory thereafter. But even after several decades in the U.S., the wealth of immigrant Hispanic households is well below the national norm.

Evidence of wealth assimilation among immigrant households also emerges in the data on homeownership rates (Table 19). Homeownership rates are highest among immigrant households who arrived in the U.S. before 1980—73 percent for non-Hispanic households and 66.5 percent for Hispanic households in 2002. On the other hand, Hispanic immigrants who arrived after 1996 had a homeownership rate of only 22.1 percent in 2002. Non-Hispanic immigrants who landed after 1996 were only slightly better off by this yardstick with 28.4 percent of them owning homes in 2002. In other words, the homeownership rate among immigrants who arrived over two decades ago was two to three times as high as the rate among immigrants who arrived in the past five years. Signs of a transition into homeownership are also present in the sample of immigrants that can be followed continuously from 1996 to 1999. For example, the homeownership rate for Hispanic immigrants arriving between 1990 and 1996 increased from 17.3 percent in 1996 to 30.2 percent in 1999. But the rate of increase levels off within a few years. Latinos who arrived a decade earlier, i.e., between 1980 and 1984, had a homeownership rate of just over 40 percent and that did not change from 1996 to 1999. The homeownership rate for Hispanic immigrants arriving before 1980 was stationary around 55 percent. The same general pattern describes the behavior of homeownership rates among non-Hispanic immigrants. It is interesting to note that non-Hispanic immigrants assimilate into homeownership at a much more rapid rate than Hispanics. In 1996, non-Hispanic and Hispanic immigrants who arrived between 1990 and 1996 had very similar homeownership rates—20.6 percent and 17.3 percent respectively. However, by 1999, the gap between the groups had grown to seven percentage points in favor of non- Hispanics. Also, the non-Hispanic cohort that arrived between 1985 and 1989 crossed the 40 percent threshold in homeownership by 1997 while the same Hispanic cohort had not crossed the 30 percent mark by 1999. The slower rate of assimilation into homeownership is echoed in the slower rate of assimilation into wealth among Hispanic immigrants. Citizenship, a milestone for many immigrants, is also a marker for greater wealth. Since it typically takes a few years of residency in the U.S. to acquire citizenship it is, in part, an indicator of assimilation. But it is also an indicator of greater immersion in American labor and financial markets, as well as in the social and cultural institutions of the country. Among non-Hispanic immigrants, the net worth of naturalized citizens was $111,240 in 2002 (Table 20), nearly five times as high as the net worth of other non-Hispanic immigrants at the same time—$23,205. The proportional gap was even higher in the case of Hispanic immigrants. Naturalized Hispanic citizens had a net worth nearly 10 times as high as the net worth of other Hispanic immigrants—$36,011 versus $3,857 in 2002. Thus, there is a striking gap in net worth between immigrants who are naturalized citizens and those who are not. The rate of homeownership is one of the factors explaining the wealth advantage of naturalized citizens. As shown in Table 20, naturalized non-Hispanic citizen have a rate of homeownership close to 70 percent. That is about 25 percentage points higher than the 44.7 percent homeownership rate among non-Hispanic immigrants who are not yet American citizens. Naturalized Hispanic citizens also have high homeownership rates—63.5 percent in 2002. Hispanic immigrants who are non-citizens have much lower homeownership rates—only 34.5 percent in 2002. Overall, immigrants who are also naturalized citizens resemble native-born households more than other immigrants with respect to their success in attaining homeownership.[34. A similar conclusion is reached by Sherrie Kossoudji and Stan Sedo, “Immigrants, Natives, and Home Ownership,” paper presented at the conference on Financial Access for Immigrants: Learning from Diverse Perspectives, Federal Reserve Bank of Chicago, April 15-16, 2004.]

IX. Conclusions

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.

Appendixh2>I. Overview

Hispanic households have less than ten cents for every dollar in wealth owned by White households.^* This situation is worse than just a few years ago as the net worth of Hispanics was higher in the years leading into the 2001 recession. The recession eroded over one-quarter of the value of Hispanic wealth between 1999 and 2001. Latinos recouped some of that loss in the following year but ended 2002 with less wealth than they had in 1999. A similar picture emerges for Black households in recent years. The differences are that the net worth of Blacks is even less than that of Hispanic households and that it fell by more from 1999 to 2002. At the same time, the wealth of White households continued to grow, albeit at a slower pace than before the recession. A Pew Hispanic Center analysis of data from the Census Bureau finds that the 2001 recession and the jobless recovery that followed were much harder on the net worth of minority households. Large segments of Hispanic and Black households are extremely vulnerable to economic downturns since over one-quarter of them have zero or negative net worth. Also, more than one out of four Hispanic and Black households owns no assets other than a car or unsecured debt. Most Hispanics 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. One result of this is that the wealthiest 25 percent of households own over 90 percent of the total wealth in the Hispanic and Black communities. But even the wealthiest five percent of Hispanic households have a net worth that is less than one-half of the net worth of comparably placed White households. The wealth gap between White households on the one hand and Hispanic and Black households on the other is much higher than the difference in income across these groups. Even though the median income of Latino and Black households is two-thirds as high as that of White households their wealth is only one-tenth as much. The reasons for this disparity include the facts that minorities have more limited access to financial markets and face greater barriers to homeownership. The ownership of a home bears a strong relationship with the net worth of a household. Homeowners own more of other assets and have a huge advantage in net worth over renters and other households. Hispanic homeowners, in fact, have a net worth that is half as much as the wealth of non-Hispanic homeowners. But non-Hispanic households are much more likely to own homes and that creates an even bigger gulf in wealth across the two groups. Compared to Whites, Hispanics are also relatively young, not as highly educated, concentrated in high cost regions, such as New York and California, where homeownership can be less attainable, and are much more likely to be immigrants. All of these factors contribute to lower levels of wealth but are also self-correcting to some extent. The wealth gap should shrink as the Latino population ages and acquires greater education, especially college degrees. The Hispanic population is also starting to penetrate into new settlement areas, such as, Raleigh, Omaha and Nashville, with lower costs of living than the traditional areas of concentration, and this trend may help more Latino households become homeowners. As immigrants assimilate into labor and financial markets, their income and wealth rises naturally. Although the process of assimilation is not complete in the sense that it leads to wealth parity, it does eliminate much of the initial wealth gap between immigrants and native-born households. The data from the Census Bureau enable the estimation of wealth maintained within the borders of the U.S. only. But, many immigrants, and especially Hispanics, display a strong propensity to send remittances to their source countries. Indeed, for many migrants the ability to support family members through remittances is an important motive for coming to the United States. Remittance flows to Latin American and Caribbean countries are presently estimated at more than $30 billion per year. That computes 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, even if it were not nearly enough to close the gap between them and non-Hispanic households. Major findings of this report include:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988.
Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27 percent each. The net worth of White households increased by 2 percent.
Twenty-six percent of Hispanic, 32 percent of Black and 13 percent of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996.
Fifty-five to 60 percent of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40 percent have middle-class levels of wealth and this proportion has not changed since 1996. Nearly 75 percent of White households have middle-class or higher levels of wealth.
The wealthiest 25 percent of Hispanic and Black households own 93 percent of the total wealth of each group. Among White households, the top 25 percent own 79 percent of total wealth.
The percentage of White households who owned homes in 2002 was 74.3 percent. The homeownership rates for Hispanic and Black households were 47.3 percent and 47.7 percent respectively.
Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25 percent of Latino and Black households, and only 6 percent of White households, own no assets other than a vehicle or unsecured liabilities.
Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets.
The median net worth of renters is only one percent of the level of net worth of homeowners.
The net worth of immigrant households is only 37 percent of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation.
Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002.
Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity.

^* The terms Latino and Hispanic are used interchangeably in this report. The terms White and Black refer to the non-Hispanic portions of those racial groups.

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. The terms “wealth” and “net worth” are used interchangeably in the report. Net worth is the market value of assets owned by households less the liabilities of those households. A list of assets appears in Table 6 below.] 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. For example, see Asena Caner and Edward Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” The Levy Economics Institute, Public Policy Brief No. 76, 2004.] 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. A series of recent reports by the Pew Hispanic Center have examined employment and wage trends for Hispanic and non-Hispanic workers over the past decade. See “Jobs Lost, Jobs Gained: The Latino Experience in the Recession and Recovery,” October 2003, “Latino Labor Report, 2003: Strong but Uneven Gains in Employment,” February 2004, and “Latino Labor Report, First Quarter, 2004: Wage Growth Lags Gains in Employment,” June 2004. Detailed tables on the employment and earnings of Hispanic workers are also available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] 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. Differences between the SIPP and SCF are explored in detail in Shawna Orzechowski and Peter Sepielli, “Net Worth and Asset Ownership of Households: 1998 and 2000,” U.S. Census Bureau, P70-88, May 2003.] 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. See the appendix for additional details on SIPP and the time periods referenced in this report. Because of the timings of the surveys, SIPP did not collect wealth data for 2000.] 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.

