July 16, 2020
Examining the Black-White Wealth Gap
The Black Lives Matter protesters have brought renewed attention to the enduring economic inequality that separates Black and white America.
Homeownership is at the heart of this disparity.
For many Americans, their largest source of wealth is the value they have built up in their homes over time. The house is also traditionally the primary way for moderate- and middle-income parents to pass wealth on to their children.
But less than half of African-Americans own homes, and the ones who do have a fraction of the equity whites have due in large part to the nation’s long history of segregated housing, economists say.
Further, the tidal wave of foreclosures a decade ago reduced the already low homeownership in minority communities, which felt the brunt of the housing market collapse. The Black homeownership rate is just 42 percent – 5 percentage points lower than it was in 2000. White homeownership remained stable throughout the crisis and is now around 72 percent, the Urban Institute said.
The upshot of this combination of fewer Black owners and less equity for those who own a house is that the typical African-American worker has $4,400 in home equity, compared with $67,800 for whites. The home equity gap accounts for about half of the Black-white disparity in total wealth.
A web of systemic reasons explain the home equity gap. Black homebuyers have more debt, in part because they are twice as likely to receive a mortgage with a high interest rate as white buyers with comparable incomes. …Learn More
June 4, 2020
Money, Virus Angst Combine for Low-Paid
There’s COVID-19 stress, and then there’s money stress. The combination of the two is becoming too much for many low-income workers to bear.
Two out of three people in families that earn less than $34,000 a year told the U.S. Census Bureau in April that they are “not able to control or stop” their worrying several days a week or more. The feelings are the polar opposite for families earning more than $150,000: two out of three of them said they are not worried at all.
The daily blast of pandemic news has pushed U.S. inequality into the spotlight, exposing the financial pressures low-income Americans are dealing with. Despite the unprecedented $3 trillion in financial assistance passed by Congress, the anxiety was probably a contributing factor in the protests that erupted in dozens of U.S. cities last week.
When governors shut down their economies to control the pandemic, the lowest-income workers – disproportionately African-American and Latino – had barely recovered from the previous recession. Yet nearly half of the increase in incomes for all U.S. families over the past decade has gone to the 1 percent of families with the highest earnings. One glaring example of this disparity is homeownership, which is usually the largest form of wealth by the time people reach retirement age. Homeownership rates across the board declined after the financial crisis, but African-American and Latino rates fell more and are still below 2007 levels.
Low-income workers are now bearing the brunt of the current downturn. Economists estimate the true U.S. unemployment rate could be as high as 20 percent. The layoffs have been concentrated among low-wage workers: nearly 40 percent of people living in households earning less than $40,000 have lost their jobs.
The fundamental challenge of surviving from day to day is evident in the miles-long lines of cars at some U.S. food banks. About a third of Americans are having problems paying for all kinds of essentials – rent, utilities, or food – but the number rises to almost half for African-Americans and Latinos, according to a Kaiser Family Foundation poll in mid-May. Children are being disproportionately impacted by rising food insecurity.
Spotty health care coverage is another layer of stress. Workers on the front lines in nursing homes, meat processing plants and grocery stores are more at risk of contracting COVID-19 but less likely to have health insurance from their employers. They may avoid seeing a doctor, even if they have symptoms, out of fear of being unable to afford the charges. …Learn More
April 28, 2020
Fintech Lenders Discriminate Less
Do online financial companies give minorities a fair shake?
Researchers and consumers have found some early evidence that this fast-growing segment of the financial industry – Fintech – may be mitigating, though not eliminating, the legacy of discrimination that has been widely documented in the brick-and-mortar mortgage industry.
First came bank redlining, a conceptual line lenders drew around black neighborhoods. In a famous study, banks rejected black loan applicants more often than white borrowers with the same incomes. Lenders have also been found to discriminate by charging black borrowers higher interest rates for their mortgages.
Discrimination took a different form when subprime lending invaded the mortgage market prior to the 2008 financial collapse. Commissions to subprime loan brokers gave them an incentive to make as many loans as possible, and the high-interest-rate mortgages more often found their way into minority communities, even to the high-income people who could have qualified for regular mortgages.
But Fintech’s algorithms have improved the dynamics of lending for minority borrowers. The danger now is that the progress they have seen might be reversed as the pandemic batters the mortgage industry and loans dry up.
A November study by the Federal Reserve Bank of Philadelphia found that Fintech lenders have made more loans in under-served minority and rural neighborhoods. The theory behind this is that old-style bankers discriminated against minorities because they met loan applicants face-to-face. Fintech’s computer algorithms, the argument goes, are blind to race, and loan approvals are more anchored in a borrower’s creditworthiness.
Economists at the University of California at Berkeley found more mixed but still promising results. FinTech lenders “do not discriminate at all in the decision to reject or accept a minority loan application,” the researchers concluded from an analysis of lending patterns.
