U.S. House Committee Probes Economic Plight of Minorities in Recession

The following was released by the press office of the U.S. House of Representatives Oversight and Government Reform Committee

U.S. Representative Edolphus “Ed” Towns (D-NY), the Chairman of the House Oversight and Government Reform Committee, today announced that the House Oversight and Government Reform Committee is holding a congressional hearing, entitled “The Silent Depression: How are Minorities Faring in the Economic Downturn?” to examine the disparate effects of the current economic downturn on minority populations, with special emphasis on the rise in unemployment and home foreclosures.

Congressman Edolphus Towns

The hearing, scheduled for Wednesday, September 23, 2009 at 10:00 a.m. in Room 2154 of the Rayburn House Office Building, will feature the heads of several leading minority organizations, including the National Urban League, National Council of La Raza, National Coalition for Asian Pacific American Community Development, National Congress of American Indians and National Black Chamber of Commerce. Also set to testify are the Honorable Raymond Skinner of the Maryland Department of Housing and Community Development, Chief Operating Officer James Carr of the National Community Reinvestment Coalition and Christian Weller, PhD, of the Center for American Progress Action Foundation.

“The inability to find gainful employment has crushed the hopes of achieving the American dream for so many families in minority communities,” said Chairman Towns. “For us to move ahead as a nation, we have to examine why the African-American unemployment rate in several communities more than doubles that of whites. We must also take a look at the high rate of subprime loans and default mortgages within minority communities that are expanding an already enormous debt disparity.”

Although the recession has had devastating consequences for the nation’s economy and a direct effect on nearly every American household, minorities are at least 40 percent more likely to be unemployed than whites, according to a study by the Center for American Progress, with the highest rates of unemployment in the African American population. In states with significant minority populations like New York State, the African American unemployment rate has soared to 15.1 percent, compared to 6.4 percent for whites. In New York City, where minorities make up more than 50% of the population, the rise in unemployment for African-Americans has spiked to four times that of whites, according to a recent New York Times article.

Unscrupulous lending practices may compound the economic crisis, with home foreclosures higher amongst minorities than whites. Since the recession began, home foreclosures increased dramatically, but experts agree that for African-Americans and Hispanics, record foreclosures may be the result of lax enforcement of the Fair Housing Act or reverse redlining, homeownership schemes targeted at minority groups. Wednesday’s Oversight Committee hearing will review these factors.

“The fact of the matter is that the current economic downturn has amplified an already burgeoning economic gap for minorities,” said Chairman Towns. “The role of race in unemployment and other economic trends is something we must analyze because for minorities this is not a recession but is, in fact, a depression that could potentially alter decades of economic progress.”

Social Media and Leadership Training Focus of July 27 Economic Perspectives

Building your business through social media and leadership development for African American and Hispanic managers and entrepreneurs will be the two topics of discussion on the July 27 Economic Perspectives.

Rachel Johnston

On the first half of Economic Perspectives, Austin entrepreneur Rachel Johnston will discuss the best strategies for enhancing small businesses through the use of Facebook, Twitter, LinkedIn, and other online social media tools.  Johnston, who is the owner of OperTuneUs, is sponsoring a social media training seminar for small businesses, Social Network with a Strategy, on July 30, 3 p.m. – 5:30 p.m.  Johnston has over 20 years technical experience working in computer and web technology including web design, internet strategy, and computer system design.  She has a B.S. in computer science from Central State University and is a certified project manager.

On the second half of Economic Perspectives, Belinda Matingou, president of the Austin chapter of the National Black MBA Association (NBMBAA) and Victor Alonzo, president of the Austin chapter of the National Society of Hispanic MBAs, will discuss the leadership training that will be provided for African American and Hsipanic managers, executives, students, and entrepreneurs at their annual Texas Leadership, Education, and Diversity Conference being held July 31, 7:30 a.m. – 5 p.m.  The conference will focus on developing leadership and branding skills and straegies for a fast changing economy.

African Americans and Hispanics Have Lower Participation Rates in 401(k)Plans

The following was provided by the press office of Ariel Investments and Hewitt Associates.

Significant differences can be found across race and ethnicity in the way U.S. employees save and invest in their 401(k) plans, according to 401(k) Plans in Living Color: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups — The Ariel/Hewitt Study. This pioneering report — the largest, most comprehensive examination of 401(k) saving and investing behaviors of African-American, Hispanic, Asian and white employees — found that regardless of age or income, African-American and Hispanic workers have lower participation rates and contribute less to their 401(k) plans than their white and Asian counterparts. As a result, their 401(k) account balances are negatively impacted and chances for a comfortable retirement significantly compromised.