III. Median Net Worth and its Distribution

This section presents estimates of household wealth and its distribution for the 1996 to 2002 time period. Unless otherwise noted, all figures are expressed as median values in 2003 prices.[6. numoffset="6" The median net worth is the number which divides the wealth distribution into two equal halves, with one-half of households owning more and the other half of households owning less than the median amount of wealth.] It is shown that Hispanic and Black households have a net worth that is only a small fraction of the net worth of White households. Moreover, White households expanded their advantage in the time period under study. There is great inequality in the distribution of wealth for all households, but particularly so among Hispanic and Black households, a large fraction of whom are either without assets or in net debt. The middle class among Hispanics and Blacks is also relatively thin and has not expanded its share since 1996. Finally, the wealth distribution for households of all races and ethnicities is shown to be more unequal in 2002 than in 1996. The median net worth of Hispanic households at the end of 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. Blacks were even worse off as their median net worth of $5,988 in 2002 was less than seven percent of the wealth of Whites.[7. A wide gulf between White and Hispanic households is also observed in estimates from the Survey of Consumer Finances. Research by Edward Wolff shows that, in 1995, the wealth of Hispanics was only eight percent of the wealth of White households. This proportion fell to three percent by 2001. Over the same time period, the wealth of Black households was estimated to be around 10 percent of the wealth of White households. See Edward Wolff, “Changes in Household Wealth in the 1980s and 1990s in the U.S.” The Levy Economics Institute, Working Paper No. 407, May 2004. Wolff excludes equity in vehicles and other consumer durables from his definition of wealth. There are also other differences in the definition of wealth and ethnicity between SIPP and SCF. The Federal Reserve Board, which conducts the SCF, does not publish wealth estimates for Hispanic or non-Hispanic Black households.] Table 1 and Chart 1 show the median net worth of Hispanic, White and Black households from 1996 to 2002. The wealth of Black households actually eroded over this time period, falling 16 percent from its level of $7,135 in 1996. The net worth of Hispanic households in 1996 was $6,961 in 1996 and increased 14 percent over this amount by 2002. White households have fared the best since 1996. Their wealth in 2002 was 17 percent higher than the level of $75,482 in 1996. Thus, White households expanded their advantage relative to the wealth of Hispanic and Black households in the 1996 to 2002 time period.

Not only is the wealth of Hispanic and Black households only a small fraction of the wealth of White households, an examination of the distribution of wealth reveals a strikingly thin middle class among minority households. Table 2 shows the median net worth of households grouped by their ranking in the wealth distribution. The first group in the table is the 0 to 50th Percentile. That group consists of the 50 percent of households within each racial/ethnic group that ranked the lowest in terms of accumulated wealth. The median net worth of White households in the lowest fifty percentiles in 2002 was $11,316. However, among both Hispanic and Black households the median wealth of the bottom 50 percent of households is zero. That means that one-half of the 0 to 50th Percentile of Hispanic and Black households has a net worth that is less than zero. To put it another way, at least one-quarter of all Hispanic and Black households has a negative net worth.

The exact percentage of households with negative or zero net worth is also shown in Table 2. Hispanic and Black households are two to three times more likely than White households to have zero or negative net worth. More specifically, 27.7 percent of Hispanic households and 31.9 percent of Black households had zero or negative net worth in 1996. That was the case for only 11 percent of White households. The situation did not change much over the years and 26 percent of Hispanic, 32.3 percent of Black and 13.1 percent of White households had zero or negative net worth in 2002.[8. Using data from the Survey of Consumer Finances, Edward Wolff (see citation in footnote 7) reports that the following percentages of households had zero or negative net worth in 2001: Hispanic—35.3 percent, Black—30.9 percent, and White—13.1 percent. Thus, the SCF data also show that Hispanic and Black households were two to three times more likely than White households to be without assets or in net debt.] Thus, from 1996 through 2002, Hispanic and Black households were two to three times more likely to be without assets or in net debt. Returning to the percentile data in Table 2, it can be seen that another one-quarter of Hispanic and Black households—those in the 50th to 75th percentile of the wealth rankings—has a median net worth of approximately $25,000 in 2002. That compares with a net worth of just over $20,000 for these households in 1996. White households with the same percentile ranks had a median net worth of $148,705 in 2002, which is 22 percent higher than their net worth of $121,957 in 1996. Thus, in both 1996 and 2002, Hispanic and Black households who might be considered middle class within the wealth distributions of their communities have a net worth that is only about 17 percent of the wealth accumulated by middle class White households.

The relative position of Hispanic and Black households does improve at the higher rungs of the wealth distribution. The wealthiest five percent of Hispanics households—those in the 95th to 100th Percentiles—have 45 percent of the level of wealth accumulated by comparable White households. However, even the wealthiest Black households have less than 30 percent of the level of wealth possessed by the richest five percent of White households. Thus, there is great disparity in the net worth of minority and White households at all points of the wealth distribution. Even the “middle-class” Hispanic and Black households possess less than one-fifth of the wealth owned by White households. Another perspective on the relative size of the Hispanic middle class is provided by comparing the wealth of Latino households with the median wealth of the population. The median net worth of all households in the U.S. in 2002 was $59,706 (Table 1). Using this figure as the national norm for 2002, households are classified into one of four possible categories based on their level of net worth: Low Wealth, Lower-Middle Wealth, Upper-Middle Wealth, and High Wealth. A household falls into the Low Wealth category if its net worth is less than one-fourth of the national median net worth. At the opposite end, a High Wealth household has net worth that is more than four times as high as the national median wealth. The middle wealth groups fall in between. Table 3 provides the definitions of those wealth groups as well as the results from classifying households based on their wealth relative to the national median. It can be seen that the size of the middle class of Hispanic and Black households is relatively small.

