Recession hitting latinos, blacks harder

There's this article that says so.

But I'd like to mention the racism exhibited by one of the people interviewed in the article:

Salter's mother worked as a housekeeper, and his father was a custodian. Before his divorce, Salter's stepdaughter and her four children lived with him for many years. Professional blacks "don't usually start out with an inheritance," he said. "On top of that, quite often things happen in our families to cause us stress. An unexpected child or grandchild, drug problems. When you try to set aside money to put your kids through college, all of a sudden you have to say, 'I can't let this family member fall and become homeless.'

"I would say eight out of 10 people I know have a similar situation."

The main implication I get from that is that white people usually start out with an inheritance, and it's that reason why they succeed where so many black people may fail.

For the record, when my father died, he left each of my two brothers $10,000. He left me nothing, except the non-binding suggestion to his wife (my stepmother) that she sell me his share of the family place on Lake Ontario for the price of $1. On which I immediately began paying taxes. I was 31, hardly "starting out with an inheritance." It's unlikely we would have gotten anything had he lived beyond the age of 55.

Having said that, inheritance is hardly a fact of life for anyone. According to a study conducted by Jagadeesh Gokhale and Laurence Kotlikoff for the Federal Reserve Board, 92% of Americans will receive inheritances of $0, while slightly more than 4% will receive a modest sum (less than $25k).

Nearly 92 percent of the population will receive nothing at all, the study concluded.

Of the 8 percent who stand to inherit something, half will inherit less than $25,000, while just 1.7 percent of the population can expect to inherit more than $50,000.

The study was initially published in 2000, but the authors say if anything, the picture has worsened.

That means that for most Americans, any inheritance will not be a “life-changing event.”

Clearly it is the case that the very rich will accumulate wealth that is passed down. And further I will submit that the top 1% are very probably white. But it is disingenuous, if not outright racially offensive, to portray that tiny slice of the uber-rich as being representative of the experience of all white people.

For those who do inherit, the primary source of that inheritance is value of the parent's home, and we know where that all just went.

Certainly there is less inherited wealth among blacks because of previous institutional racism. Segregation prevented eariler generations from accumulating wealth. And the numbers now continue to paint a bleak picture, but again, it is not fair to point at white people and say they succeed because they inherited wealth--because it just doesn't happen in any substantial way for 95% of people of any race. Further, this book, says that only 10-20% of the black-white difference in wealth is attributable to inheritance.

According to this book, there's some not-so-shocking nor racist tidbits:

• 62% of households headed by single parents have no savings or other financial assets
• 40% of households with only high-school educations have no nest egg
• nearly 1/3 of all households are without financial resources
  

The same book goes on to demonstrate that when occupation, education, and income are factored out (i.e., given similar levels of each) black households still end up with $25k less in savings than their white counterparts. Middle-class blacks earn 70-cents for every dollar their white counterparts make, but only accumulate 15 cents of wealth for every dollar of wealth accumulated by their white counterparts.

Racism may be a factor, but it ain't the only factor. I think most people would agree that institutional racism has decreased steadily since the '60s. Yet the disparity in wealth between whites and blacks and hispanics has hardly changed at all in the last 20 years. One reason explored in this paper is that blacks may have lower risk-tolerance than whites, and therefore when they do have similar income, education, etc. they simply choose less-risky--and therefore often less lucrative-- investments. On the other hand, stock ownership rates among blacks "grew much more rapidly" than whites between 1996 and 2001, but then the trend reversed between 2001 and 2004.

Based on a logistic regression model, Black households had the same predicted stock ownership rates in 1998 and 2001 as White households that were otherwise similar in terms of income, net worth, risk tolerance, and other characteristics, but in 2004 Black households had significantly lower predicted stock ownership rates than White households.

All researchers have found that Black and Hispanic households are less likely than White households to own risky assets than White households. Previous research has also found that Black and Hispanic respondents are less willing to take investment risk than White respondents. The level of investment risk a household is willing to take has implications for the household’s financial behavior and future well being. Owning high return investments is necessary for households to be able to reach long term goals such as having a comfortable retirement.

While doing some reading on this topic, I found some gems:

• "Wealth has never been democratically distributed in U.S. society."
• While the stated intention of most asset building policies is to benefit working and poor families, a deeper look shows that they have failed to benefit low-income families; in large part owing to the predominance of asset building policies that operate through the tax code. Currently, almost $300 billion per year in federal tax expenditures goes to support asset building among individuals in the form of tax credits, deferments, or exemptions for investments, homeownership, and retirement accounts. These policies are of little benefit to many low-income individuals who do not have tax liabilities.
• "Lack of wealth is both a cause and an effect of low income and poverty, and the two are highly correlated."