The Ariel/Hewitt Study analyzed 401(k) information for nearly 3 million employees across 57 large, primarily FORTUNE 500 companies in the U.S. It was conducted by the Ariel Education Initiative, the nonprofit affiliate of Ariel Investments, and Hewitt Associates, a global human resources consulting and outsourcing company. The Chicago Urban League, the Joint Center for Political and Economic Studies, the National Council of La Raza, the National Urban League, and The Raben Group also participated. The study was funded with a grant from The Rockefeller Foundation.

In response to the study, Mellody Hobson, president of Ariel Investments, remarked, “401(k) plans are now the primary way Americans save for their golden years. Most are unaware there are significant savings disparities in 401(k) plans across racial and ethnic groups. This study reveals important differences that must be addressed if retirement security is to be a reality for all Americans.

Mellody Hobson

The results of the study show that African-American and Hispanic workers are less likely than their Asian and white counterparts to participate in their 401(k) plans. Two-thirds (66 percent) of African-American employees and 65 percent of Hispanic employees participate in their company’s defined contribution plans, compared to 77 percent of white workers and 76 percent of Asian workers. Even after adjusting for factors such as age and income, the disparity remains.
Additionally, African-Americans and Hispanics contribute to their 401(k) plans at much lower levels than their white or Asian counterparts. Among those who save, white employees contributed 7.9 percent of income, compared to Hispanic and African-American workers, who contributed 6.3 percent and 6.0 percent, respectively. At 9.4 percent, Asian workers had the highest contribution rate of all groups.

Not surprisingly, lower participation and contribution rates lead to smaller average account balances for African-American and Hispanic workers. The Ariel/Hewitt study illustrates this point dramatically. For example, employees who earn between $30,000 and $59,999 show a significant difference in 401(k) account balances: African-Americans ($21,224), Hispanics ($22,017), Asians ($32,590), and whites ($35,551). This disparity exists even at higher pay levels. For instance, African-American employees who earn $120,000 or more have saved $154,902 in their 401(k) plans compared to $223,408 for white workers in the same pay range. While other factors influence account balances, the variation exists even after these adjustments.

In addition to participation and contribution rates, The Ariel/Hewitt study examined three other factors that can further impact an employee’s 401(k) plan balance — equity exposure, loans and withdrawals.

The findings revealed that African-American workers are less likely than Hispanics, whites and Asians to invest in equities. African-Americans had two-thirds (66 percent) of their 401(k) assets invested in the stock market. By comparison, whites and Asians had 72 percent and 73 percent, respectively, of their 401(k) plan assets invested in equities. Hispanics had 70 percent of their assets invested in equities. These findings are compelling because the stock market has historically outperformed all other investment options over the long term. It is generally understood among investment experts that employees with long-term time horizons should have a significant amount of their assets invested in equities.

Barbara Hogg

African-Americans are also more likely than the study population overall to have a loan and are more than twice as likely to take a hardship withdrawal from their 401(k) plans. Nearly two of every five African-American workers and almost a third of Hispanic workers borrowed from their retirement accounts compared to just one in five white workers. By contrast, Asian workers were the least likely to take a loan against their 401(k) plans, with less than one in five doing so. “These statistics are troubling because loans and withdrawals jeopardize long-term financial security to satisfy immediate needs. The impact is heightened during an economic downturn, when unemployment rises and withdrawals and loan defaults increase. We now realize this risk is magnified for African-American and Hispanic workers based on the results of our study,” said Barbara Hogg, principal at Hewitt Associates and co-leader of The Ariel/Hewitt Study.

“Without a significant effort to improve savings and investing behaviors, African-American and Hispanic workers are in danger of retiring into poverty,” states Hobson.

The Ariel/Hewitt Study outlines five decisive recommendations for policymakers and employers. These recommendations include:

• Encouraging employers to voluntarily collect and report 401(k) plan data by race and ethnicity. Knowledge is power, and collecting and reporting data about 401(k) plan participants would enable employers to know and manage where gaps exist among their workers.

• Modifying loan requirements to decrease the likelihood of default. Extending the amount of time a terminating employee has to pay off a loan may improve overall retirement savings, particularly during challenging economic times such as these. Other options could include allowing loan repayments after termination or exploring new options for allowing loans to roll over from one employer to another.

• Mandating financial education at all levels in both private and public schools to boost financial literacy. A financial literacy curriculum would provide generations of future employees a comprehensive understanding of both the mechanics and importance of sound money management, saving and investing.

• Designing 401(k) plans in a way that benefits a broad, diverse employee base. Features like automatic enrollment with high default contribution rates and periodic contribution increases can go a long way, effectively driving strong, robust participation across all demographics.

• Communicating and educating employees in a way that helps them make wise choices. Creating user-friendly and easily understood communication enables workers to learn more about how to effectively manage and grow their savings. This communication should incorporate different cultural perspectives that resonate with diverse groups of employees.

“By taking immediate action, employers, government and employees can make a big impact in helping all Americans achieve a comfortable standard of living in their retirement years,” concludes Hogg.