On the Latino economic front, there is good news, bad news, and worse news. The the overall economic condition of Latinos is improving. The U.S. Department of Treasury reports that between 2013 and 2022, the median wealth of Latino families increased by 252%. However, the Latino wealth gap persists. A recent report from Brookings reveals that the average white family possesses five times the wealth of the average Latino family. Finally, the Latino wealth gap is likely to widen. How can this gap possibly grow even wider?
The Largest Transfer of Intergenerational Wealth
Between now and 2045 the U.S. will experience a great wealth transfer. It is an intergenerational transfer of wealth that dramatically overshadows all previous intergenerational wealth transfers. Specifically, it is projected that through 2045, $84 trillion will be passed down to heirs who are millennials or Gen Xers, with 20% of that, or $16 trillion, passed down in just the next ten years.
While much of the great wealth transfer will occur after parents and grandparents die, many of these parents and grandparents are transferring wealth while still alive. This approach, known as giving while living, involves making substantial contributions to home purchases, investment opportunities, educational costs, and, more recently, shared travel experiences. Whether the parents or grandparents are alive or deceased, the great wealth transfer increasingly provides an already economically advantaged group with more enriching experiences and support for building wealth.
These transfers ensure social mobility and enhance the quality of life. Nonetheless, as the costs of housing, education, and raising a family continue to climb and dovetail with existing structural inequities, those who do not benefit from such transfers face more barriers to wealth building than ever before.
The great wealth transfer is characterized by whites passing on wealth to their children or other heirs in far more significant amounts and at far greater rates than other racial/ethnic groups. A recent report from The Urban Institute notes that among all baby boomers, whites hold 90% of all net worth. In comparison, Latino and Black baby boomers own less than 2% of that generation’s net worth. One explanation for the astonishing concentration of wealth in the hands of older whites is that they have been able to take advantage of the real estate and stock markets when minorities faced significant, often insurmountable, barriers to acquiring those assets.
Intergenerational Wealth Transfers in The Latino Community
In interviews with Latinos in the Chicago area, participants discussed intergenerational wealth transfers. Significant intergenerational wealth transfers occur in the Latino community, but all too often, it is not the older generation giving to the younger one. Instead, these transfers characteristically go from child to parent or grandparent.
These monetary transfers happen so people can keep a roof over their heads, the lights on, and food on the table. This intergenerational transfer of wealth while providing essential support to parents and grandparents often impedes young adults’ ability to accumulate wealth.
One Latina in her late 30s tells us she gives her mother a credit card to buy groceries and other necessities. The daughter receives the bill each month and pays it instead of saving money for her future. She also mentions that she is worried about being unable to help her children or save for her retirement, noting that her mother needs help and feels she has no choice but to provide it.
Another Latina said she wants to help her adult children but instead relies on them to meet her living costs. She works two jobs. However, she earns less than $15 per hour at each job, which isn’t nearly enough to pay all her bills. She fears that the continuing increases in rent mean she will need more, not less, help from her children. She says that while she wants to leave money or property for her children and grandchildren, she is sure she will never have anything to pass down to any of them.
Others report being able to help their children buy a house, but even in the best of cases, they could offer less than $10,000, which is scant help in accumulating wealth.
What Can Be Done?
Brookings and other think tanks are conducting research and facilitating a wide range of policy discussions on whether the unprecedented level of wealth transfer now unfolding should be taxed and, if so, at what levels and under what conditions. While that research and those discussions are necessary, other actions must be considered.
The public and private sectors are working to reduce the Latino wealth gap. These efforts include private sector investments in underserved communities, tax deductions for first-time homebuyers, easier access to mortgage financing, economic opportunity zones, and business partnerships with K-12 schools and universities that serve economically disadvantaged students.
While these efforts have had some positive results, more is needed given the imminent enormous intergenerational transfer of wealth accruing primarily to whites. Further actions could include baby bonds, eliminating private mortgage insurance, implementing an earned income tax credit for financially assisting parents or grandparents, regardless of citizenship status, and helping to ensure that earning a college degree does not saddle a student with unmanageable debt.
These and other policy actions targeting Millennials, Gen Xers, and their children who are not receiving money from the great wealth transfer should be seriously considered. Some policies along these lines are greatly needed.
Policies must be designed to provide opportunities for and mitigate barriers to wealth accumulation, which are necessary conditions for narrowing the wealth gap. Failure to address the increasingly uneven economic playing field between those receiving a significant wealth transfer and those not receiving such a windfall ensures that the wealth gap will widen and exacerbate longstanding socioeconomic inequities.