By Julissa Catalan
According to a new study by the Federal Reserve Bank of St. Louis, Latino household income could reach $4.4 trillion by 2025—tripling the population’s current estimated wealth.
However, Latino families will not actually see the monetary increase.
How is that possible The increase in Latino wealth largely will be driven by its population growing faster, in relation to other groups, over the next decade. In other words, there will be no monetary windfall per Latino household, just the growth of Latinos in numbers.
The study predicts that white and Asian households will continue to surpass Latinos as far as wealth is concerned.
According to a Pew Research Center report from September 2013, Asians maintained the highest average household income in 2012 at more than $68,000, better than $6,000 a year more than they did in 1987, when data was first kept. White households, meanwhile, have added about $7,000 a year to their income since 1972, now reaching an average of more than $57,000 a year. Latinos have seen virtually no change in the last 40 years, however, now earning an average of $39,000 per household—not even $2,000 more than they did in 1972. Black households continue to be the poorest, averaging just $33,000 per year.
A salary of more than $202,000 was needed last year for a person to be among the top 5 percent in wage earners among whites. It took just $134,000 to be among the top 5 percent of Black Americans in income, almost identical to the salary that was the cutoff for the top 5 percent of whites back in 1972. The richest Latinos made at least $144,000 last year, while Asian-Americans needed to bring in almost a $250,000 to be considered among the wealthiest.
Per the Federal Reserve’s Survey of Consumer Finances and Its Financial Accounts of the United States, the Latino population was at 50.5 million in 2010—16.3 percent of the total U.S. population. That year, Latino families had about $1.4 trillion in net worth—2.2 percent of the nation’s income, property and financial assets. The Latino share of total wealth was less than its share of the population. This was because average wealth per Latino household was only $108,871—far less than the average among all other groups, $543,702.
The average wealth for all households in 2010 was $494,916.
Based largely on population growth, Latino families are projected to be worth anywhere between $2.5 trillion to $4.4 trillion in 2025, or 2.6 percent to 3.2 percent of the nation’s total wealth.
How did the authors of the publication, William R. Emmons and Bryan J. Noeth, come up with these figures They used Census projections to determine two different scenario options of how the Latino economy will play out by 2025—taking into account the effects the recession had on Latinos in particular from 2007 to 2010, and predicting how fast or slow they can bounce back as a group.
Scenario 1: Under this assumption, Emmons and Noeth project that average wealth levels of Hispanic families (and families overall) by 2025 will have reverted to the trend lines that best describe the 1989-2010 wealth data in the Survey of Consumer Finances.
This scenario generates an estimated increase in Latino share of total wealth from 2.2 percent (2010) to 3.2 percent (2025).
Scenario 2: Under this assumption, Emmons and Noeth project that average wealth levels in 2010 grow from that crisis-impacted level at the rate observed on average between 1989-2010. That is, the wealth losses suffered in the years leading up to 2010 would prove to be permanent in the sense that no “catch-up” periods occur.
This second scenario generates an estimated increase in Latino share of total wealth from 2.2 percent to 2.6 percent.
“Average Hispanic wealth per household would increase faster than for the entire population only under the first assumption,” the report states. “However, in the more pessimistic second scenario, the Hispanic share of total wealth would increase only because the Hispanic population is expected to grow faster.”
The report concludes that wealth-building trends from now until 2025 are largely dependent on the speed at which the Latino population continues to grow. Yet even under the more optimistic first scenario, Latinos would still make up only 3.2 percent of the nation’s wealth.