Blacks Less Prepared for Next Financial Crisis

by April 22, 2013

WASHINGTON – Minorities clinging to the middle class have come out of the Great Recession at a higher risk for falling into poverty during the next economic crisis, according to a recent report by the Center for American Progress, a nonpartisan think tank in Washington, D.C.

The report titled, “Making Sure Money Is Available When We Need It,” noted that over the past 30 years, household risk exposure increased for many Americans, following the crash of the saving and loan industry in 1989, the rise and fall of the tech bubble in 2000, and most recently the collapse of housing market in 2007 that led to the Great Recession.

Households have experienced more wealth volatility since the late 1980s because there has been more risk in the market and because they have been increasingly exposed to those risks, said the report.

The study found that was 27 percent of non-White households were at “very high risk” of exposure compared to 22.7 percent for Whites. The report also said that: “The risk exposure for nonwhite households, has grown faster than the risk exposure for white families.”

Household wealth — a family’s asset-to-debt ratio — was a determining factor on a families’ ability to weather the next economic disaster and limit their exposure to financial ruin.

According to the Economic Policy Institute’s report “The State of Working America, 12th Edition” stated that: “the median net worth of Black households was $4,900 in 2010, compared with $1,300 for Hispanic households and $97,000 for White households.”  The EPI report also noted that a third of Black households (33.9 percent) had zero or negative wealth compared to 18.6 percent of White households.

When asked why minorities are at a greater risk, some economist say the conditions that led to record foreclosures and unemployment rates are often beyond their control.

“It’s like coming to New Orleans after [Hurricane Katrina] and saying, “Well, what could these people have done to avoid being stuck in the water? It’s blaming the victim,” said Bill Spriggs, chief economist at AFL-CIO, and economics professor at Howard University. “The idea that some individual by themselves could have prevented the levies from collapsing – really? That’s what we’re in the middle of — the foreclosure crises swept away some people who were at fault because they acted irresponsibly but many of whom had nothing to do with [riskier investments].”

For many American families, homeownership had been the key to gaining a strong foothold in the middle class and for many families in the Black community its still one of the safest assets to own. The deluge of subprime mortgages, not an inability to afford a home, changed that.

“African Americans were targeted more for subprime loans they didn’t do anything risky like start buying stocks instead of mutual funds but they wound up holding what were riskier investments by virtue of the way the housing market works, said Wilhelmina Leigh, a senior research
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