In the late 1990s, the Census Bureau reported steady increases in income and declines in poverty rates for Latino families. Latino work participation paid dividends in a strong economy. Yet by 2000, and the end of the boom years, the Bureau reported that Latinos maintained just 8 percent of the median financial net-worth (excluding home equity) of non-Hispanic white households; only 12 percent if home equity is factored in.
The data show that more household income does not easily translate into greater financial security or economic mobility for Latinos. Even in a strong economy, barriers to wealth persist, preventing many Latinos from effectively entering the ranks of the American middle class. This reality coupled with public policies that reward those with more accumulated assets has contributed to growing wealth inequality across the nation. Meager levels of financial security for a large and growing segment of U.S. families pose serious economic challenges, not the least of which is greater economic and social polarization in American communities and neighborhoods. And this problem has been exacerbated over the last four years as real household income has declined and Latino families have experienced the steepest drop, $2,432 since 2000.
For Latinos and many other low-income workers, low net-worth is a more structural problem than a condition dependent on their attitudes about personal finance and savings. For example, Latinos are more likely to have no credit history or a thin credit file. This not only affects their access to affordable credit, but also affects adversely their insurance premiums and employment opportunities given the ubiquitous and ever increasing role credit status plays in the United States. According to one recent study by the Center for Community Capitalism, 22 percent of Hispanic borrowers had no credit score, compared to 4 percent of Whites and 3 percent of African Americans.
On the whole, the U.S. financial market, which creates the tools that American families use to build wealth, has not effectively served low-income, immigrant, and minority families. Wealth-building products in the mainstream marketplace have been either unaffordable or simply inaccessible, and generally unresponsive to the financial demands and needs of Latino and low-income workers. The one-size-fits-all approach in the financial services market – led by automated underwriting and other technological achievements – has also helped to shut the door of wealth opportunity to millions of Americans at the low end of the income scale.
That said, all over the country, low-wage workers raising children on meager earnings are putting money aside for a down payment on a home. And over three in five (62 percent) of Latino non-savers in one recent study said they could set aside $20 per week, compared to 54 percent for all similar U.S. workers. Furthermore, market dynamics are shifting, albeit slowly, with more attention being paid to underserved low-income, immigrant, and minority families.
Community-based organizations and mortgage lenders have been some of the first to recognize this trend. Community-based organizations are working with financial institutions to shape mortgage products and deliver them to low-income families preparing to become homeowners.
National Council of La Raza's own Homeownership Network (NHN) provides counseling services to 17,000 families and produces more than 2,500 new homeowners annually. One-on-one, customized casework that counselors in community-based organizations provide is key to helping these families navigate through the system. These counselors and lenders are also reporting much of the savings behavior often not captured in national data.
That said, housing counseling and homeownership is but one piece of the wealth building equation and still too modest in scope to reach the millions who could benefit. What's more, Latinos and other low-income families need and demand access to other asset-building services and products such as matched-savings accounts (Individual Development Accounts), customized one-on-one financial counseling, and free or very low-cost tax preparation assistance. And while community groups are taking steps to fill the structural gap in the financial system, these efforts are nascent, even sporadic, and struggling to succeed without much support from either the federal government or industry.
Meanwhile, policymakers have done little to address positively either wealth inequality or the racial and ethnic wealth gap in recent years. And while more talk of "ownership" in a nation divided by economic status is rampant, few are seriously considering how to open more doorways of opportunity to those at the bottom of the income scale. Beyond the basic structural questions that keep many from acquiring assets to begin with, there remain serious problems with overall wealth building polices that dampen accumulation at the bottom end and increase disparities. Many of the Latino workers who have acquired homes through the NHN network do not receive the full benefit of the mortgage interest tax deduction, and most are not eligible for tax credits that encourage middle- and upper-income workers to save. Of course, only a decade ago, few could envision low-income families, many without federal tax liability, purchasing assets. Today, however, federal policy that encourages wealth creation is not only upside down, giving more benefit to those with more wealth, but such policies are now too restrictive, failing to reach far enough down the income scale to benefit those just beginning to build net worth. These policies must be changed in order to enhance the ongoing efforts at the community level, and a stronger federal role is needed to achieve this.
Eric Rodriguez is director of the Policy Analysis Center at the National Council of La Raza.