Most Hispanic and Black households have low wealth compared to the national norm (see Table 3). In 2003, 57 percent of these households fell into the Low Wealth category, i.e., their wealth was less than one-fourth the national median net worth of $59,706. At the same time, only 26.8 percent of White households were placed in the Low Wealth category. These proportions remained fairly constant over the 1996 to 2002, although for all racial/ethnic groups there were slightly more households in the lowest wealth category after the 2001 recession than before the recession. Given that the majority of Hispanic and Black households are in the Low Wealth category, it should not be surprising that the middle categories are comparably small. Among Hispanics, 17.4 percent of households were in the Lower-Middle Wealth category and another 18.9 percent were in the Upper- Middle Wealth category in 2002. Combined, that means 36.3 percent of Hispanic households in 2002 had middle-class wealth, defined here as wealth in between one-fourth to four times the national median wealth. The comparable proportion for Hispanics in 1996 was only a shade lower at 35.6 percent. The proportions for Black and White households in the middle class in 2002 are 38.2 percent and 48 percent respectively. These shares are also little different from 1996. Thus, the wealth distribution of Hispanic and Black households is much thinner in the middle in comparison to Whites and that gap has not narrowed in recent years. As expected, White households are far more likely to be placed in the wealthiest category than Hispanics or Blacks. In all the years studied here, approximately 25 percent of Whites have belonged in the top ranks of wealth, i.e., they have wealth at least four times as high as the national median wealth. By contrast, only 6.8 percent of Hispanics and 4.3 percent of Blacks possessed this level of wealth in 2002. While the proportion is small in itself, there are signs of progress for Blacks as only 2.9 percent of them were among the wealthiest in 1996. Although Latino and Black households are much less likely to be among the wealthiest, the wealth of these communities is severely concentrated in the hands of the richest few, much more so than for White households. Table 4 shows the percentage of wealth controlled by households ranked by their net worth. The total wealth of all Hispanic households in 2002 was $734 billion. However, Hispanic households in the 50th or lower percentile of the wealth distribution had a combined negative net worth of minus $26 billion in 2002. At the same time, Hispanic households whose wealth placed them in the top five percent of the percentile rankings had a combined net worth of $365 billion. Thus, just five percent of Hispanic households controlled 49.8 percent of the total net worth of all Hispanic households. Another 20 percent of Hispanic households, those in the 75th to 95th percentiles of the wealth rankings, controlled $315 billion or 42.9 percent of total Hispanic wealth in 2002. Collectively, the wealthiest 25 percent of Hispanic households accounted for 92.7 percent of total Hispanic wealth in 2002. This share is slightly higher than in 1996. The distribution of wealth across Black households is just as unequal. The net worth of one-half of Black households, those in the lower rungs of the percentile rankings, was minus $44 billion in 2002. At the same time, the top five percent of Black households had a combined net worth of $298 billion, or 48 percent of the total net worth of $620 billion for Black households. This share has increased by nearly six percentage points since 1996 when the wealthiest five percent of households accounted for 42.2 percent of the total wealth of Black households. Thus, the relative position of the poorer Black households, as measured by net worth, has deteriorated considerably since 1996. Among White households, the bottom half of the wealth distribution has a positive net worth— $705 billion in 2002. The wealthiest 25 percent of White households, i.e., those in the 75th to 100th percentiles, accounted for 78.9 percent of the total wealth of $18,544 billion. That is a high share, but it is less unequal than the 93 percent share of the similarly ranked Hispanic and Black households.[9. It should be noted that the wealth distribution of White households may be more concentrated at the top than shown in Table 4. By design, SIPP data contain an over sample of low-income households. Therefore, in comparison to other surveys of wealth, e.g., the Survey of Consumer Finances, estimates of wealth from SIPP tend to be on the low side. To the extent that the richest households, more likely to be White than Hispanic or Black, are under sampled in SIPP, the distribution of wealth for non-Hispanic Whites may appear more equal than it really is. For more on the distribution of wealth as estimated from SCF data see the Edward Wolff paper cited in footnote 7 or Arthur B. Kennickell, “A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001,” Federal Reserve Board, March 3, 2003.] As was the case with other racial/ethnic groups, the share of the top five percent of White households has also increased in recent years. Thus, for all households, whether Hispanic or non-Hispanic, wealth was distributed more unequally in 2002 than in the years leading up to the 2001 recession.[10. The Federal Reserve Board also finds that, between 1998 and 2001, net worth increased faster for households positioned above the median. See Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal Reserve Bulletin, January 2003.]

This section has shown that not only is Hispanic and Black wealth a small fraction of the net worth of White households, it is also more unevenly distributed. Compared to the national median net worth, Hispanics and Blacks are far more likely to be in the lowest wealth category than in the middle or higher ranking groups. Moreover, this situation has not changed since 1996. If anything, White households expanded their advantage relative to Hispanics and Blacks in the time period under study. The wealth gap between White households and Hispanic and Black households is much larger than the gap in incomes across these groups. Data from the Census Bureau show that the median income of Hispanic households is more than two-thirds of the level of the median income of White households. Black households have a median income that is only slightly less than two-thirds of the median income of White households.[11. “Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Census Bureau, P60-226, August 2004. Not only is the median income of Hispanics and Blacks closer to the income of non-Hispanics it is also more evenly distributed in comparison to wealth. In Table 3 it was shown that nearly 60 percent of Hispanics and Blacks have wealth that is less than one-fourth the national median level of wealth. The Pew Hispanic Center estimates that only about 10 percent of Hispanics and 18 percent of Blacks have income that it less than one-fourth the national median level of income as reported by the Census Bureau ($43,318 per household in 2003). When ranked by income, most Hispanics and Blacks would fall into the lower-middle income category, i.e., income from one-fourth to the national median level of income.] The reasons why the wealth gap is much higher than the income gap include the lack of inheritances, limited access to financial markets, and barriers to homeownership. Homeownership and other factors related to wealth are explored in subsequent sections of this report.

IV. The Effects of the 2001 Recession on Household Wealth

One of the goals of this study is to determine the change in household wealth associated with the 2001 recession. It is estimated that the recession had a large impact on the net worth of Hispanic and Black households, eroding about one-quarter of their wealth within two years. The wealth of White households continued to grow through the recession and they expanded their advantage relative to other households. Because the Hispanic population is constantly changing with the influx of low-wealth immigrants, one challenge is to set aside the effect of population change and focus only on the impact of the business cycle. That requires some manipulation of the SIPP data. The impact of the recession is measured by estimating the change in median wealth between the end of 1999 and the end of 2001. The duration of the recession, as declared by the National Bureau of Economic Research, was from March to November 2001. As mentioned in the introductory section, one problem that has to be resolved is that the estimates of wealth for 1999 may have an upward bias. The reason for this upward bias is that the 1996 SIPP panel is not replenished over its four-year life span to incorporate newly arriving immigrants. Since the net worth of new immigrants is typically lower than average, their arrival lowers the median wealth of the population. But this downward pull on wealth is missed by the SIPP sample and the extent of the error could be significant for population sub-groups where immigration is an important source of growth. Hispanics are the primary example of such a population sub-group. The Hispanic population is growing at roughly four percent per year and almost one-half of that growth can be attributed to immigration. There is, therefore, reason to believe that the estimates of Hispanic wealth in 1999 are overstated because the significant numbers of relatively poorer Hispanic immigrants which entered the country after 1996 are not reflected in the sample.[12. numoffset="12" Another potential source of error with longitudinal data such as SIPP is “attrition bias.” That arises from the departure of households or persons from the sample over time.] The overstatement is automatically corrected with the selection of the 2001 SIPP panel because that the new sample is representative of the population at the time it is drawn, including recently arrived immigrants. One way of eliminating the sample effect from the comparison of wealth across 1999 and 2001 is to adjust the composition of the 2001 SIPP panel, which represents the U.S. population in 2001, to better match the composition of the 1996 SIPP panel which represents the U.S. population in 1996. That is achieved by excluding immigrants who arrived in the U.S. in 1996 or later years from the 2001 SIPP panel. The wealth of this sub-sample from the 2001 SIPP can then be compared with the wealth of the 1996 SIPP panel, as measured in 1999, to answer the following question: How did the 2001 recession affect the wealth of households who were residents of the U.S. in 1996? In this framework, the wealth of a sample of households representing the U.S. population in 1996 is measured and compared across two points in time—1999 and 2001. The answer to this question may not be the same as comparing the wealth of the actual, but disparate, U.S. populations in 1999 and 2001, but it does isolate the effect of the business cycle by eliminating the sample composition effect. In other words, by this measurement rises or declines in the wealth of Latinos are the result of economic rather than demographic change. The need to eliminate a group of immigrants from the 2001 SIPP triggers another restriction on the data. Immigrant status is known for most, but not all, members of a SIPP panel. Therefore, households whose immigrant status is unknown are also eliminated from the 2001 SIPP sample, and, for the sake of comparability, from the 1996 SIPP panel.13 As a result, the estimates of median wealth reported in this section differ from those reported in section 2 not just for 2001 and 2002 but also for the earlier years. However, the additional sample restriction has very small effects on the estimates of median wealth for 1996 to 1999.

