Why Aren’t Hispanics Saving?


Early disclaimer, the title is intended to grab attention, the better question is why aren’t Hispanics in the U.S. saving at similar rates to other races and ethnic groups?  I recently had a conversation with a business leader throughout the western hemisphere and he posed the question, “do you know why Hispanics aren’t saving?”  I responded that I had some theories but nothing solid.  This was an invitation to do some research and see what we could come up with.  The following is the data driven approach to divining why.

Theory #1:  Hispanics are not saving because their median earning power is less than other racial and ethnic groups in the U.S.  

Median income information in 2014 per the U.S. Census Bureau is as follows:

Median Incomes 2014

Looking at the facts there is a significant gap between the median incomes of Hispanics and Asians, Whites, and the median of all races.  Where this particular theory gets interesting is when you look at Hispanics and Whites at the same income levels.  For Hispanics and Whites earning between $30,000-$59,999 per year, average cumulative savings for Hispanics is $27,000 while it is $42,000 for Whites (36% less for Hispanics).  At the top end of the income spectrum where Hispanics and Whites are earning over $120,000, Hispanics average cumulative savings are $206,000 while it is $285,000 for Whites (28% less for Hispanics).  Based on the above you could argue that there is less savings based on lower median income but certainly not that this is the only reason for lesser savings.

Theory #2:  Hispanics are not saving because it is not part of their culture to do so.

This theory is a bit more difficult to nail down but let’s do our best to look at the data and we will sprinkle in some other thoughts.  ING did a study on Hispanics saving for retirement and compiled the following survey data:  54% of Hispanics said that they are not very, or not at all prepared for retirement as compared to 50% of African Americans, 48% of Whites (non-Hispanic), and 44% of Asians.  Average retirement balances for Hispanics in the U.S. are $54,000, average retirement balances for all racial and ethnic groups are $69,000, and 81,000 for Asians.  These averages show Hispanic families saving less than other groups, but if you look at the liquid median retirement savings for Hispanic families in the U.S. the number drops to $0 (Urban Institute Study).  Or in other words, outside of formal retirement savings ($401k, Roth IRA, IRA, etc…) the median hispanic family has absolutely no retirement savings.  To take this thought a little further, greater than 50% of all Hispanic families are not saving outside of employee sponsored retirement plans.  

Let’s look at another potential cultural motivation behind not saving.  The largest percentage of Hispanics in the U.S. are of Mexican decent (63%), according to the Pew Research Center.  Mexicans in the 1990s had one of the most monumentally destructive economic downturns in their history by way of the Tequila Financial Crisis.  During the period leading up to the crisis there was a significant privatization of banks in Mexico, in other words, the government took a hands off approach to bank regulation, lifting controls such as interest rate caps and quantitative limits on lending, and eliminating reserve requirements for banks.  This lead to a significant increase in lending, encouraging much more foreign investment, and a boom in the stock market.  (Does this sound at all like the U.S. Financial Crisis of 2008)?  Then loans started going south, the indebted were unable to pay their loans, and banks began to fail.  22 of the 64 banks in Mexico failed (or 33% of all banks).  In one week the Peso was devalued by 50%.  It is not unrealistic to imagine that passing through this or having family and friends that passed through this could reduce confidence in saving money through traditional bank products.  The confidence lost in the Tequila Financial Crisis could lead one to store rather than save.

Our final point under this theory is purely anecdotal.  I read the story of a single Hispanic mom that worked two jobs to put her daughters through college.  The mother only made about $30,000 per year and when she applied for financial aid for her daughters the awarded aid did not quite cover the amount needed.  Her daughters sought scholarships and grants to make up the difference and were able to complete their respective college degrees.  The mother spent the next 20 years repaying the student loans that she had secured for her daughters.  The author of this story cited a quote from comedian George Lopez: “You know why there aren’t any homeless Latinos?  Because Latinos never leave home.”  Call the quip ill advised or perhaps not the best contextual use, but the author makes the point that Hispanics are more likely to make significant sacrifices affecting their financial health in order to provide better opportunities for their children.  In the story of this mother, she was willing to toil in debt for 20 years after her daughters graduated rather than saddle her daughters with the full brunt of paying for their education.

Theory #3:  Hispanics don’t save because they have not had proper education on saving.

45% of surveyed Hispanics say that they have never been taught financial education and a 1/4 of all Hispanics said that the reason they don’t save money is because they have high levels of debt.  I’m going to get personal for a moment here.  I applied for my first credit card while I was in college.  I worked through college and made my payments on mounting credit card debt so the credit card companies continually offered credit line increases and I accepted.  Before I was finished with college I had run up a significant amount of debt.  I was young and immature and frankly didn’t fully understand how credit cards worked.  I knew you had to pay them back, but I didn’t realize the impact of 20%+ interest on a balance carried.  My parents were savvy credit users but didn’t teach me anything about credit or financial products.  It was only when I took a job working for a bank after graduation that I got wise to credit pitfalls and learned enough to navigate general financial instruments.  My point here is that there is no formal education in our schools about credit or financial products unless you make this field of study your specialty in college.  If parents don’t pass financial education to you, then who?

57% of Hispanics want more financial education from their employers. Coincidentally, 57% of Hispanics have never calculated what they need to save to maintain their standard of living when they retire, and 70% have never formalized a plan for retirement.  There are myriad resources on the internet for financial education but you simply don’t know what you don’t know.  Imagining myself in my college days, running up debt, I am not sure that I would have had the presence of mind to seek information on proper credit usage, in my immaturity, without someone I respected beating me over the head with a life lesson.

