The Latino Wealth Paradox: Latinos Are Richer, but They Invest Less

Bloomberg Línea — Hispanics and Latinos in the US face a peculiar situation: although they represent a huge market of $1,7 trillion in terms of purchasing power and showed a big increase in wealth in the last year, they are a community poorly invested in equity or financial vehicles, several reports have shown.

According to Credit-Suisse’s latest global wealth report, Hispanic households in the US saw the second largest increase in wealth thanks to advances in their non-financial assets.

The bank says Hispanic families increased their wealth by almost 20% (19.9%) in 2021 (second only to African American households (22.2%).

In terms of wealth differences by race, Credit-Suisse said in its 2022 Global Wealth Report that in the US these tend to be very large. The study reviews a Survey of Consumer Finance (released in 2019 by the Fed), revealing that “the median wealth of African Americans was just 12.8% of non-Hispanic Caucasians’ median wealth, and the median for Hispanics was only 19.2%.”

In terms of income, Credit-Suisse says, “the corresponding ratios were 58.4% for African Americans and 59.0% for Hispanics.”

However, when it comes to wealth measured in financial and non-financial assets, Credit-Suisses states that Hispanics experienced a higher wealth growth in 2020 than in 2019.

The main reason for this, the bank says, has to do with housing. That’s a factor some agencies have been measuring as an element of added wealth, not only among millionaires, but as the US population in general.

According to Bankrate (with data from the National Association of Hispanic Real Estate Professionals):

• In 2021, the Hispanic homeownership rate increased to 48.4 percent, up from 47.5 in 2019
• Between 2019 and 2021, Latinos added a total of 657,000 owner households.
• By 2021 there were 1.9 million new Hispanic owner households since 2014
• There has been an average increase in Latino homeownership of about 1 percentage point every two years. If that trend continues, it could reach 50 percent by 2025.

In 2020, despite the Covid-19 pandemic, the average growth rate in assets for Whites, African American and Hispanics, combined, was 13.7% and rose in 2021 to 15.0%. “Strikingly”, the bank says, “the 2021 rise was much higher for African Americans and Hispanics at 22.2% and 19.9%, respectively, than for non-Hispanic Caucasians at 12.7%.”

The main reason for this, the report says, has to do with increases in non-financial wealth of 26.9% for African Americans and 27.6% for Hispanics. For non-Hispanic Caucasians, the figure is 12.7%.

“While these changes reduced wealth differentials by race, the latter remained sizable – the ratios of mean wealth of African Americans and Hispanics to the mean for non-Hispanic Caucasians at the end of 2021 were only 24.2% and 19.8%, respectively,” the bank says.

Despite the advances in overall wealth in the African American and Hispanic communities reported by Credit-Suisse, much remains in terms of equality. The Federal Reserve noted last year that, in the US, the average Black and Hispanic or Latino households earn about half as much as the average White household and own only about 15 to 20 percent as much net wealth.

Not great investors

In a report released earlier this year, UBS Group AG stated that Black and Latino millionaires “have a smaller-than-average allocation to equities and greater interest in sustainable investing.”

The bank said in a study that African Americans with at least $1 million to invest have 26% of their money in global equities on average, while Hispanic and Latino millionaires allocate 29% to stocks.

UBS findings show that “even at the millionaire level, broader racial and ethnic disparities persist in ownership of equities, which surged from the start of the Covid-19 pandemic through the end of 2021,” as reported by Bloomberg News. “Federal Reserve data show that while more than half of White and other families hold stocks, that share falls to about 24% and 34% for Hispanic and Black families, respectively.”

• Among high-net-worth investors, portfolios of Black and Hispanic or Latino investors have lower exposures to the stock market, according to UBS Global Wealth Management. They represent equities allocation like this:
• Asian: 53%
• Black: 26%
• Hispanic/Latino: 29%
• Overall: 41%

As per Bloomberg News: “The survey found that 79% of Black millionaires and 72% of Hispanic high-net-worth individuals favor investments that make a positive social impact, such as promoting equality and inclusion, compared with 49% overall. Black millionaires were also more likely to shift their purchases and donations toward companies and charities that are led by or support members of their community.”

-- With information from Bloomberg News