The estimates of wealth adjusted to make the samples comparable across the two SIPP panels are reported in Table 5. For the 1996 to 1999 time period, the estimates in Table 3 differ slightly from those presented earlier in Table 1 due to the exclusion of households whose immigrant status is unknown. For example, the median wealth of the full sample of Hispanic households in 1999 is estimated to be $10,495 (Table 1). If the sample is restricted to households with a known immigrant status, the median wealth of Hispanic households in 1999 is estimated to be $10,660 (Table 5). Thus, restrictions on 1996 SIPP panel have minimal effect on the estimates of the net worth of households. However, the restrictions on the composition of the 2001 SIPP panel have a notable impact on the estimates of wealth, especially for Hispanic households. The first restriction on this sample is to remove households whose immigrant status is unknown, and the second restriction is to eliminate immigrant households who entered the U.S. during or after 1996. For Hispanic households, this raises the estimated median wealth in 2001 from $6,213 in Table 1 to $7,791 in Table 5. The former is a better estimate of the true wealth of the population of Hispanic households in 2001, but the latter is more comparable to estimates derived from the 1996 SIPP panel. The difference between these two estimates is $1,578 and, although not shown in Table 5, all but $226 of this increase is due to the removal of immigrants entering the U.S. between 1996 and 2000. That underscores the importance of immigration in shaping the economic profile of the Hispanic population in the U.S. The wealth estimates for White and Black households in 2001 and 2002 are also impacted by the sample restrictions but in those cases the changes are almost entirely due to the removal of households with unknown immigrant status. Immigration itself is not an important phenomenon for those households. The 2001 recession had a large effect on the net worth of Hispanic and Black households. Between 1999 and 2001 the median wealth of Hispanic households fell from $10,660 to $7,791, a decline of 26.9 percent (Table 5). A fair amount of this loss was apparently recovered in the following year as the median worth of Hispanic households in 2002 is estimated to be $9,845. However, this is still eight percent below the pre-recession level of wealth. Black households suffered a decline of 26.7 percent in their median wealth between 1999 and 2001, from $8,696 to $6,373. The recovery for Blacks was much weaker as their net worth increased by only 5.2 percent during 2002. In fact, their net worth of $6,706 in 2002 was 23 percent less than their net worth in 1999. On the other hand, the wealth of White households continued to increase through the recession, increasing by over two percent between 1999 and 2001 and then again by a similar percentage in 2002. Thus, the recession of 2001 and the economic slowdown that followed were harder on the net worth of minority groups.[14. This finding echoes that of earlier reports released by the Pew Hispanic Center that studied the impact of the latest recession on the employment and earnings of different racial/ethnic groups. See the PHC reports referenced in footnote 3 above.][15. Based on the analysis of data from the Survey of Consumer Finances, the Federal Reserve Board reported an increase of 10.4 percent in the median wealth of all U.S. households between 1998 and 2001 (see the reference in footnote 10). The gains for White and Black households were reported to be 16.9 percent and 13.1 percent respectively. Estimates from the SIPP, as shown in Table 5, also reveal double-digit percentage increases in the wealth of all households and White households between 1998 and 2001. The difference is that SIPP data show a decline in the wealth of Black households from 1998 to 2001. That may be a consequence of the fact that SIPP over samples low-income households and the opposite is true of the Survey of Consumer Finances.]

V. The Ownership of Assets

Wealth may be accumulated in various forms and an analysis of the composition of wealth shows a key similarity as well as several differences across racial/ethnic groups. The single most important asset for all races and ethnicities is a house. Not surprisingly, households of all stripes are also quite likely to own vehicles. But Hispanic and Black households are much less likely than White households to own financial assets, including retirement accounts, and many minority households own no assets whatsoever. The SIPP data make it possible to distinguish across 14 major types of assets and liabilities. This section presents evidence on the ownership of these assets and liabilities by race and ethnicity. The assets most likely to be owned by American households are a car and a house. As shown in Table 6, nearly 90 percent of White households, over three-fourths of Hispanic households and more than two-thirds of Black households report owning at least one car in 2002. The highest rate of homeownership is among White households with 74.3 percent indicating they owned a home in 2002. This rate is much higher than among Hispanic and Black households whose rates of homeownership in 2002 were 47.3 percent and 47.7 percent respectively. The rate of homeownership among Whites has increased every year since 1996 and is presently 2.4 percentage points higher than in 1996. The homeownership rate for Hispanic households also increased over time and was 3.1 percentage points higher in 2002 in comparison to 1996. However, the rate of homeownership among Blacks has remained flat since 1996. While the homeownership rate among Hispanics and Blacks is relatively low, homes are the most likely asset to be owned by these households after vehicles.[16. The estimated rates of homeownership from the SIPP data are very similar to those reported by the Census Bureau from its annual Housing Vacancy Survey. According to that survey, the homeownership rates by race and ethnicity in 2002 were as follows: Hispanics—47 percent, Whites—74.7 percent, and Blacks—47.4 percent. One difference between SIPP and the Housing Vacancy Survey is that the latter indicates a 4.2 percentage point increase in the homeownership rate for Hispanics between 1996 and 2002 instead of the 3.1 percentage point increase derived from SIPP.] Other assets, mostly financial, are less likely to be owned than houses or vehicles. The leading financial assets are interest earning accounts at financial institutions and non-interest bearing checking accounts. The former includes assets such as interest-earning checking accounts, savings accounts, money market accounts, and certificates of deposit. White households lead the way once again, with 69 percent reporting ownership of interest-earning accounts at financial institutions in 2002. This was nearly 30 percentage points higher than the rate among Hispanic households—42.4 percent—and the rate among Black households—40.3 percent. Ownership rates for non-interest bearing checking accounts are lower for all types of households. White households are at the front with 36.3 percent of them owing such accounts in 2002. The rates for Hispanic and Black households are 29.9 percent and 25.1 percent respectively. Overall, it is apparent that the majority of Hispanic and Black households do not own even the basic instruments offered by financial services companies. Ownership of other financial assets among Hispanic and Black households is very low. Fewer than 10 percent of Hispanic households and only slightly more than 10 percent of Black households owned stocks and mutual funds in 2002. This contrasts with the 35 percent rate for White households. Hispanic and Black households are also less prepared for retirement as only about 20 percent of each group reports participation in a 401(k) or Thrift savings plans and fewer than 10 percent have IRA or Keogh accounts. Among White households, 34.5 percent had 401(k) or Thrift savings plans and 29.4 percent had IRA or Keogh accounts in 2002. Clearly, financial market participation for Hispanic and Black households is well below the norm for White households. While the ownership of assets, especially financial assets, lags among Hispanic and Black households, they are about as likely as White households to hold unsecured debt. In 2002, over 45 percent of Hispanic households, 47 percent of Black households and 53 percent of White households had unsecured liabilities. These rates represent improvements over 1996 for all three groups. Nonetheless, it is fair to say that about one-half of all households in the U.S. held unsecured debt during the entire 1996 to 2002 time period.

Another perspective on the gap between White and minority households is provided by looking at the proportions of households that own no assets. Table 7 shows that 10.5 percent of Hispanic households and 16.4 percent of Black households reported owning no assets other than unsecured liabilities in 2002. These are households with debt but no positive asset position. The similar proportion for White households is only 2.5 percent. If one considers households that own no assets other than a vehicle or unsecured liabilities, the proportions rise to 25.4 percent for Hispanics and 27.2 percent for Blacks. The same proportion for White households is only 6.3 percent in 2002. Thus, while virtually all White households own at least some real estate, business equity or financial instrument, over one-quarter of Hispanic and Black households own no such assets. On the positive side, there has been some improvement since 1996 when these proportions were slightly worse for both Hispanics and Blacks.

