Over a decade has passed since the housing market crash of 2008. The Great Recession marked a period of economic devastation that wreaked havoc on middle- and lower-income households across the nation. Families lost homes to foreclosure, jobs were lost, and wealth was decimated.
While it was a difficult period for many, it was a particularly rough time for Latinx households. Over the course of the Great Recession, Latinx people ended up losing close to two-thirds of their median household wealth in large part because they held most of their wealth in the very industry that crashed: real estate.
Since then, the total wealth held by Latinx households has for the most part been recovered. Yet, the lack of asset diversification for Latinx people continues to pose a risk on the road toward wealth creation.
Building back wealth
According to the latest data from the Federal Reserve’s Survey of Consumer Finances, between 2010 and 2019, Latinx people increased their median household wealth by 84.9 percent, an increase larger than that seen by any other ethnic or racial. As a result, the white-Latinx wealth gap closed slightly.
In 2010, Latinx people held $1 for every $7.80 held by a non-Hispanic white household. By 2019, that ratio improved to $1 for every $5.20 held by non-Hispanic white households, a trend that certainly was cause for optimism. However, a hefty $150,000 wealth gap still remains.
As Latinx people continue to comprise a larger share of the U.S. workforce and consumer base, closing the white-Latinx wealth gap becomes an increasingly vital task for U.S. policymakers.
Where the heart is
The surge in Latinx homeownership over the past six years has been consequential in making strides toward closing the wealth gap. Between 2016 and 2019, there were 818,000 Hispanic net new owner households, the highest three-year gain for Latinx people since before the Great Recession. The 65 percent increase in household wealth between this time period is largely due to these gains in Latinx homeownership.
The tangible nature of real estate makes it an appealing investment for Latinx people. According to the Hispanic Wealth Project 2021 survey, Latinx people were more than twice as likely as the general population to say they planned to buy an investment property in the next 12 months, suggesting they were actively in the market for an investment property. Additionally, Latinx people were 71.4 percent more likely than the general population to say they planned to buy an investment property in the next five years.
However, while the rates of homeownership and real estate investments have been positive, Latinx people continue to face the same problem they did prior to the Great Recession: a lack of diversification, a key ingredient to consistent and stable wealth accumulation.
Latinx people are the least likely of any demographic to participate in the stock market or own a retirement account. In fact, market participation and diversification among the Latinx community has actually gone down in recent years. Only about one quarter of Latinx households have a retirement account today compared to 57.2 percent of non-Hispanic white families.
A smaller portion of Latinx families have a retirement account today than in 2001. Considering the tax benefits for retirement savings and the consistently high return of the market over the past several decades, Latinx people are losing out on a lot of potential wealth.
What can we do?
Solving these problems starts with investing in culturally relevant financial education. In a 2021 survey conducted by the Hispanic Wealth Project, 25 percent of Latinx households that didn’t own a retirement account said they didn’t know how to invest in one, and 9 percent had never even heard of it. Both of these answers were provided at more than twice the rate of their non-Hispanic white peers.
In order to diversify assets for Latinx households on their road toward wealth creation, investing in culturally nuanced education will be critical.
We must also develop investment strategies that are based on trust. When asked what would make households more likely to invest in a retirement account, Latinx people were most likely to respond that a workshop, or having a close family or friend walk them through the process would make them more likely to invest.
Far more needs to be done in order to break the knowledge gap around stock market-based investments. Greater efforts that engage Latinx families — from the abuelita to the tio to the elementary school-aged student — and demystify the process of wealth creation along with the benefits of diversification will yield not only greater returns in closing the Latinx-white wealth gap, but will mitigate the potential risks to our overall economic system as more Latinx people and their elderly parents reach retirement age.
