As the economy emerges from the recession and the national debate turns to limiting the cost of the social safety net, only one in four African Americans and one in six Hispanics reported owning stocks, bonds or mutual funds, a new poll shows.
In addition, only 46 percent of blacks and 32 percent of Hispanics said they had an individual retirement account or any similar retirement arrangement, according to a new Washington Post-Kaiser Family Foundation-Harvard University poll. Half of whites said they had stocks, bonds or mutual funds, and two in three said they had IRAs, 401(k)s or similar holdings.
The relative paucity of investments held by blacks and Hispanics tracks with previous studies, something that experts call an outgrowth of the gaping wealth disparities separating the races.
Not only are African Americans and Hispanics less likely than whites to own retirement accounts or investment securities, they also are far less likely to own homes, which remains the largest engine of wealth creation for most Americans. And when they do own homes, they tend to have less equity in them, in large part because they live in communities where prices appreciate more slowly, many analysts say.
Now, with the big increase in foreclosures and large drops in housing prices that came with the recession, those disparities have grown. “I’m sure I’m like most average Americans in that our only asset is our residence,” said Jonathan Williams, an African American who lives in Cranston, R.I. “And that value is way down.”
Although the recession hurt all Americans, its toll was especially severe among African Americans and Hispanics, who were most likely to lose jobs, face foreclosures and lose health insurance coverage, the poll found.
The previous economic expansion was marked by weak job growth and income gains only for the very best-paid workers. A series of studies have found that the lack of wealth and the smaller incomes typically earned by African Americans and Hispanics – whose median incomes, respectively, are only 82 and 73 percent that of whites – limits how much they save for retirement.
Studies have found that although blacks and whites have roughly equal access to retirement plans at work, Hispanics trail far behind. And even when they do have access, African Americans and Hispanics are less likely than white and Asian workers to participate in them, according to a 2009 report by Ariel Education Initiative and Hewitt Associates.
When blacks and Hispanics participate in retirement plans at work, the study found, they save less. In addition, both African Americans and Hispanics were far more apt than whites to tap their retirement money to deal with financial emergencies, further eroding their retirement security, the Ariel-Hewitt study found. Minorities also are more likely to stick to conservative investments, which historically pay far less over the long haul.
For workers of all races, the most conservative investments seem to make the most sense, particularly given the market volatility that came before and during the downturn. Dawn Marie Castillo, a federal employee in San Diego, said her Thrift Savings Plan retirement account “took a humongous hit” during the recession.
“The more I put in, the more it kept going down and I had less than I started with,” she said. “So I moved all of it into government securities.”
A 2009 study by the Center for Retirement Research at Boston College called those disparities an outgrowth of the wealth gap separating the races. Blacks have only 15 cents of wealth for every dollar of wealth held by whites, while Hispanics have 27 cents for every dollar of white wealth, according to Federal Reserve statistics.
With the nation facing a huge long-term budget deficit, some political leaders, including a bipartisan deficit panel formed by President Obama, have called for increasing the retirement age.
The effect of that proposal, which is being resisted by many liberal groups, would be to lower benefits for those who retire at 62, the earliest age people can begin drawing Social Security retirement benefits. A disproportionate number of early retirees are low-skill workers who tend to perform manual labor, and are disproportionately black or Hispanic.
“People need more than just Social Security to survive,” said Alicia H. Munnell, director of the Center for Retirement Research. “The fact that black and Hispanic workers are less likely to have meaningful [retirement account] balances is a worrisome development. If the retirement age goes from 67 to 69, the practical effect will be bigger reductions for people who claim it at 62. Low-skill workers, who are already paid less, would just get less from the program.”
Further increases in the retirement age “would exacerbate the problem of growing retirement insecurity. This is especially true of low-income workers who have seen only modest gains in life expectancy yet are the hardest hit by Social Security cuts,” wrote Monique Morrissey, an economist who specializes in retirement security at the Economic Policy Institute.
The poll found that blacks and Hispanics also tend to use other financial instruments less than whites. For example, 18 percent of blacks and 30 percent of Hispanics said they had no checking or savings account, often leaving them to use costly check-cashing stores and other outlets to handle their financial transactions. Only 5 percent of whites reported having no checking or savings account.
Source: http://hispanicohio.northcoastnow.com, Washington Post-Kaiser Family Foundation-Harvard University