Posts Tagged "Hispanic"

A group of millennials

Black Millennials’ Wealth is Sliding

Black Millennial Figure

It’s still too early to assess the full impact of the COVID-19 downturn on Millennials’ economic fortunes. But Black Millennials had already lost a lot of ground before the pandemic hit their communities hard.

Their wealth in 2019 was just half of what would be expected based on how much wealth their parents’ generation had at the same age.

Other Millennials are also running behind previous generations, but only slightly. And their situations have improved in recent years, while Black Millennials are sliding farther and farther behind.

The Federal Reserve Bank of St. Louis called the situation “alarming” in its new report.

The oldest Millennials are turning 41 this year. But in 2019, the typical Black family born in the 1980s had only $5,000 in their savings accounts, 401(k)s, home equity and other wealth – compared with the roughly $11,000 they would be expected to have based on the previous generation. Hispanic Millennials had $22,000, and whites had $88,000.

Black Millennials are struggling for a few different reasons, said Ana Hernández Kent, a senior researcher for the St. Louis Fed’s Institute for Economic Equity. Homeownership is a major source of wealth for most Americans, but only a third of them own homes – half the rate of their white peers.

Student debt is another big issue, because African-Americans who borrowed money for college either didn’t graduate or used the loans to attend lower-quality for-profit colleges at disproportionate rates. Their college experiences haven’t always translated to earnings that are high enough to justify the debt taken on to pay for an education.

“They’re over-leveraged,” Kent said. “Just over a third of Black Millennials with at least a two-year degree are more likely to say the costs of college are larger than the benefits.” …Learn More

People waiting by a bus

Retired People of Color Struggle with Debt

The oldest minority retirees are struggling with debt, a new Urban Institute study finds.

The researchers’ starting point is that people generally reduce their debt as they age. To prepare for retiring, older workers try to pay down their mortgage balances and pay off credit cards. Once retired, their debt continues to shrink.

But on closer inspection, retirees in their 70s and 80s in the nation’s predominantly minority neighborhoods have shed less of their debt than their counterparts in mostly white neighborhoods, who tend to be better off financially.

In a sign of financial distress among the oldest lower-income and minority retirees, 20 percent of their loans go to collections for non-payment – double the rate for higher-income and white retirees. Minority retirees also have lower credit scores and longer spells of poor credit, according to the study, which compared U.S. households with debt in four age groups: 50s, 60s, 70s, and 80s.

The researchers concluded that disadvantaged retirees “may heavily rely on debt to support their standard of living in retirement.”

To get some perspective on this racial disparity, first compare workers in mostly white and mostly minority neighborhoods. White households in their 50s typically owed $43,000 on their credit cards, car loans, and mortgages in 2019, the most recent year of survey data.

But in minority neighborhoods, 50-somethings owe half as much – in large part because financial companies and mortgage lenders extend less credit to lower-income customers.

(These debt levels may seem small, but the analysis included renters, who don’t have a mortgage, which is the single largest debt for most Americans, and homeowners who have whittled down their mortgages or even paid them off entirely).

For retirees, the racial pattern is very different. Borrowers in their 80s in minority neighborhoods typically owed $3,250 in 2019 – more than their white counterparts. And $3,250 is a substantial burden for retirees relying mainly on Social Security. Since they’re more likely to be renters, the debt is concentrated in auto loans and high-rate credit cards, which aren’t backed by an appreciating asset like a house. …Learn More

Diverse Population Uses Nursing Homes Less

Son with father in wheel chair

Since the 1980s, the share of the U.S. population over 65 has grown steadily. At the same time, the share of low-income older people living in nursing homes has declined sharply.

New research by the University of Wisconsin’s Mary Hamman finds that this trend is, to some extent, being driven by an increasingly diverse population of Hispanic, Black, Asian, and Native Americans. They are more likely to live with an adult child or other caregiver than non-Hispanic whites, due, in some cases, to cultural preferences for multigenerational households.

Nursing home residence is also declining among older white Americans. However, in contrast to the Black population, whites are increasingly moving into assisted living facilities. This creates what Hamman calls a “potentially troubling pattern” of differences in living arrangements that might reflect disparities in access to assisted living care or perhaps discriminatory practices. Notably, the researcher finds that the Black-white gap in assisted living use persists even when she limits her analysis to higher-income adults.

Eight states have seen the biggest drops in nursing home use: Florida, Georgia, Louisiana, New Jersey, New Mexico, North Carolina, South Carolina, and Tennessee. Many of these states have experienced fast growth in their minority populations or have more generous state allocations of Medicaid funds for long-term care services delivered in the home.

Growing diversity is actually the second-biggest reason for lower nursing home residence, accounting for one-fifth of the decline, according to the study, which was funded by the U.S. Social Security Administration and is based on U.S. Census data.

As one might expect, the lion’s share of the decline – about two-thirds – is due to policy, specifically changes to Medicaid designed to encourage the home care that surveys show the elderly usually prefer. …Learn More

Fintech artwork

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

Unbalanced scales

Social Security Eases Racial Disparities

Social Security is a major source of income for most retirees. It is even more important to blacks and Hispanics in a nation that is becoming increasingly diverse.

Social Security is helping to even out the racial and ethnic inequities in income and wealth that exist in the working population and continue in old age, according to a study by the Center for Retirement Research for the Retirement and Disability Research Consortium.

The researchers estimate how much Social Security reduces this inequality by comparing retirement wealth for white, black, and Hispanic-Americans.

Wealth is defined broadly to include obvious things like home equity and financial assets such as 401(k) retirement accounts, certificates of deposit, and money market accounts. In addition, the researchers converted the income that workers get from Social Security and defined benefit pensions into wealth by estimating the total value today of their future benefit checks.

The estimates of wealth, when Social Security is excluded, reveal enormous disparities. The typical white worker in his early- to mid-50s can expect to have about $177,000 in non-Social Security wealth in retirement, compared with just $24,000 for blacks – about a 7 to 1 ratio. Hispanics have $35,000 – or a 5 to 1 ratio.

These ratios improve dramatically, dropping to roughly 2 to 1 when Social Security is added in. The white worker has $378,000 in total wealth, compared with $173,000 for blacks and $186,000 for Hispanics.

Social Security’s progressive benefit formula reduces retirement inequality by replacing more of the income of lower-paid workers. The program also provides nearly universal coverage, whereas many workers do not have access to retirement plans at work. These features help black and Hispanic workers, who tend to have lower incomes and are also less likely to have retirement plans.

“Social Security is the most equal form of retirement wealth and the most important source for most minority households,” the researchers conclude. …Learn More

Silhouettes of houses in a row

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. …
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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. …
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