Remaining in the middle class has been especially tough for African-American and Hispanic families in this year's difficult economic times, according to financial advisers and a recent public-policy report.
In measuring economic factors such as assets, education, housing costs, household budget and health care, only one in four African-American and one in five Latino middle-class families can be considered financially secure, according to "Economic (In)Security: The Experience of the African-American and Latino Middle Classes," a study released by Demos, a public-policy institute in New York.
Financial advisers who work with black and Hispanic families said they are also seeing increasing concern among their clients.
"People who were talking about asset-building and growth are now talking about: How do they sustain and maintain what they have?" said Saundra Davis, a financial planner and principal of Sage Financial Solutions Inc. in San Francisco.
"Folks are struggling more now. They're all doing some belt-tightening," said Lee Baker, founder of Apex Financial Services Inc. in Tucker, Ga.
"The struggle for middle-class Hispanics has always been a high income-to-expenses ratio, which means very little savings or 401(k) or emergency accounts," said Ruben Ruiz, chief executive of The Ruiz Financial Group in San Marcos, Texas, and author of "The One-Hour Hispanic Millionaire" (Wealth & Millionaire Publishing, 2005).
SAVE, INVEST MORE
Mr. Ruiz is advising his clients to increase the percentage of their income they put in savings and investment accounts, get out of debt and save money for major purchases before making them.
"I tell them, 'Before you start this, you have to take a weekend to recite to yourself and your family, to write down, to walk and talk, to scream out, 'On Monday, we are changing our financial goals and are going to have a structured income plan and get out of debt,'" he said. "You have to get psyched, because you have to make a change. There is no other way."
Ms. Davis is advising her clients to increase their emergency funds beyond the standard three- to six-month time frame and to keep more assets liquid, including those set aside for college savings.
"So much of what they do with money is emotional that I want to find out what will make them feel safest, and incorporate that into the plan," she said.
Mr. Baker said he's telling clients to use the current economic climate as an opportunity to "take a look at their life and ask what they would change."
Some suggestions he has given them include cutting expenses by considering car pooling and re-assessing their current cell phone plan and cable TV package.
Mr. Baker is also advising his clients to increase their emergency savings fund.
"If they lose their job, they shouldn't have to worry about keeping their head above water in addition to looking for a new job," he said.
African-American and Hispanic families in the middle class, broadly defined in the report as families with household income ranging from $40,000 to $120,000, have "alarmingly insufficient assets," according to the Demos study.
Only 2% of middle-class African-American families and 8% of middle-class Latino families have enough financial assets to meet three-quarters of their essential living expenses for nine months, according to the report. Nationally, only 13% of all middle-class families have enough financial assets to meet that threshold.
"Tremendous middle-class gains earned in schools, achieved on the job and seen in paychecks are being eroded by lack of assets, which seriously undermines the financial security of African-American and Latino middle-class families," said Thomas Shapiro, a co-author of the report and director of the Institute on Assets and Social Policy at Brandeis University in Waltham, Mass.
In the last six months, all middle-class families have been increasingly "relying on using financial assets to pay for consumption," according to Mr. Shapiro, who is also a professor of law and social policy at Brandeis.
Based on figures cited in the report, 74% of middle-class black households and 63% of Hispanic middle-class families spent more than 20% of their after-tax income on housing, well above the national average of 60%.
What's more, according to the study, while 77% of middle-class families nationally had every household member covered by private or government health care insurance, those figures for African-American and Hispanic families were 70% and 63%, respectively.
E-mail Charles Paikert at [email protected].