But the other common form of discrimination against minority borrowers does exist: they are charged interest rates that are about one-tenth of a percentage point more than the rates charged to white borrowers. These higher rates cost African-American and Hispanic borrowers an estimated $765 million in extra interest annually. …Learn More
March 19, 2020
People on Disability Use Payday Loans
Taking out a high-cost payday loan is an act of desperation, and people on federal disability are some of the biggest users.
Nearly 6 percent of households under 66 and on disability use payday loans, compared with 4 percent of the general population, according to Haydar Kurban at Howard University, who did the analysis for the Retirement and Disability Research Consortium.
The financial vulnerability of disability recipients was starkest in the months after the 2008-2009 recession, when their use of payday loans spiked to 22 percent. The rate of borrowing also rose at the time for the general population but by much less.
Disability benefits under the federal Supplemental Security Income (SSI) program average about $900 a month. To eke out a living, people on disability try to supplement their income with food stamps, Medicaid, some work, or housing assistance from the government or a family member – and some use payday loans to raise quick cash. (A small share of people in this study are not disabled but receive SSI to supplement their Social Security benefits.)
Despite the very low incomes of the disability beneficiaries, they are attractive customers for payday lenders, Kurban said, because the benefit checks provide extra assurance the loans will be repaid. …
October 31, 2019
Boomers at 80: Housing Issues to Grow
The baby boom generation is continuing to work its way up the age ladder. The number of Americans over 80 will more than double to nearly 18 million over the next two decades.
And that’s partly because baby boomers are healthier and are living longer – they are also enjoying more of their retirement years free of disability than previous generations. But unfortunately, boomers can’t avoid the inevitability of their growing vulnerabilities and the impact this will have on their day-to-day lives. A new report by Harvard’s Joint Center for Housing Studies makes some sobering predictions about the issues the oldest retirees can expect to face in the future, from widening income inequality to more people living alone and in isolation.
The findings, taken together, point to a range of potential trouble spots revolving around housing our aging population.
- As people get old, their spouses die, their bank accounts dwindle, and their rents keep rising. For these and other reasons, housing creates more of a cost burden at 80 than at 65. The Harvard housing center defines someone as cost-burdened if they spend more than 30 percent of their income on housing. Today, nearly 60 percent of households over 80 fit this definition, and their absolute numbers will increase as more baby boomers reach that age. One place the financial strain shows up is food budgets: retirees who spend disproportionate amounts on housing spend half as much on food as people whose housing costs are under control. …
April 11, 2019
Our Financial Status: Race Really Matters
Racial differences in workers’ finances are nothing less than shocking: whites have roughly six times more wealth than Latinos and black-Americans and double the income.
These age-old disparities will be as familiar to readers as they are to economists. But a clear and updated picture of their magnitude was presented in a recent study.
In 2016, U.S. household wealth, regardless of race, still had not rebounded to 2007 levels. But whites made a lot more progress climbing out of the hole created by the plunging stock market and housing crash that ushered in the 2008 recession.
The researchers examined changes in each group’s net worth over a decade. Pre-recession, white households had five times more wealth than blacks; this ratio grew to 7-to-1 in 2016. The white-Latino wealth ratio doubled from 3-to-1 to nearly 6-to-1.
The 2016 data are the most recent from the Federal Reserve’s triennial survey of American households’ personal finances.
The earnings picture isn’t as dire but the gap is still large. White households are earning slightly more than they did in 2007, and blacks and Latinos are not. In 2016, white Americans had two times more income than either minority group.
Many factors, notably education, influence how well someone does. But, clearly, race does matter. …
January 24, 2019
Hispanic Retirement Outlook Gets Worse
One thing really stood out in a recent study: the deterioration in Hispanics’ retirement prospects since the 2008-2009 recession.
Workers’ success at saving for retirement is becoming increasingly important to their financial security in old age. This puts Hispanic households at a clear disadvantage: they earn half as much as white households, which makes it that much more challenging to build retirement wealth by buying a house or saving more in their 401(k)s – two-thirds of Hispanic workers don’t even participate in an employer 401(k).
White Americans aren’t exactly in great shape either. Today,
48 percent of them are at risk of experiencing a drop in their standard of living after they retire – this is 6 percentage points higher than before the recession, according to a new study by the Center for Retirement Research. Black Americans are worse off than whites, though their situation hasn’t changed much over the past decade.
But 61 percent of Hispanic workers are at risk – a 10-point jump since the recession – the study found. A big reason is that Hispanic homeowners were hit especially hard by plunging house prices during the mortgage crisis in states like Florida, Nevada, Arizona, and California, where they are heavily concentrated. Their home equity values dropped 41 percent, a result of buying “houses in the wrong place at the wrong time,” the researchers said.
The loss of home equity has a big impact on retirees by reducing the amount they can extract from their properties by purchasing less expensive housing or taking out a reverse mortgage. (The researchers assume that when workers retire, they will use reverse mortgages.) …Learn More