VI. Net Worth by Type of Asset

As discussed in section 2 above, the median net worth of Hispanic households in 2002 was $7,932, or only nine percent of the median net worth of White households. But what is the amount of equity that Latinos have acquired in the homes they own and how does that compare with White households? What is the value of the financial assets owned by Latino households? And what is the relative importance of each asset in the portfolios of Hispanic and non-Hispanic households? It is shown that, just as homeownership is more important than the ownership of all other assets except vehicles, home equity is the single largest item in the portfolio of homeowners. Also, not only are White households more likely to own any given asset, they also possess more of each asset on average in comparison to Hispanics and Blacks. By one measure the median value of home equity or any asset owned by Hispanic households, other than vehicles, is zero. That is because fewer than 50 percent of Latino households own any single asset other than vehicles. For example, since only 47.3 percent of Hispanic households owned a home in 2002, the remaining 52.7 percent of Latinos had, by definition, zero amount of home equity. It follows that for the entire population of Latino households, the median value of home equity is zero. The same logic applies to all other assets except vehicles. What is true for Hispanic households is also generally true for Black and White households. The only exceptions arise in the case of White households who own homes, interest earning assets and unsecured liabilities at rates in excess of 50 percent. Therefore, in gauging the value of individual assets, it makes sense to focus only on the households that own those assets. Table 8 shows the median value of assets for households that own any particular asset. Among Hispanic households that owned a home, i.e., for the 47.3 percent of Latino households that owned a home, the median value of home equity was $49,840 in 2002. That was 60 percent of the median value of home equity—$81,191—owned by White households. So, not only is the proportion of White households that owns a home much higher, but the value of those homes is also higher. Black households, who have the same rate of homeownership as Hispanic households, have the lowest median value of home equity, namely, $40,685 in 2002. With respect to financial assets, Latino and Black households have virtually the same median value of interest earning assets in 2002, about $1,500, which, in turn, is about one-third of the value owned by White households—$5,029. The same could be said of stocks and mutual funds, where the holdings of Latino households—$3,560—are roughly one-third of the $10,171 held by White households in 2002. With regard to retirement accounts in 2002, Latino and Black households owned in the range of $10,000 to $12,000 in IRA & Keogh accounts and 401(k) & Thrift accounts. White households owned approximately twice that amount—$20,343 in IRA & Keogh accounts and $20,298 in 401(k) & Thrift accounts. It was noted earlier that the 2001 recession had a negative impact on the wealth of Hispanic and Black households. For Latino households, the erosion in wealth can be traced to the loss in value of financial assets. Between 1999 and 2002, the median values of the holdings of Hispanic households declined in all of the following categories: interest earning assets, other interest earning assets, U.S. savings bonds, IRA & Keogh accounts, 401(k) & Thrift accounts, and stocks and mutual funds.[17. numoffset="17" The magnitudes of the declines in these asset values for Hispanics are likely to have been affected by the sample effect discussed in section 3 above. But the direction of the change is unlikely to have been the consequence of just the sample effect, especially since the same changes are observed for White households and the stock market began a slide in 1999 that lasted several years.] On the other hand, the median value of equity in owned homes and rental properties increased between 1999 and 2002. Thus, the strength of the housing market in the recent economic slowdown eased the reduction in median wealth of Hispanic homeowners. The trends in the median value of assets were similar for White householders. Between 1999 and 2002, these households also saw an increase in the value of home equity and a reduction in the value of their financial assets. The fact that nearly three-quarters of White households own homes most likely prevented a reduction in the median net worth of this population. Black households were somehow able to buck these trends as, for them, the median values of all financial assets except stocks and mutual funds increased between 1999 and 2002. How important are the various assets to the portfolio of the “typical” Latino and non-Latino households? Because not all households own all assets, and since several assets are owned by very few households, this question is open to more than one answer. Table 9 offers one perspective on the issue. In particular, Table 9 shows the distribution of the mean net worth of Hispanic households. In 2002, the mean net worth of Hispanic households is estimated to be $65,371. In the same year, the mean level of home equity for all Hispanic households, not just homeowners, was $39,864. Thus, as shown in Table 9, 61 percent of the average net worth of Latino households is derived from home equity. Other assets pale in comparison. The next most important assets on the list are rental properties and 401(k) & Thrift accounts and each of those accounts for only 7.3 percent of the mean net worth of Hispanic households. Close behind are stocks and mutual funds which account for 7.2 percent of Latino wealth by this measure. Clearly, homeownership is a vital component of the wealth of Hispanic households. The overwhelming importance of homeownership is also evident for Black households for whom home equity accounted for 63 percent of mean total net worth in 2002. Far behind are 401(k) & Thrift accounts which contributed 11.5 percent to the value of mean total net worth of Black households. Home equity is also important for White households but much less so. In 2002, home equity was only 38.5 percent of the mean net worth of $221,871 of White households. Stocks and mutual funds are also very important to White households and accounted for 21.9 percent of their mean wealth in 2002. By these measures, therefore, the average White household has a much more balanced portfolio than the average Hispanic and Black household. Another perspective on the importance of an asset may be gleaned by phrasing the question more narrowly. For example, what is the share of home equity in the total net worth of homeowners only? In other words, rather than estimating the distribution of net worth for the entire population, one can estimate the importance of an asset only to the segment of the population that owns that asset. Table 10 shows that home equity accounts for 88.4 percent or more of total net worth for one-half of Latino homeowners. Since 47.3 percent of Latino households currently own a home (Table 6), this implies that one-half of this number, or 23.7 percent of all Latino households, has 88.4 percent or more of net worth held in the form of a home. Almost exactly the same statements apply to the situation of Black households. The homeownership rate for Black households was 47.7 percent in 2002. Among the Black households that own a home, one-half had 88.1 percent or more of their total net worth in the form of home equity. In other words, nearly one-quarter of all Black households count home equity as the overwhelming portion of their portfolio. Whites that own homes have more diverse portfolios but home equity is still the major portion of their wealth. In particular, home equity accounts for 61.6 percent or more of the total net worth of one-half of White homeowners. It can be seen from Table 10 that most owners of rental and other properties would also count those properties as significant parts of the value of their total holdings. Thus, real estate is a key asset for those who own it. The significance of homeownership can also be assessed by comparing the wealth of homeowners with others. Table 11 shows the median net worth of Hispanic and non-Hispanic homeowners and others. The wealth advantage of homeowners over the rest of households is enormous. The median net worth of non-Hispanic homeowners in 2002 was $129,778.[18. The non-Hispanic category includes non-Hispanic Whites, non-Hispanic Blacks, and non-Hispanic Others (Asians and others).] In contrast, the median net worth of non-Hispanic renters and others was only $1,526, or just over 1 percent of the wealth of homeowners. Gaps of this size are present in all years since 1996. The median net worth of Hispanic renters and others is also very low. In 2002, the net worth of Hispanic renters and others was only $762. On the other hand, Hispanic homeowners had a net worth of $62,839, or 82 times the wealth of Hispanic renters and others.[19. Gaps of this magnitude also emerge from SCF data. Aizcorbe, Kennickell and Moore (see the citation in footnote 10) report that the median wealth of renters and others was less than three percent of the median wealth of homeowners in 2001.]

The data in Table 11 also indicate that the wealth of Hispanic homeowners is almost 50 percent of the level of wealth of non-Hispanic homeowners. The same result also emerges for Hispanic renters and others when compared with non-Hispanic renters and others in recent years. However, the wealth of all Hispanic households combined is only about 10 percent of the level of wealth of all non-Hispanic households. That is a consequence of the much higher rate of homeownership among non-Hispanics (Table 6).[20. Table 6 shows data for non-Hispanic Whites and Blacks only. The homeownership rate of non-Hispanic Others was 57 percent in 2002.] While much of the wealth of homeowners is derived from home equity, homeownership as a trait is also associated with higher rates of ownership of other assets as well as higher levels of holdings of those assets. This can be seen in Appendix Tables A1 and A2 which report ownership rates and the median values of financial assets for Hispanic and non-Hispanic homeowners and others.[21. As is the case with previous tables, the median values are only computed over the set of households that own any particular asset.] For example, consider the gap that exists with respect to retirement accounts. Both Hispanic and non-Hispanic homeowners are about twice as likely as renters and others to own a 401(k) or Thrift account (see Table A1). Moreover, Hispanic homeowners with 401(k) and Thrift accounts had a median value of $15,020 in their accounts in 2002, but Hispanic renters and others with these accounts had only $6,061 (Table A2). Similarly, non-Hispanic homeowners with 401(k) and Thrift accounts maintain a median balance of $22,328 in contrast to the balance of $7,629 kept by non-Hispanic renters and others. Large gaps in ownership and asset values between homeowners and renters can also be observed in the case of IRA and Keogh accounts. Overall, homeowners are also more likely to own and maintain higher balances in checking and interest earning accounts, possess a greater value of savings bonds, own more in stocks and mutual funds, have more of other assets, and appear to drive better cars.

