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Cascade: No. 61, Spring 2006

Asset Building in Latino Families and Communities

Building wealth can pave the way to financial stability. While some households are well on their way, others have been less fortunate. The disparity in wealth in the U.S. along ethnic lines is well known. Although much has been written about this disparity, our understanding of asset accumulation in Latino families 1 and communities could be enhanced. A study by Barbara J. Robles of Arizona State University augments our knowledge in this area.2

Robles presents an array of data pertaining to the nature of asset building in the overall Latino population in the U.S. as well as some valuable information gleaned from a special survey that highlighted the situation along the southwest border. In the study, the author stresses the important role played by cultural differences in understanding wealth accumulation among Latinos. She also suggests some steps that could be taken to advance asset building in Latino communities and improve our ability to better gauge the wealth accumulation that takes place.

A National Perspective

The accumulation of wealth is dependent on a number of factors, such as educational attainment, employment and occupational status, understanding of and participation in financial markets, ownership of property, and participation in income accumulation mechanisms like pension plans. The author points out, however, that biculturalism and bilingualism are important attributes for Latinos that enable them to respond to these factors. Nonetheless, the author reports that the net worth3 of whites ($117,722) was approximately ten-and-a-half times that of Latinos ($11,149). A closer look at the demographics of Latinos helps shed some light on their relatively low level of net worth.

Of the roughly 40 million Latinos in the U.S., approximately 67 percent are of Mexican origin.4 Research has shown that educational attainment is related to financial stability and wealth creation. The author reports that only 7.6 percent of Mexican Americans hold a bachelor’s degree or higher. Thus, given the high percentage of Mexican Americans among the Latino population, the overall percent of Latinos with a bachelor’s degree or higher is low.

Income also heavily influences the ability to build wealth. According to the author, the “income distribution for families indicates that 51 percent of Latino families earn zero to $35,000 annually.” Moreover, the author notes that Latinos (along with black Americans) have the lowest participation rates in income-generating programs such as various pension plans, including thrifts and individual retirement accounts.

Entrepreneurship and self-employment can serve as another source of wealth building. The author points out that since many Latinos face barriers to employment in the general labor market, some have turned to self-employment as a means of primary or supplemental income. As a consequence, microenterprises have proliferated along the U.S.-Mexico border as well as in Latino enclaves in urban areas. But the author cautions that the available data may be misleading since they might not reflect “many Latino self-employment activities such as baby-sitting, lawn service, day laborer, maids, and seasonal cultural food vendors.”

The author stresses that the nature of family formation among Latinos has had important implications for income generation and wealth-building opportunities. According to the author, Latino family formation continues “to display ‘non-nuclear and extended-kin or pseudo-kin’ arrangements.” On the one hand, the resulting “larger families [have] more earners in the household which contribute to income flow, pooling of resources and wealth accumulation.” On the other hand, the “communal nature of pooling resources to acquire assets” does not conform to the definition used by mainstream institutions and data collection requirements – which are based on the concept of a “nuclear family” structure. The author adds that most contractual agreements between individuals, especially those that emphasize individual property rights, discourage the use of communal asset-building activities.

Perhaps the major component of wealth for most households is homeownership. In addition to being valuable in asset building, a home can be leveraged to obtain an education, acquire a business, or “contribute to the next generation’s economic stability and progress” through an intergenerational bequest. However, the author says that the homeownership rate of Latinos has lagged behind those of other populations.5

A Southwest Border Perspective

In addition to the statistics on Latinos nationally, the paper also contains general data on Latinos along the southwest border of the U.S. and more detailed information from a special survey on the financial behaviors and needs of low-income and working poor Latino families in that region.

The author concentrates her analysis on 32 counties in the four states along the U.S.-Mexico border. In general, she finds that these Latino families share a similar socioeconomic status with Latinos nationally, along with a mistrust of financial institutions, which leads to a high number of unbanked families. Consequently, they too have limited opportunity for asset accumulation. However, homeownership presents a somewhat paradoxical situation. The variation of low incomes among the four border states leads to relatively low median housing values along the border. But the author observes that these low housing values “contribute to significantly higher rates of homeownership among Latino families in the region.” She hastens to add, however, that this fails to “create the same asset base and subsequent wealth inheritance experienced by many non-Hispanic white families.”

In order to gain further insight into the financial behavior of low-income Latinos, the author uses information from a survey administered during the 2004 tax season by several community-based organizations (CBOs) in Texas, Arizona, and New Mexico that offered free or low-fee tax-preparation services.6 Of the approximately 2,063 surveys returned, 88.6 percent were from Latinos. The survey not only sought information on the banking status of low-income Latinos but also the types of financial services and products they used.

In response to questions of where the tax filers cashed their paychecks, the survey revealed that 57.8 percent used a commercial bank, 18.9 percent used a credit union, 9.9 percent used a grocery store, and 9.7 percent used check-cashing outlets. While many of the respondents indicated a familiarity with traditional financial institutions, 45.6 percent said they used money orders to pay their bills. This finding has implications for the banked/unbanked issue, since only 23 percent were unbanked. Two other interesting findings were that respondents listed school expenses as third on their list for the use of their refund and that they wanted to learn more about buying a home and IDAs.7

Recommendations

The author offers a number of suggestions that might improve asset or wealth building by Latinos. While too numerous to mention here, a few follow:

  • Since “financial literacy is the foundation for asset building,” economic and financial literacy programs should be provided in collaboration with Latino CBOs. Special attention should be paid to Latino youth, since “children often serve as mediators for parents with limited English proficiency.”
  • Provide information and awareness about financial and governmental institutions to Latinos to diminish their distrust and avoidance of them.
  • Increase the availability of IDAs and promote the advantages of EITC.
  • Along with quantitative measures, encourage the use of qualitative information that incorporates cultural behaviors such as “pooling” of resources when conducting program evaluation and policy assessment.8

Many of the suggestions made by the author could be facilitated through partnerships with established Latino organizations currently working in the asset-building arena.9

  • 1 Latino is used here interchangeably with the term Hispanic and refers to people residing in the U.S. who are of Spanish-speaking origin.
  • 2 “Asset Accumulation and Economic Development in Latino Communities: A National and Border Economy Profile of Latino Families,” Filene Research Institute (forthcoming). For a copy of the study, contact George Hofheimer, Director of Research, Filene Research Institute at georgehofheimer@filene.org.
  • 3 Net worth is an individual’s assets minus liabilities (total debts).
  • 4 The origins of other Latinos in the U.S. are 4 percent Cuban, 9 percent Puerto Rican, 14 percent Central and South American, and 6 percent are classified as “other.”
  • 5 Based on 2002 data, the author reports that the national rate of homeownership for Latinos was 46.8 percent.
  • 6 The survey respondents had an average adjusted gross income of $12,522 with an average tax refund of $1,469, including the earned income tax credit.
  • 7 IDAs are tied to savings for homeownership, college or vocational education, or microenterprise development. It is interesting to note that 92 percent of the respondents had never heard of IDAs.
  • 8 Also, mortgage products might be created that take into account the “pooling” of extended-family income when qualifying for a home purchase.
  • 9 Among those listed in the study are Frontera Asset Building Coalition, Latino Financial Issues Program, National Association of Latino Community Asset Builders, and National Alliance of Latino Economic Progress.