`Rising' net worth of blacks is half-truth

March 05, 2006|By JAY HANCOCK

The results look impressive at first. Buried in last month's snapshot of household finances by the Federal Reserve is evidence of encouraging gains by ethnic minorities, who have never shared in American bounty the way whites have.

Driven largely by rising home prices, wealth in Hispanic and nonwhite families increased an average of 24 percent from 2001 to 2004, according to the Fed's important Survey of Consumer Finances, conducted every three years. And average wealth in African-American households rose by an even better 37 percent over the period.

Both results were far better than the 8 percent average gain for white households for the three years. (All figures noted here show gains or losses after accounting for inflation.) And they reversed a trend from the previous survey that showed wealth growth for minorities in the late 1990s lagging behind that of whites.

But of course a few statistics never paint an entire picture. Absolute wealth for minorities is still miserably below that of non-minorities.

Despite recent gains, there is "a big gap" between white wealth and nonwhite and Hispanic wealth, says Rakesh Kochhar, associate director for research at the Pew Hispanic Center in Washington. "And the wage growth has been dismal all around" for minorities, he says.

At the same time, average gains for ethnic groups appear to have been pulled up by a relatively small portion of households; most families still struggled.

"These numbers would tend to reveal some changes in the distribution of wealth" as well as average growth, says Margaret Simms, vice president for governance and economic analysis at the Joint Center for Political and Economic Studies.

"So that some people are doing a whole lot better, and other people aren't doing better at all," she said.

Still, even infinitesimal signs of reduction in inequality are welcome, and the Fed's triennial survey may be one of the best measures of equality or inequality that exists.

Unlike most household-finance snapshots, which show only wages and other income (because that's what gets taxed, so it's easily measurable), the Fed's delves into savings, investments and home equity.

The Fed's survey displays wealth on the household balance sheet - net worth, or assets minus debts - which is a better gauge of overall financial position than a year or two of income.

In 2004 the average household wealth of nonwhites and Hispanics was $153,000, which isn't bad when you consider that's after subtracting what was owed on credit-card balances, mortgage debt and other loans. Three years earlier, average household wealth for the group was $124,000, meaning it increased its net worth by an average of 7 percent annually.

The growth rate in average black wealth was even better. In 2001 the average African-American household had a net worth of $81,000; by 2004 that had risen to $111,000 - 11 percent compound annual growth.

Much of that was driven by a 24 percent increase in the median value of home equity for African-Americans, a statistic that wasn't published by the Fed but was mined from the survey and mentioned by Fed Vice Chairman Roger Ferguson in a speech a few days ago at the Johns Hopkins Applied Physics Laboratory near Laurel.

But when you look further, the results aren't nearly so sunny. Average minority net worth was probably pulled upward by a relatively small number of wealthy individuals and by the 48 percent or so of minorities who own homes, economists say. (That is still well below the 75 percent or so homeownership rate for whites.)

While the average net worth of nonwhite and Hispanic households in 2004 was $153,000, half the households in that group had net worth below $25,000, according to the Fed survey. For blacks it was even lower; half of African-American households had net worth of less than $20,000.

These median numbers - the point at which half of all households are above and half below - barely changed over the three years for African-Americans, although it rose from $19,000 to $25,000 for all minorities.

Part of the problem is that it takes money to make money; numerous minorities can't afford a home, shutting them out of the enormous gains of recent years. But minorities, and especially African-Americans, have also been historically reluctant to own stocks and mutual funds, which take less wherewithal to buy and have been responsible for some large fortunes.

In the Fed's survey, 44 percent of white households owned stocks or mutual funds; only 13 percent of minority households did.

Even though white wealth grew relatively slowly over the period, it remains much greater than minority net worth. Average net worth in 2004 for white non-Hispanic households was $562,000, pulled up by guys like Donald Trump and Jack Welch. But even median white, non-Hispanic net worth was $141,000 - seven times that of blacks.

As Ferguson put it in his speech at APL, while the survey shows "noticeable gains" for minorities, "much more needs to be accomplished."


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