VII. Wealth by Household Characteristics

There are many reasons why the net worth of Latino households is below the U.S. average. The Hispanic population in the U.S. is younger, not as highly educated, and earns less than the non-Hispanic population. Moreover, 40 percent of the Hispanic population is composed of immigrants who, along with previous generations of Latinos, are concentrated in a small handful of states in the U.S. This section examines how the median net worth of Hispanic and non-Hispanic households varies by their economic and demographic characteristics such as income, age, education, gender, and region of residence. The next section examines the wealth of immigrant groups. The net worth of a household increases with its income. That fact emerges clearly in Table 12 which shows the net worth of Hispanic and non-Hispanic households grouped into quintiles of the income distribution.[22. numoffset="22" The income quintile ranges are given in the footnote to Table 12.] Among Hispanics, a wide gulf in net worth emerges with the fourth highest income quintile. In 2002, the median wealth of Latinos in the fourth income quintile was $38,402, or four times as high as the median wealth of Latinos in the third income quintile, namely, $9,629. Among non- Hispanics, the big jump in net worth occurs at much lower levels of income. The net worth of non- Hispanic households in the second income quintile was $40,194 in 2002, five times as high as the net worth of non-Hispanics in the lowest income quintile—$7,963. Table 12 also shows that, in the highest income ranges, Hispanic net worth in 2002 was 40 percent of non-Hispanic net worth. However, Hispanic households in the three lowest income quintiles have a net worth that is less than 20 percent of the net worth of non-Hispanic households in the same income quintiles. Thus, the gap in wealth between Latino and non-Latino households is much higher at lower levels of income. Underlying the wealth gaps by income level is differences in homeownership across the quintiles of the income distribution. Even at the lowest rungs of the income distribution, nearly 50 percent of non- Hispanic households own a home. However, the same is true for fewer than 30 percent of Hispanic households in the lowest income quintile. For Latinos, the rate of homeownership does not cross the 50 percent threshold till the third income quintile. In 2002, this meant a monthly household income in the range of $2,552 to $4,020. Clearly, policies designed to promote homeownership among low- to mid-income Hispanics would have a large impact on closing the wealth gap between Latino and non-Latinos households. Existing research shows that wealth increases with the age of a household head but only till about age 65. Household wealth diminishes thereafter as older households begin the process of consuming past savings.[23. See the papers by Edward N. Wolff (cited in footnote 7) and Ana M. Aizcorbe, Arthur B. Kennickell and Kevin B. Moore (cited in footnote 10).] This pattern also emerges from the SIPP data for non-Hispanic households. Table 13 shows that the median wealth of non-Hispanic households peaks in the age group 55 to 64 years. In 2002, for example, the median wealth of these households was $145,131, nearly 14 times higher than the wealth of non-Hispanic households headed by persons of age 25 to 34 years—$10,705. Notably, the age wealth gap was much lower in 1996 when the wealth of non-Hispanic households in age group 55 to 64 years was only 8 times as high as the wealth of households in age group 25 to 34 years. Among Hispanic households, wealth continues to grow through all age levels and peaks at ages beyond 65 years. In 2002, the median wealth of Hispanic households in age group 65 years or above was $51,934. This, too, is almost 14 times higher than the wealth of Hispanic households in age group 25 to 34 years, namely, $3,857. In the year 1996, this ratio was lower as the wealth of Hispanic households in age group 65 years and over—$39,155—was 10 times as high as the wealth of households in age group 25 to 34 years. As is the case with non-Hispanic households, the net worth of Hispanic households also increases rapidly with age, although it appears that it takes Hispanic households a decade longer than non- Hispanics to multiply their wealth by the same proportion. As with income and age, the education of the household head is another factor positively related to net worth. The advantages of a college education are quite significant. In 2002, non-Hispanic households with college-educated heads had a median net worth of $161,613 (Table 14). This was nearly three times as high as the net worth of $56,428 owned by non-Hispanic households whose head had attended, but not graduated, from college. Hispanic households with a college-educated head have an even greater edge over those who attended but did not graduate from college. The net worth of the former group in 2002 was $58,145, nearly six times as high as the net worth of $10,166 for the latter group. Nonetheless, a college degree does not eliminate the significant disparity between non-Hispanic and Hispanic wealth as non-Hispanic households with a college educated head enjoyed a net worth ($161,613) nearly three times higher than Hispanic households with a college-educated head ($58,145).

Hispanic households whose head lacks a high school degree have very low net worth—$4,475 in 2002. This is less than 10 percent of the wealth owned by Hispanic households with a college-educated head. On the positive side, the least educated Hispanic households have partially closed the gap over time vis-à-vis the college-educated households. In 1996, if a Hispanic household head had less than a high school education, the net worth of that household—$2,882—was only five percent of the net worth of a Hispanic household with a college-educated head—$51,414. Latino households with less than a high school education have also somewhat narrowed the gap in comparison to similarly educated non-Latino households. In 1996, Latinos with less than a high school education owned only 10 percent of the wealth owned by their non-Latino counterparts—$2,882 versus $28,693. By 2002, this proportion had increased to 22 percent—$4,475 versus $20,343. Thus, at least in terms of net worth, less educated Hispanics outperformed their non-Hispanic counterparts as well as more educated Hispanics between 1996 and 2002, increasing their wealth from a very small base. Among non-Hispanics, the change in wealth between 1996 and 2002 was directly related to the level of education. As shown in Table 14, the wealth of non-Hispanics without a high school degree eroded from $28,693 in 1996 to $20,343 in 2002. Non-Hispanics with a high school degree realized a modest gain of 2.2 percent in net worth over the same time period, and those who attended some college increased their net worth by 5.7 percent. However, the largest gains among non-Hispanics were registered by college graduates whose net worth increased every year between 1996 and 2002, including through the recession in 2001. Starting at $124,841 in 1996, the median net worth of non-Hispanic college graduates increased 29.5 percent to stand at $161,613 in 2002. Thus, between 1996 and 2002, wealth accumulation proved to be easier for the better educated non-Hispanics. The wealth of college-educated Hispanics did not fare as well in the 1996 to 2002 time period. In 2001, the median wealth of Hispanics with college degrees—$50,097—was actually less than their median wealth of $51,414 in 1996. It recovered the next year, but by the end of 2002 the net worth of Hispanic college graduates was only 13 percent higher than in 1996. One consequence is that the relative standing of college-educated Hispanics also slipped during this time period. In 1996, the median net worth of Hispanics with a college degree was 41 percent of the wealth of their non-Hispanic counterparts. This ratio had slipped to 31 percent by the end of the recession in 2001 and then recovered somewhat to finish 2002 at 35 percent. Thus, a college education did not provide immunity from the economic downturn for Hispanics as both their absolute and relative wealth slipped backwards during the 2001 recession. The well known wage gap between women and men also translates into a wealth gap between households headed by women and men (Table 15). Among non-Hispanics, the net worth of a household, if headed by a woman, was $51,405 in 2002. This is 60 percent of the net worth of non-Hispanic households headed by a man, namely, $86,370 in 2002. This ratio has not changed in recent times as it has fluctuated between 55 and 60 percent since 1996. Hispanic households headed by a woman had just over one-third of the wealth of households headed by Latino men in 2002—$4,489 in comparison to $13,154. However, this ratio was much lower in the recent past, standing at less than one-fourth in 1996.

Table 16 shows how the wealth of households varies across the four principal regions. Non- Hispanic households located in the Northeast have the highest net worth—$91,540 in 2002—followed by non-Hispanic households in the West, the Midwest and the South. This ranking of regions has remained unchanged since 1996. Exactly the opposite pattern emerges for Hispanic households. The wealthiest Hispanic households are located in the South, followed by Latino households in the Midwest, the West and the Northeast. This pattern is explained in part by the predominance of Cuban households in Florida. Those households are the closest to White households in terms of income and education. Hispanic households in the Northeast are principally of Puerto Rican origin and reside mostly in the New York area. Because of its high cost, homeownership rates in New York are well below the rates in other states for households of all races and ethnicities. For Hispanics, in particular, the rate of homeownership in New York is estimated to be below 20 percent in 2002, well below the overall homeownership rate of 47.3 percent.[24. For non-Hispanics, the rate of homeownership in New York was 59.3 percent in 2002, much below the national average rate of 70 percent.] Given the overwhelming importance of home equity in shaping the net worth of low income individuals, it is not surprising that Hispanic households in the Northeast have very low net worth.[25. A recent report by the Tomás Rivera Policy Institute examines barriers to homeownership for Mexican-Americans in three large metropolitan areas in the South and West. See Jongho Lee, Louis Tornatzky and Celina Torres, “El Sueño de su Casa: The Homeownership Potential of Mexican-Heritage Families,” The Tomás Rivera Policy Institute, 2004.] In summary, the traits that influence household wealth include their level of income, the age, education and gender of the household head, and their region of residence. The characteristics of Hispanic households are typically associated with low levels of wealth. The income of Hispanic households is well below average and the heads of Hispanic households, while somewhat less likely to be female, are younger and less educated. Hispanic households are also concentrated in high cost areas within the Northeast and West regions of the country. This contributes to a lower rate of homeownership and overall net worth.

VII. The Wealth of Immigrant Groups

Nearly 50 percent of Hispanic households are headed by first-generation Americans and many of them arrived in the U.S. only in the past two decades. It is of interest, therefore, to examine the wealth of Hispanic immigrants and chart their progress over time as well as with respect to the native-born. Since immigration is typically followed by a period of adjustment to the U.S. labor and financial markets, one would expect that the savings and wealth of first-generation Americans lag behind their native-born counterparts. That impression is confirmed by the evidence presented below. However, it is also shown that it is not immigrant status per se but the region of origin for immigrants that is a more important predictor of net worth of foreign-born households.

