The Great Recession and African Americans’ Finances
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For Black Americans, Financial Damage from Subprime Implosion is Likely to Last. Ylan Q. Mui. The Washington Post. July 8, 2012.
…The implosion of the subprime lending market has left a scar on the finances of black Americans — one that not only has wiped out a generation of economic progress but could leave them at a financial disadvantage for decades. At issue are the largely invisible but profoundly influential three-digit credit scores that help determine who can buy a car, finance a college education or own a home. The scores are based on consumers’ financial history and suffer when they fall behind on their bills. For blacks, the picture since the recession has been particularly grim. …
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A Wealth of Wealth Data and Why the Slog is so…Sloggy. Jared Bernstein Blog. June 11, 2012
[Commentary on: Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances. Federal Reserve Bulletin, June 2012]
…Finally, I always find these data to be a useful reminder of the vast disparities in racial wealth. The last figure compares relative incomes and relative net worth of non-Hispanic whites to everyone else in 2007 and 2010. Since minorities were hit harder than white households, both the income and wealth gaps grew in the Great Recession. But look at the magnitude of the net worth gap: non-white or Hispanic households had only 16% the net worth of white households…. Those who track racial economic progress must look beyond wages and incomes. Some progress has been made in those areas, but there’s still a ways to go. But when we add the historical legacy of discrimination’s impact on wealth, it’s a whole different story, one of very little progress. (Immigration surely plays a role here as well, though immigration fell over this period so it cannot explain the trend.)
See also: Federal Reserve Highlights Widespread Declines in Families’ Wealth. Hannah Emple. June 12, 2012 (The Ladder–Blog of the New America Foundation’s Asset Building Program)
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The Relationship Among Homeownership, the Federal Budget, and the Racial Wealth Gap. Aleta Sprague. April 12, 2012 (The Ladder–Blog of the New America Foundation’s Asset Building Program)
…With respect to the recession’s impact on racial equity, black and Hispanic families lost a far greater proportion of their net worth from 2005 to 2009 than white families. While the racial wealth gap was already a serious issue before the recession, the housing crisis has greatly exacerbated the problem because an especially high proportion of the losses faced by black and Hispanic families were losses in the equity value of the home. For Hispanic families, for example, of the 66% of their net worth lost during the recession, 96% resulted from declining home values.
Thus, while the housing market formerly excluded people of color through zoning, restrictive covenants, and formal restrictions on lending, the most recent crisis reveals that lending practices that were (until recently) completely legal have yielded functionally similar consequences. Foreclosures have stripped black and Hispanic families of assets that took decades to build—and the results for racial wealth disparities are dramatic. For example, the ratio of wealth held by white families compared to black families has grown from 12:1 in 1984 to 19:1 in 2009, briefly reaching a low of 7:1 in 1995. In other words, in the wake of the housing crisis, for every dollar held by a white family, the average black family has a nickel. We hardly live in a post-racial society….
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The State of Communities of Color in the U.S. Economy: Still Feeling the Pain Three Years Into the Recovery. Christian E. Weller, Julie Ajinkya, Jane Farrell. Center for American Progress. April 12, 2012
“…More disturbingly, the data we summarize in this report shows that communities of color are substantially less likely than their white fellow citizens to enjoy the opportunities that come from having a good job, owning a home, and having a financial safety cushion in the form of health insurance, retirement benefits, and private savings. This difference exists because economic opportunities eroded faster for communities of color than for whites during the Great Recession—and those opportunities have been coming back much more slowly for communities of color than for whites during the economic recovery….”
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The Ariel/Aon Hewitt study, 401(k) Plans in Living Color II. Ariel Education Initiative and Aon Hewitt. April 3, 2012
The study examined the defined contribution plans of 60 large U.S. organizations, representing 2.4 million employees. The results reveal retirement plans of African-Americans and Hispanics were hit especially hard during the Great Recession. Key recommendations are outlined for policy makers and employers to help minority workers adequately prepare for retirement.
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The State Of Black Wealth In America. Lynnette Khalfani-Cox. Ebony. [The Black Wealth Issue] August 2011
Excerpt:
… WHAT KEEPS US FROM GETTING RICH?
Even before the recession hit, Black Americans trailed Whites significantly in building wealth, primarily because of the historical impact of racism, oppression and political policies.
