NEED TO KNOW: ECONOMY

The New Poverty Trap

The recession hit black and Hispanic families much, much, much harder than it hit white ones.

PORT SULPHUR, LA - MAY 13: Jamie Riley pauses after cooking dinner for her seven children in the FEMA Diamond trailer park May 13, 2009 in Port Sulphur, Louisiana. Seven children and four adults from the family are living in the trailer after their home was destroyed by Hurricane Katrina. They are still awaiting money from the federal Road Home program to purchase a new home. Approximately 2,000 families in the New Orleans metropolitan area still live in FEMA trailers nearly four years after Hurricane Katrina. Eighty percent of those still in trailers are homeowners who are unable to return to their storm damaged houses. May 1 marked the end of the Temporary Housing Program for Katrina victims as those still living in the trailers have been given a May 30 deadline to move out or face possible legal action.  (Photo by Mario Tama/Getty Images)
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Fawn Johnson
July 28, 2011, 11:39 a.m.

There are two stun­ners in the stag­ger­ing wealth dis­par­it­ies between whites and minor­it­ies doc­u­mented by this week’s Pew Re­search Cen­ter re­port. One is that it took just a few years of re­ces­sion to double the yawn­ing gulf in eco­nom­ic se­cur­ity between white house­holds and His­pan­ic or Afric­an-Amer­ic­an ones. The oth­er is that there hasn’t been a re­volt.

Ana­lyz­ing 2009 census data, Pew found that the me­di­an wealth of white fam­il­ies is 20 times that of black fam­il­ies and 18 times that of His­pan­ic fam­il­ies. That’s twice the dis­par­ity found in 1984, when the Census Bur­eau star­ted col­lect­ing the data. From 2005 to 2009, His­pan­ic fam­il­ies lost 66 per­cent of their wealth and black fam­il­ies lost 53 per­cent. White fam­il­ies fared dis­tinctly bet­ter, los­ing only 16 per­cent.

The num­bers give am­muni­tion to poverty ad­voc­ates frus­trated about the vastly dif­fer­ent eco­nom­ic situ­ations of minor­it­ies and whites. Afric­an-Amer­ic­ans and His­pan­ics, far more than whites, are tee­ter­ing on the pre­cip­ice of eco­nom­ic in­sec­ur­ity; one stroke of bad luck — a health emer­gency or a sud­den drop in hous­ing prices — could plunge them in­to a “vi­cious cycle of low wealth,” ac­cord­ing to Chris­ti­an Weller, an eco­nom­ist at the Cen­ter for Amer­ic­an Pro­gress.

About one-fourth of His­pan­ics and blacks are in the worst type of eco­nom­ic situ­ation: They have no sav­ings, are in debt, and live paycheck to paycheck. “Our com­munit­ies are on the wrong side of this huge wealth gap. They can’t af­ford to be hit,” said Nancy Zir­kin, ex­ec­ut­ive vice pres­id­ent of the Lead­er­ship Con­fer­ence on Civil and Hu­man Rights.

Minor­it­ies have more to lose from the budget stan­doff in Con­gress be­cause of their tenu­ous eco­nom­ic cir­cum­stances. Zir­kin says she is al­tern­ately de­pressed and out­raged about pro­pos­als to steeply cut Medi­care, Medi­caid, So­cial Se­cur­ity, and oth­er sup­port pro­grams. “I’m wor­ried about edu­ca­tion get­ting slammed. I’m wor­ried about food stamps. There are a lot of low-in­come pro­grams that really mean the dif­fer­ence between poverty and not. It is the safety net,” she said.

Elec­ted of­fi­cials who rep­res­ent minor­it­ies say their con­stitu­ents ex­ist in an al­tern­ate, shad­ow uni­verse that is not well-known to their more eco­nom­ic­ally se­cure coun­ter­parts — the ones who ap­pear to drive the policy talks in Wash­ing­ton. “For the first time since the Great So­ci­ety ushered in by Lyn­don John­son, there is vir­tu­ally no at­tempt by either the House or the Sen­ate to ad­dress the grow­ing level of poverty or the even more fright­en­ing re­duc­tion of [the] black middle class,” said Rep. Emanuel Cleav­er, D-Mo., who chairs the Con­gres­sion­al Black Caucus. “If the word “˜poverty’ or “˜the poor’ or “˜dis­ad­vant­aged’ ends up in le­gis­la­tion, it is a cer­tainty that it will be massively op­posed.”

Two things — health cov­er­age and a two- or three-month sav­ings cush­ion — can help re­verse the down­ward spir­al in­to eco­nom­ic in­sec­ur­ity, ac­cord­ing to Weller. “People will start to re­lax. They will plan more for the fu­ture. They start plan­ning for their kids. The whole thing be­comes saner.” But health in­sur­ance isn’t a giv­en for minor­it­ies. Al­most one-third of His­pan­ics and more than one-fifth of Afric­an-Amer­ic­ans were un­in­sured, ac­cord­ing to the Census Bur­eau’s fig­ures from 2009, be­fore Pres­id­ent Obama’s health care over­haul. (By con­trast, 12 per­cent of whites didn’t have health cov­er­age.) Sav­ing is an­oth­er prob­lem for minor­it­ies, whose em­ploy­ment and in­come plummeted at about twice the rate of whites dur­ing the re­cent re­ces­sion.

It is iron­ic that homeown­er­ship, tra­di­tion­ally one of the hall­marks of eco­nom­ic se­cur­ity, was the single factor that doomed more blacks and His­pan­ics than whites. De­clines in home equity marked the bulk of the losses for every­one, Pew’s re­port said. But the im­pact was far more acute for minor­it­ies be­cause their home equity was all they had. Their loans were risky and many had little or no oth­er sav­ings. White fam­il­ies, mean­while, were more likely to be buoyed by 401(k) or thrift ac­counts.

When the bot­tom dropped out of the hous­ing mar­ket, His­pan­ics took a double hit be­cause the hous­ing boom had giv­en them both em­ploy­ment (they work dis­pro­por­tion­ately in hous­ing) and op­por­tun­it­ies to own homes (their homeown­er­ship peaked in 2006). His­pan­ic house­holds’ me­di­an ac­cu­mu­lated wealth — home equity, sav­ings, re­tire­ment ac­counts — fell from about $18,000 (in 2005) to $6,000 (in 2009). Un­em­ploy­ment was high­er among Afric­an-Amer­ic­ans than among His­pan­ics, but it was less tied to the hous­ing bust. Black fam­il­ies gen­er­ally bought in­to the hous­ing mar­ket a few years earli­er did than His­pan­ics, which made their losses slightly less dra­mat­ic. Their wealth dropped from about $12,000 to $5,700 dur­ing the same four-year stretch.

The num­bers aren’t even in the same ball­park for white house­holds. Their me­di­an wealth was close to $135,000 be­fore the re­ces­sion; it fell to $113,000 af­ter­ward. Per­haps that is why minor­it­ies are hav­ing a hard time con­vey­ing the ur­gency of their eco­nom­ic situ­ation to the broad­er popu­lace. It just doesn’t com­pute. 

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