The wealth of native and foreign-born households is shown in Table 17.[26. numoffset="26" The sample of households used to derive the estimates in Tables 17 to 20 is different from the sample for all preceding estimates except for the estimates in section 3. The immigrant status of a person in the SIPP sample is ascertained only during the second wave (Wave 2) of interviews. Thus, in Tables 17 to 20 the sample consists only of persons who were also present and interviewed during Wave 2. The size of this sample shrinks over time as households attrite from the SIPP panel for a variety of reasons.] As discussed in section 3 above, the estimates for 1997 to 1999 are based on the 1996 SIPP panel that does not encompass immigrants entering the U.S. in 1996 or later years. Thus, the trend in the wealth of immigrants from 1997 to 1999 should be understood to represent the net worth of immigrants who were present in the U.S. in 1996. The estimates for 2001 and 2002 come from the 2001 SIPP panel that does include immigrants who reached the U.S. between 1996 and 2000. It is still valid to draw comparisons between 1996 and 2001 (or 2002) because the data for these points in time is reflective of the populations of immigrants in the U.S. in those years. However, the comparability of data for immigrants between 1999 and 2001 is affected because the former does not fully reflect the presence of all immigrants present in the U.S. in 1999. To preserve comparability between 1999 and later years, Table 17 presents a second set of estimates for 2001 and 2002. In these estimates, immigrants who entered the U.S. between 1996 and 2002 are eliminated from the 2001 SIPP panel. This is the same as the procedure that was used in section 3 to measure the change in wealth between 2001 and 2002. The wealth of all immigrants combined is well below one-half of the wealth of native-born households. In 2002, foreign-born households had a median net worth of $24,357, or only 37 percent of $66,281, the median net worth of native-born households (Table 17). Still, that was an improvement over 1996 when the median wealth of immigrants—$18,327—was 32 percent of the net worth of native-born households—$57,882. But when households are placed into groups by ethnicity, the gap between immigrant and native-born households shrinks considerably. The foreign- and native-born wealth gap virtually disappears when non-Hispanic immigrant households are compared with their native-born counterparts. The median net worth of non-Hispanic immigrant households was $61,740 in 2002. This was 87 percent of the median net worth of native-born non-Hispanics—$71,260. In 1996, non-Hispanic immigrants had a net worth of $46,767. That was 77 percent of $61,049, the net worth of native-born non-Hispanic households in 1996. A similar result emerges when Hispanic immigrants are compared only to native-born Hispanic households. In 1996, the ratio of wealth was only 43 percent, when the net worth of immigrant and native-born Hispanic households was $4,815 and $11,234 respectively. In 2002, first-generation Hispanic households had a net worth of $6,800. This was 65 percent of the level of wealth belonging to native-born Hispanic households in 2002, namely, $10,425. Thus, when immigrant households are compared to their own native-born ethnic counterparts, Hispanic or non-Hispanic, they are found to have a net worth that is two-thirds or more as much. If Hispanic and non-Hispanic immigrants, considered individually, possess nearly as much wealth as similar native-born households, why is the net worth of all immigrant households combined only 37 percent of the median wealth of all native-born households combined? The explanation for this phenomenon lies in the composition and characteristics of immigrant and native-born households. Over 40 percent of immigrant households but only 5 percent of native-born households are Hispanic. Thus, Hispanics have a large role in determining immigrant wealth, whereas the comparison group of nativeborn households consists almost entirely of non-Hispanics. As has been shown above, the net worth of Hispanics is relatively low, which, in turn, is due to the fact that they have lower than average age, education and income.[27. Data on the age, education and income of Hispanics by generation are available on the Web site of the Pew Hispanic Center (pewresearch.org/hispanic).] That is especially true of first-generation Hispanics. Thus, differences in the characteristics of immigrant and native-born households are the underlying reason for the wealth gap between foreign-born and native-born households.[28. Other studies that have looked at the role of the characteristics of immigrants in determining relative wealth are Deborah A. Cobb-Clark and Vinvent Hildebrand, “The Wealth and Asset Holdings of U.S.-Born and Foreign-Born Households: Evidence from SIPP Data,” Australian National University, December 9, 2002, and Lingxin Hao, “Immigrants and Wealth Stratification in the U.S.,” Johns Hopkins University, January 2001.] What can one say about the year-to-year change in the wealth of immigrant and native-born households, especially between 1999 and 2001? To answer this question, it is necessary to turn to the second set of estimates which are derived from the sub-sample of the 2001 SIPP panel that excludes immigrants arriving in the U.S. after 1996. This way one can learn about the changing fortunes of immigrants who were present in the U.S. before and during 1996. No adjustment is called for in the sample of native-born households. Using the full sample from 2001, it has already been observed that the wealth gap between immigrant and native-born households shrank considerably between 1996 and 2002. Much of this growth took place prior to the 2001 recession. By 1999, non-Hispanic immigrants, who were in the U.S. before 1996, had achieved a higher level of net worth—$71,727—than native-born non-Hispanic households— $68,213. The wealth of these immigrants continued to grow through and beyond the 2001 recession and, by 2002, was nearly double its level in 1996. What about the wealth of Hispanic immigrants who entered the U.S. before 1996? Their net worth fluctuated in the period prior to the recession, falling from $4,815 in 1996 to $3,761 in 1998. But their wealth nearly doubled in 1999, rising to $6,529 in the space of a year. The growth in the wealth of this group of Hispanic immigrants leveled off during the recession but picked up again in 2002. Their net worth of $8,242 in 2002 was 71 percent higher than their net worth in 1996. Native-born Hispanic households fared the worst during the 1996 to 2002 time period. Starting at $11,234 in 1996, the wealth of these households fluctuated from one year to the next. They ended 1999 with a promising note as their net worth peaked at $15,405 in that year. However, the wealth of native-born Hispanic households shrank by over 42 percent between 1999 and 2001, falling from $15,405 to $8,875. In fact, native-born Hispanic households were the only one of the four groups in Table 15 to suffer a loss in wealth between 1999 and 2001. This finding echoes previous findings on the labor market outcomes for first and later generations of Hispanic households in the recent past. For example, previous research conducted by the Pew Hispanic Center showed that the first generation has been more successful in gaining jobs and maintaining a lower rate of unemployment than the second and third generations over the past several years.[29. See the citations in footnote 3.] Despite the many nuances, the fact remains that the wealth of the entire population of immigrants is less than the wealth of the native-born. One reason behind the gap is the homeownership rate (see Table 17). When Hispanic households are considered in isolation, the homeownership gap between immigrant and native-born households is only six percentage points in 2002, but the rate is low for both the nativeborn (50.9 percent) and the immigrant (45.1 percent). At the same time, native-born non-Hispanic households had a homeownership rate of 71.5 percent, or nearly 14 percentage points higher than the homeownership rate of 57.7 percent for immigrant non-Hispanic households. When Hispanic and non- Hispanic households are combined, the homeownership rate for immigrants—52.4 percent in 2002—is 18 percentage points below the homeownership rate for native-born households—70.3 percent in 2002.[30. Homeownership by immigrants is studied in detail in Demetrios Papademetriou and Brian Ray, “From Homeland to a Home: Immigrants and Homeownership in Urban America,” Fannie Mae Papers, Vol. 3, Issue 1, March 2004. Another detailed study is by George J. Borjas, “Homeownership in the Immigrant Population,” Research Institute for Housing America, Working Paper No. 02-01, March 2002. Their estimates of the gap in homeownership between native-born and foreign-born households are similar to those reported in Table 17.] Given the strong relationship between homeownership and net worth (see section 5 and 6 above), increasing the rate of homeownership among immigrants is the key to shrinking the gap in wealth between them and native-born households.