Take property ownership, for instance. It’s well known that having land, real estate and other forms of property help create wealth. Throughout much of U.S. history, federal and state governments have provided so-called “wealth starter kits” to Whites, according to the Insight Center for Community Economic Development, a national research firm that promotes financial stability in economically challenged communities.
In a 2009 report from the center titled Laying the Foundation for National Prosperity: The Imperative of Closing the Racial Wealth Gap, researchers noted that “governments have given gifts of land, education, government-backed mortgages and farm loans, a social safety net, and business subsidies to White families, sometimes exclusively and usually disproportionately.”
The same governments that boosted White wealth took land from people of color, denied them education and erected barriers to home and business ownership, the report states, noting that segregation and Jim Crow laws pushed many African-Americans “to the margins of the economy, where many remain stuck today.”
THE SILVER LININGS
Fortunately, statistics don’t tell the whole story. Some of us have managed to choose wisely, hang on to our assets and even boost our wealth. Fear of getting overextended during the housing boom was one factor that kept 56-year-old Yvonne Parker from pursuing a costly mortgage….
…Some of us are building wealth by launching our own companies. Robert L. Wallace is a case in point.
He grew up poor in the projects in Baltimore, one of eight children living in a one-bedroom apartment. By the time he became a young man, “I got tired of being poor,” Wallace says. “I wasn’t knocking Mom and Dad, but I saw very clearly the contrast between the quality of life among Blacks and Whites.”
It was being tired of poverty, Wallace says, that drove him to ultimately become an engineer, author and entrepreneur. Wallace is the founder, president and CEO of BITHGROUP Technologies, an information technology services firm in Baltimore. Among the 27 million businesses in the United States. Wallace’s firm is among the 1.9 million of those companies, or 7 percent, that are owned by Blacks. Says Wallace, who has written numerous books, including Black Wealth: Your Road to Small Business Success (John Wiley & Sons): “Economic power is the ability to control your economic destiny.”
KEYS TO BUILDING BANK
THE TASK OF building wealth in our families and communities is daunting but not insurmountable.
Below are key strategies to get you going….
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Wealth Gaps Rise to Record Highs Between Whites, Blacks, Hispanics. Rakesh Kochhar, Richard Fry and Paul Taylor. Pew Research Center. July 26, 2011
Twenty-to-One
EXECUTIVE SUMMARY
The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009.
These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009.
The Pew Research analysis finds that, in percentage terms, the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.
As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149.
Moreover, about a third of black (35%) and Hispanic (31%) households had zero or negative net worth in 2009, compared with 15% of white households. In 2005, the comparable shares had been 29% for blacks, 23% for Hispanics and 11% for whites. …
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Blacks, Hispanics hold few investments, poll shows. Michael A. Fletcher. The Washington Post. February 21, 2011. Results from the Washington Post/Kaiser Family Foundation/Harvard University partnership’s Race and Recession Survey, February 2011.
Excerpt:
…As the economy emerges from the recession and the national debate turns to limiting the cost of the social safety net, only one in four African Americans and one in six Hispanics reported owning stocks, bonds or mutual funds, a new poll shows.
In addition, only 46 percent of blacks and 32 percent of Hispanics said they had an individual retirement account or any similar retirement arrangement, according to a new Washington Post-Kaiser Family Foundation-Harvard University poll. Half of whites said they had stocks, bonds or mutual funds, and two in three said they had IRAs, 401(k)s or similar holdings.
The relative paucity of investments held by blacks and Hispanics tracks with previous studies, something that experts call an outgrowth of the gaping wealth disparities separating the races.
Not only are African Americans and Hispanics less likely than whites to own retirement accounts or investment securities, they also are far less likely to own homes, which remains the largest engine of wealth creation for most Americans. And when they do own homes, they tend to have less equity in them, in large part because they live in communities where prices appreciate more slowly, many analysts say.
Now, with the big increase in foreclosures and large drops in housing prices that came with the recession, those disparities have grown. “I’m sure I’m like most average Americans in that our only asset is our residence,” said Jonathan Williams, an African American who lives in Cranston, R.I. “And that value is way down.”
Although the recession hurt all Americans, its toll was especially severe among African Americans and Hispanics, who were most likely to lose jobs, face foreclosures and lose health insurance coverage, the poll found.
