photo credit dsnews.com

The Great Recession has had far-reaching impact for many people. Recent studies, however, show that minorities have been more deeply impacted by the economic recession. According to The Pew Research Center, the average household income for white households is roughly 20 times that of black households, and 18 times higher than that of Hispanic households.  This startling wealth gap is the largest reported since the government began reporting such statistics more than 25 years ago. TheWeek.com reports that

Every group’s income fell between 2005 and 2009, but Hispanics’ inflation-adjusted median wealth plummeted 66 percent, versus 53 percent among blacks, 54 percent among Asians, and just 16 percent among whites. As a result, the average white household had a net worth of $113,149 in 2009, a black household had $5,677, a Hispanic one, $6,325, and the average Asian household, $78,066. About a third of black and Hispanic households has zero or negative worth, versus 15 percent for whites.

I did a little bit of digging into WHY such a huge gap exists in the aftermath of the recession, and the answers I found made a lot of sense.

One of the biggest contributors was the housing market crash starting between 2007-2008 and still continuing in some places. There is no question that a lot of people were impacted, but it seems that specifically for Hispanics, this was a huge factor in a dramatic downturn of household wealth.  A high Hispanic population in some of the states hit most severely by the housing crash seems to indicate that this is a likely culprit. States like California, Florida, Nevada and Arizona have been hit much harder in the area of housing value. These same states have a higher than average Hispanic population.

An additional theory posed in my research for why the household wealth (measured as the accumulated sum of all assets minus all debts) has been impacted less sharply for whites is attributed to the recovery of the stock market. Research shows that white households are more likely to invest in stocks/mutual funds/401k investments. Since these markets made a much quicker recovery in the recession than home values, it makes sense that household wealth would reflect this recovery as well. A Huffington Post article described the need for action related to the wealth gap saying

When whites are more likely to invest in stocks, they are more likely to sustain themselves as the market improves. But when people of color had invested in homes, they were the first ones to lose that equity — hence unable to pass on wealth to their children as well.

This points to the need for increased financial education on the importance of saving and investing in low-income communities and minority communities. Wealth building strategies such as investments are a key factor in the ability to sustain financial downturns. As a society, if we continue to point families towards the “American Dream” of home ownership instead of a wise investment and savings strategy that might include home ownership once stable footing is achieved financially we are doing these same families a tremendous disservice. Homes are not meant to be investments – and the housing crash has proven that. They may indeed increase in value, but a wise savings plan includes far more diversification than counting on the value of your home to sustain you in the long-term.

I would love to hear your thoughts on this issue – share them with us in the comments!