The relationship between net worth and country of origin is evident in the estimates presented in Table 18. Immigrants from non-Hispanic countries tend to have the highest net worth and those from Central and South America the lowest. Approximately 85 percent of immigrant non-Hispanic households arrive from Asia and Europe, Canada, Israel, Australia or New Zealand. Similarly, about 90 percent of immigrant Hispanic households originated from Mexico, Cuba and Central American or Caribbean countries. It can be seen in Table 18 that the median net worth of immigrant households varies quite significantly across these different points of origin. Immigrant households from Europe, Canada, Israel, Australia or New Zealand had a net worth of $104,026 in 2002. These households have consistently the highest level of wealth of any other immigrant group in every year from 1996 to 2002. Immigrant households from Asia currently have the second highest level of net worth—$58,313 in 2002. Asian-born households did not always hold this distinction. Until 1998, the second rank belonged to households from Cuba who, with a net worth of $39,787 in 2002, are easily the wealthiest among immigrant Hispanic households. Immigrant households from Mexico have a net worth of $7,602 and the median wealth of households from Central American and Caribbean countries is only $2,508 in 2002. Although the net worth of households from Mexico is fairly low, it has risen rapidly in recent years and is presently just more than double its level of $3,782 in 1996. In contrast, the wealth of Cuban households appears to have flattened out, hovering in the vicinity of $40,000 in the 1996 to 2002 period. It appears likely that the wealth profile of Hispanic households in the future will be shaped primarily by immigrants from Mexico. The number of years an immigrant has been in the U.S. and whether or not a transition has been made into citizenship are two other predictors of the wealth of immigrant households. Tables 19 and 20 show net worth and homeownership rates for immigrant households grouped by their year of entry into the U.S. and citizenship status. For both Hispanic and non-Hispanic households, net worth is found to be higher the longer the household has been in the U.S. Consider, for example, Hispanic households who migrated to the U.S. between 1996 and 2001. Their net worth in 2002 was $1,221 (Table 19). At the same time, Hispanic households who had arrived between 1991 and 1995 had a net worth of $3,151. This pattern continues with earlier years of entry and, finally, Hispanic households who arrived prior to 1980 are found to have a net worth of $37,380 in 2002. Thus, in 2002, as well as in other years, the wealth of an immigrant household is found to be higher the longer that household has been in the U.S. Looking at the wealth of households in different year-of-entry cohorts within a single year can, however, yield a misleading picture of the financial assimilation of immigrants. That is because each cohort may consist of households with varying characteristics that are also related to wealth accumulation. For instance, immigrants who arrived prior to 1980 may have different levels of education or come from different source countries than the latest arriving immigrants.[31. This issue was first raised by George Borjas, “Assimilation, Changes in Cohort Quality, and the Earnings of Immigrants,” Journal of Labor Economics, Vol. 3, No. 4, 1985.] An alternative is to look at the change in net worth of the same set of immigrant households over time. That is possible with the SIPP data since it follows the same households for a number of years. In particular, in Table 19, the data for 1996 to 1999 come from a single SIPP panel and cover the same immigrant households within each cohort subject only to sample attrition.[32. Sample attrition can cause a bias in estimates of the change in wealth of a cohort if more wealthy (or less wealthy) households are systematically more or less likely to exit the sample over time.] There are signs of wealth assimilation for Hispanic households as, subject to some fluctuation, the wealth of all four cohorts is observed to increase between 1996 and 1999.[33. The data for 2001 and 2002 come from a different SIPP sample and also utilize somewhat different definitions for immigrant cohorts. Therefore, the data for these two years should not be compared with the earlier years for judging the assimilation of a specific cohort.] But the growth in net worth is not impressive, except for the cohort of Hispanic households that arrived in the U.S. prior to 1980. Their net worth increased from $16,162 to $25,884 from 1996 to 1999. Signs of growth in net worth are also present for all cohorts of non-Hispanic immigrants, with the most impressive increases recorded by immigrants who entered the U.S. between 1980 and 1989. Thus, following the same cohorts of immigrants between 1996 and 1999 confirms the impression that the initial wealth of foreign-born households is low and that it follows an upward trajectory thereafter. But even after several decades in the U.S., the wealth of immigrant Hispanic households is well below the national norm.

Evidence of wealth assimilation among immigrant households also emerges in the data on homeownership rates (Table 19). Homeownership rates are highest among immigrant households who arrived in the U.S. before 1980—73 percent for non-Hispanic households and 66.5 percent for Hispanic households in 2002. On the other hand, Hispanic immigrants who arrived after 1996 had a homeownership rate of only 22.1 percent in 2002. Non-Hispanic immigrants who landed after 1996 were only slightly better off by this yardstick with 28.4 percent of them owning homes in 2002. In other words, the homeownership rate among immigrants who arrived over two decades ago was two to three times as high as the rate among immigrants who arrived in the past five years. Signs of a transition into homeownership are also present in the sample of immigrants that can be followed continuously from 1996 to 1999. For example, the homeownership rate for Hispanic immigrants arriving between 1990 and 1996 increased from 17.3 percent in 1996 to 30.2 percent in 1999. But the rate of increase levels off within a few years. Latinos who arrived a decade earlier, i.e., between 1980 and 1984, had a homeownership rate of just over 40 percent and that did not change from 1996 to 1999. The homeownership rate for Hispanic immigrants arriving before 1980 was stationary around 55 percent. The same general pattern describes the behavior of homeownership rates among non-Hispanic immigrants. It is interesting to note that non-Hispanic immigrants assimilate into homeownership at a much more rapid rate than Hispanics. In 1996, non-Hispanic and Hispanic immigrants who arrived between 1990 and 1996 had very similar homeownership rates—20.6 percent and 17.3 percent respectively. However, by 1999, the gap between the groups had grown to seven percentage points in favor of non- Hispanics. Also, the non-Hispanic cohort that arrived between 1985 and 1989 crossed the 40 percent threshold in homeownership by 1997 while the same Hispanic cohort had not crossed the 30 percent mark by 1999. The slower rate of assimilation into homeownership is echoed in the slower rate of assimilation into wealth among Hispanic immigrants. Citizenship, a milestone for many immigrants, is also a marker for greater wealth. Since it typically takes a few years of residency in the U.S. to acquire citizenship it is, in part, an indicator of assimilation. But it is also an indicator of greater immersion in American labor and financial markets, as well as in the social and cultural institutions of the country. Among non-Hispanic immigrants, the net worth of naturalized citizens was $111,240 in 2002 (Table 20), nearly five times as high as the net worth of other non-Hispanic immigrants at the same time—$23,205. The proportional gap was even higher in the case of Hispanic immigrants. Naturalized Hispanic citizens had a net worth nearly 10 times as high as the net worth of other Hispanic immigrants—$36,011 versus $3,857 in 2002. Thus, there is a striking gap in net worth between immigrants who are naturalized citizens and those who are not. The rate of homeownership is one of the factors explaining the wealth advantage of naturalized citizens. As shown in Table 20, naturalized non-Hispanic citizen have a rate of homeownership close to 70 percent. That is about 25 percentage points higher than the 44.7 percent homeownership rate among non-Hispanic immigrants who are not yet American citizens. Naturalized Hispanic citizens also have high homeownership rates—63.5 percent in 2002. Hispanic immigrants who are non-citizens have much lower homeownership rates—only 34.5 percent in 2002. Overall, immigrants who are also naturalized citizens resemble native-born households more than other immigrants with respect to their success in attaining homeownership.[34. A similar conclusion is reached by Sherrie Kossoudji and Stan Sedo, “Immigrants, Natives, and Home Ownership,” paper presented at the conference on Financial Access for Immigrants: Learning from Diverse Perspectives, Federal Reserve Bank of Chicago, April 15-16, 2004.]

IX. Conclusions

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.

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IV. The Effects of the 2001 Recession on Household Wealth

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Table of Contents

II. Introductionh2>I. Overview

II. Introduction

III. Median Net Worth and its Distributionh2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealthh2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealth

V. The Ownership of Assetsh2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealth

V. The Ownership of Assets

VI. Net Worth by Type of Asseth2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealth

V. The Ownership of Assets

VI. Net Worth by Type of Asset

VII. Wealth by Household Characteristicsh2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealth

V. The Ownership of Assets

VI. Net Worth by Type of Asset

VII. Wealth by Household Characteristics

VII. The Wealth of Immigrant Groupsh2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealth

V. The Ownership of Assets

VI. Net Worth by Type of Asset

VII. Wealth by Household Characteristics

VII. The Wealth of Immigrant Groups

IX. Conclusionsh2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealth

V. The Ownership of Assets

VI. Net Worth by Type of Asset

VII. Wealth by Household Characteristics

VII. The Wealth of Immigrant Groups

IX. Conclusions

Appendixh2>I. Overview

II. Introduction

III. Median Net Worth and its Distribution

IV. The Effects of the 2001 Recession on Household Wealth

V. The Ownership of Assets

VI. Net Worth by Type of Asset

VII. Wealth by Household Characteristics

VII. The Wealth of Immigrant Groups

IX. Conclusions

Appendix

The Survey of Income and Program Participation

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II. Introduction h2>I. Overview