The previous economic expansion was marked by weak job growth and income gains only for the very best-paid workers. A series of studies have found that the lack of wealth and the smaller incomes typically earned by African Americans and Hispanics – whose median incomes, respectively, are only 82 and 73 percent that of whites – limits how much they save for retirement. …
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In rough economic times, black Americans hold on to their optimism. Michelle Singletary. The Washington Post. 20 Feb 2011
Excerpt:
…We bail out family and friends. We open our own businesses. We find inspiration not in a net worth statement but in our faith that one day we will have economic equality.
In the Post-Kaiser-Harvard poll, 60 percent of black respondents said that during the past year, they or another family member living in their household had lent money to family or friends to help them with expenses. I point this statistic out because much is made of the fact that blacks don’t invest as much as whites. But dig deeper and you’ll find that often they don’t have as much to invest because they’re helping extended-family members.
Blacks are increasingly creating their own employment opportunities. From 2002 to 2007, the number of black-owned businesses grew by 60.5 percent to 1.9 million, more than triple the national rate of 18 percent, according to the Census Bureau.
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Video: Highlights from the Washington Post‘s Town Hall Discussion on Race and the Recession. Moderated by Michelle Singletary. The panelists include Rep. Emanuel Cleaver, chairman of the Congressional Black Caucus; the Rev. Al Sharpton, president of the National Action Network; Jared Bernstein, chief economist and economic adviser to Vice President Biden; Julianne Malveaux, a noted economist and educator; Michael A. Fletcher, a Washington Post national economics reporter; Jeff Johnson, a political commentator on the nationally syndicated “Tom Joyner Morning Show”; and Sophia Nelson, a political commentator for Jet magazine and MSNBC.
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Socked by the economy, blacks need to wise up. Courtland Milloy. The Washington Post. February 9, 2011
Excerpt:
…As this Great Debacle continues, we need to pick up the pieces and start anew – carefully. One of the more provocative new studies, by Princeton researchers Jacob Rugh and Douglas S. Massey, suggests that a big reason black communities are being hit disproportionately hard is because they are . . . well, black communities.
That makes them easy targets for predatory lenders, the authors say. Blacks who have been underserved are going to be more desperate for a home – even ones they can’t afford.”Simply put, the greater the degree of Hispanic and especially black segregation a metropolitan area exhibits, the higher the number and rate of foreclosures,” the authors say.
The solution? Spread out, black people; scatter, if you can. Maybe it’s better to rent in an integrated neighborhood, with good schools and more job opportunities, than to own in a black one where property values aren’t going to rise that much and may vanish altogether if your neighbor goes into foreclosure. If you can’t move, at least get a new pair of glasses – and wise up. Obviously, many of us couldn’t see well enough to carefully read those fliers posted on utility poles advertising no-interest subprime mortgage loans.
Black neighborhoods throughout the country were targeted like crazy, as Massey and Rugh note, with billboards, robocalls, door-to-door cold calls, handbills under the windshield wipers and more.But somehow we missed the “fine print” on those balloon-loan papers-the itty-bitty type that said: gotcha, sucker. If you already have spectacles, invest in a magnifying glass….
…A report by the Partnership for Renewal in Southern and Central Maryland last year found that nearly half of the county’s residents spend more than 30 percent of their income on housing, an amount considered unaffordable by the U.S. Department of Housing and Urban Development.Prince George’s counted 45,300 troubled home loans, according to a report by the Urban Institute, and about 40 percent of renters cannot afford the median monthly rent of $1,131.We’re in way over our heads, black America.
The good news, though, is that there’s only one way to go from here. Up.
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Almighty Debt. CNN.com. Reported by anchor and special correspondent Soledad O’Brien.
Every leading indicator — unemployment, income, wealth, educational attainment, home ownership and foreclosures — demonstrates that the African-American financial foundation is crumbling at rates that are comparatively worse than other segments of the U.S. population.
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Ariel Investments Black Investor Survey 2010 – Full Study
2010 Ariel Black Investor Survey Shows That in Recession, Middle-Class African-Americans Have Disproportionately Curtailed Saving and Investing. Middle-class African-Americans are more likely than Whites to have curtailed their saving and investing in order to make it through the recession. Even after controlling for various socio-economic factors, Blacks are nearly twice as likely to have reduced their contributions to 401(k) plans relative to Whites.
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