What The Wealth Gap Means For U.S. Latinos

DISCLOSURE: This post was originally published September 20th. See the original + follow up comments on the Casanova Pendrill blog.

A recently released study from the Pew Research Center says that the median wealth of white households in the U.S is 18 times greater than the wealth of Latino households.

Why?

1. The bursting of the housing market bubble in 2006

“Sixty-six percent of their [Latinos] net worth* derives from home equity,” Kochhar says. “And they are concentrated geographically in parts of the country such as California, Arizona, Florida and Nevada, where the housing downturn was most severe.”

Consequently, the average Hispanic family lost two-thirds of its wealth between 2005 and 2009.

Even though the recession officially ended in mid-2009 and the stock market has rebounded, Latinos have not benefited since such a small percentage are invested in stocks, mutual funds and retirement accounts. Meanwhile, the housing market has yet to recover.

2. The recession that followed from late 2007 to mid-2009

Hispanics are more likely to be unemployed due to the recession, forcing them to dig into assets (like savings or pensions funds) or increasing their debt load (through credit cards, education loans, etc.).

As a result, about 1/3 of Hispanic households had zero or negative net worth at the end of the recession in 2009 — twice the level of white families.

What does this mean for brands?

The news can be disheartening to brands as consumers reevaluate purchases and disposable income, however, there’s still some positive news:

1. Household wealth, which, in the case of Latinos, is mainly derived from home equity, has no direct effect on spending power. Although it can be psychologically and emotionally damaging, the loss of home equity does not also mean a reduction in income.
2. Simmons data (Winter 2011 NHCS Adult Survey 12-month) shows us that compared to the Total Population, Latinos are optimistic about an economic recovery and their ability to make purchases:

• Economic Outlook – Next 12 months: Significantly Better Off (Index 117)
• Economic Outlook – Next 12 months: Significantly Better Off (Index 165)
• Buy Big Ticket Items – Last 30 Days: (Index 130)
• Household Essentials – Expect to Spend: A Lot Less (Index 121), but we also see A Lot More (Index 126)
• I Go Shopping Frequently: (Index 120)
• Hard To Resists Kids Requests for Non-Essentials: (Index 140)
• Movie Attendance – How Often Last 30 Days: 3-4 (Index 133) and 5+ (Index 186)

It’s true – many Latinos are struggling financially. We’re seeing it in the data and we’re seeing it first-hand in ethnographies across the country.

Even so, Latinos will continue to spend and it’s important for brands to understand how to make their products relevant to this growing consumer base — that’s a topic for future posts

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* Household wealth is the accumulated sum of assets (houses, cars, savings and checking accounts, stocks and mutual funds, retirement accounts, etc.) minus the sum of debt (mortgages, auto loans, credit card debt, etc.). It is different from household income, which measures the annual inflow of wages, interest, profits and other sources of earning. Wealth gaps between whites, blacks and Hispanics have always been much greater than income gaps.

Source: “Study Shows Racial Wealth Gap Grows Wider“ – NPR

Source: “Wealth Gaps Rise to Record Highs Between Whites, Blacks and Hispanics” – Pew Research Center

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