During the past month, a series of posts on Multi-American has explored the relationship between immigrant families and household wealth, or the lack of it.
Lately, it's the lack that has made headlines. A recent Pew Research Center study found minorities, in particular Latinos, on the losing end of a growing wealth gap created as the U.S. economy stumbled and the housing market imploded. Many of those hit the hardest lost not only equity, but their nest egg and their credit.
This and related studies before it have drawn on the work of Dowell Myers, a University of Southern California professor and urban growth specialist who has long chronicled home ownership among immigrants, most recently among Latinos, and what comes of it.
Myers and other experts who track immigrants and money have a ready answer for how it is that people who arrive here with little or nothing amass wealth: Even now, it's through real estate. And in spite of the devastating losses in recent years, for those who are able to put together the resources to invest, it's a good time to get started.
M-A: Your research has been cited in several reports pertaining to immigrants, real estate and household wealth. But the wealth that is referred to, is it mostly real estate equity?
Myers: Just over 80 percent of wealth for all groups was from home equity before the crash. Equity definitely counts as wealth, but it is not liquid, and the mechanisms for growing it or losing it are different from cash savings. The implications of cause and effect are just very different.
M-A: How is it that families who are have-nots become haves, immigrants in particular?
Myers: Real estate is key. Classically, immigrants buy properties and rent portions out to newer immigrants. In good decades - when prices are rising - immigrants prosper. A house purchased with 20 percent down that grows in value by 100 percent doesn't just double the original down payment investment. Because of the leveraging effect, that original 20 percent down payment, say for a $100,000 house growing to $200,000, turns $20,000 into $120,000.
This can be passed along to children via inheritance. In addition, parents can help their children make down payments on their own homes and repeat the cycle. Finally, parents can help their children stay in school by not requiring them to work at a young age to contribute to the family income. Those kids will then earn higher incomes, which they can invest in building more wealth.
M-A: Is it possible for first-generation immigrants and their children to reach the middle class in one generation, and how?
Myers: How middle class is defined is always vague. Some say simply buying a house is middle class, and immigrants do that in 20 years, less than one generation.
Others say that middle class is earning an income near the median or higher, and that is a little slower for immigrants, on average, because their lower educations may not command those incomes. But their kids can get there.
M-A: Some immigrant families were on their way there, having pooled savings and invested in real estate, when the housing market collapsed. With the losses that have occurred, how are these people who lost money and/or equity going to get back on their feet, if at all?
Myers: They need one good decade to catch up again. But it is not likely to happen again like prior booms. In any event, immigrants who are not homeowners (recent arrivals or younger households) stand to profit by buying at lower prices. They will surely build wealth in the future.
M-A: So is this a good time for current have-nots who want to repeat the cycle – at least, to the best of their ability in this climate - to jump into the real estate market?
Myers: Yes, now is a great time to become a first-time home buyer, given the much lower house prices and the record-low mortgage rates. Its just that the banks are going to make it much harder to qualify. The banks need to be smarter by making it easier for new home buyers to step in and help all of us, including the banks, by firming up the housing market with their new demand.
Of course, there are bound to be roadblocks along the way, some of them inevitable. To recap, here are highlights from a few recent related posts on immigrants, wealth, and the challenges for those aiming to build it:
How immigrant families become middle class, and what gets in the way: In this Q&A, sociologist Jody Vallejo of USC's Center for the Study of Immigrant Integration explains her research involving Los Angeles' Mexican American middle class. Like Myers, she agrees that real estate investment has been key to many families getting there. Families pool resources, making it easier to raise the capital needed to invest. But there are many pitfalls along the way, and family networks play a part here, too, as the resources of upwardly mobile immigrants - and their second-generation adult children, especially - are often drained taking care of poorer relatives, not only abroad but in the United States.
Why children of immigrants pitch in, even if it hurts our wallets: Filial duty can be financially draining for 1.5 and second-generation children of immigrants, but it has its rewards. Not only do these adult children contribute when families pool savings to invest in a home, but they are often a financial safety net for parents or others facing a large expense, such as a medical crisis. Yet one study that examined family obligation among the children of immigrants from Latin America, China and the Philippines pointed out that contributing financially to the family was associated with "positive psychological well-being and self-esteem."
For Latino immigrants and their families, retirement is a tricky thing: Those same second-generation adult children who act as financial safety net for parents also run the risk of being seen as "their retirement," in the words of one report. Latinos are the group least likely to have an individual retirement account or similar retirement arrangement, depending heavily on Social Security for retirement income.
Many, especially first-generation immigrants, work in jobs that don’t provide retirement plans. Even those who do tend not to invest for fear of lacking day-to-day cash flow and other factors. The children of soon-to-be retirees have their work cut out for them, but it's not too late take stock of common financial mistakes made and implement measures that could help.