Costly Credit
African Americans and Latinos in Debt
May 11, 2005
By Javier Silva and Rebecca Epstein

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While real income gains were realized during the economic boom over the latter half of the 1990s, the average American's credit card debt rose faster than ever before. While balances grew faster for white families than for African-American and Hispanic families, all groups experienced a significant rise in debt between 1992 and 2001. African-American and Hispanic families were more likely, overall, to carry a credit card balance than whites. Costly Credit, the fourth in a series of briefing papers documenting the dramatic rise in credit card debt, provides a snapshot of these trends by race between 1992 and 2001.

Introduction

In the 1990s, credit card debt rose dramatically among households of different income levels, age groups, and races. Driving this trend was a combination of rising costs, stagnant or declining incomes and a deregulated credit card industry characterized by high prices and fees. This brief examines trends in credit card debt by race and ethnicity, revealing important differences in the reliance on credit. Neither Latino or African-American households were immune to the growing need to use credit cards, but our findings indicate that households of color with credit cards are more likely to be in debt than their white counterparts. One potential explanation for this widening debt gap is the continued wealth disparity that exists among racial and ethnic groups, due largely to a long legacy of discrimination in many areas of American life. As longstanding inequalities in wealth and income opportunity by race have continued, households of color are less likely to have the extra safety net of home equity or liquid savings to handle unexpected expenses or a reduction of income. With little savings or no wealth to tap in case of an emergency, households turn to credit cards and other forms of short-term loans in order to make ends meet. In addition, households of color are aggressively targeted by abusive and predatory lenders for short-term loans and second mortgages, putting them at much greater financial risk than white households.

This brief examines the growth in credit card debt, as well as other short-term loans, by comparing trends among three different groups: African Americans, Hispanics and whites.

Read the following transcript from the related Demos Forum event:

African Americans and Latinos: The Future Middle Class, Transcript
Transcript from the June 7th Event
July 18, 2005

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African Americans and Latinos: The Future Middle Class
June 7, 2005
12-2pm
Demos

Demos held an important discussion about the discouraging economic trends facing African Americans and Latinos which threaten entry into the middle class. Panelists included Thomas Shapiro, author of The Hidden Cost of Being African American: How Wealth Perpetuates Inequality, Eric Rodriguez, Director of the Policy Analysis Center at the National Council of La Raza, and Javier Silva, author of Demos' new report, Costly Credit: African Americans and Latinos in Debt. To view the full report, Costly Credit: African Americans and Latinos in Debt, please visit: www.demos.org/pub529.cfm