“Nearly all Hispanic investors polled (92%) say their parents talked “a lot” or “sometimes” about the value and importance of hard work when they were growing up (similar to 89% of U.S. investors overall), but fewer than half said their parents talked as much about financial issues…”

Is it the responsibility of parents to teach financial education?

“The answer is no, this should not be left to parents,” said Annamaria Lusardi, economics professor at George Washington University. “We don’t ask parents to teach math and physics and history. Why would we ask them to teach financial literacy?”

Perhaps in post financial crisis America we are seeing more financial literacy taught in schools but I am yet to hear my kids come home talking about it.

Leave a comment about your experiences with financial literacy.

If you would like to read more on these topics see the below:

Why Latinos Aren’t Saving for Retirement
Minorities Have Built Less Wealth Than Whites
Why do Blacks and Hispanics Accumulate Less Wealth Than Whites
Saving and Investing for Latinos
Hispanic Investors Hungry for More Investment Knowledge and Education
The Tequila Financial Crisis
Financial Education:  A Job for Teachers or Parents?



El Porque

The Why

Hace algunas semanas fui a una conferencia de capital emprendador en Lima, Perú.  Fui un panelista de la conferencia.  También tuve el placer de conocer mucha gente interesante y escuchar muchas voces brillantes.  Tal vez, el participante más interesante del evento fue Gastón Acurio.  La noche anterior a que hablara Gastón, fui invitado a comer con algunos de los participantes de la conferencia a un restaurante llamado Astrid y Gastón.  Cuando llegué al sitio indicado, pregunté a la gente que se encontraba fuera dónde estaba el restaurante, ya que no podía imaginarme que el edificio que parecía una hacienda en expansión pudiera ser el restaurante.  Entré dentro.  La apariencia interior del restaurante era exquisita, comí con grandes figuras de la comunidad del capital emprendador, los precios no estaban indicados en el menú, y la comida se basaba en combinaciones de explosiones de sabor.  Después de la cena, los camareros nos trajeron lo que parecía una gran bola de chocolate, la camarera tomó una cuchara, tocó la parte superior de la esfera de chocolate y, ésta se abrió revelando frutas y jarabes varios.  Fue una experiencia gastronómica espectacular.  Todo esto es la historia previa al discurso de Gastón Acurio.

Gastón Acurio fundó su primer restaurante con tan solo $40,000 de préstamos de amigos y familia.  Él raspó y arañó mientras empezaba el negocio, y le preocupaba no llegar a tener éxito; no poder servir a la gente suficiente para poder seguir con las puertas del restaurante abiertas.  Al final, ahora tiene 34 restaurantes peruanos en 11 países, y la hacienda en expansión de un restaurante llamado Astrid y Gastón clasificado como número uno de todos los restaurantes de Sudamérica (http://en.astridygaston.com/).

En la conferencia de capital emprendador, cuando Gastón habló, mostró fotos de cadenas de comida rápida, y marcas globales, y habló acerca de un periodo en el cual Perú trataba de imitar lo que el mundo exterior hacía, en vez de tener en cuenta sus raíces.  A continuación, mostró fotografías tradicionales de Perú que han entrado en la corriente principal de moda e imágenes de peruanos y, más específicamente, de la gastronomía peruana que está llegando al escenario del mundo porque ha tenido en cuenta sus raíces culturales.  El salón de la conferencia se hinchó de orgullo.  Sentía la energía de la gente mientras escuchaban el mensaje, dándose cuenta de que ser originales está dentro de todos y se pueden crear productos que el mundo quiere; que la innovación no pertenece a una locación geográfica, tiene que ver más con la visión que con la imitación.  Me encantó el mensaje, no soy peruano, pero me encantó sentir la energía aumentando dentro de un grupo de gente que sentía cómo aumenta su valor gracias a una idea.

He reflexionado mucho en cuanto a esta experiencia en estas semanas.  Soy un patriota de mi país y amo muchas de las ideas que mi país considera fundamentales.  Pero creo en la experiencia de la conferencia de capital emprendador, creo que la dirección del altruismo y los ideales deben trascender al nacionalismo.  Gastón Acurio hizo recordar a la audiencia su valor, y transmitir que las ideas que tuvieron y que les apasionaban llegaron al resto del mundo.  Él hizo eso por medio del diálogo nacionalista.  Fundamentalmente, este tipo de diálogo provocativo nacionalista puede promover que la gente actúe, innove  y cree.  Me gustaría sugerir que un diálogo similar debe ser empleado en nuestra responsabilidad como ciudadanos del mundo.

En mi casa, decir que éramos ciudadanos del mundo no quedaba bien con nuestros ideales nacionalistas.  Como dije, tenemos mucho orgullo nacional y patriotismo y la idea de pensar que estábamos conectados con gente más allá de nuestras fronteras, amenazaba, de alguna forma, nuestro patriotismo que decía que lo más importante es cuidar lo de cada uno.  Un fenómeno fascinante del mundo hoy en día es que estamos más conectados que nunca.  Podemos intercambiar conversaciones casuales  con gente de otros continentes por medio de medios de comunicación social o compartir ideas en las principales plataformas.  Las diversas perspectivas y nuestro acceso a ello nos permite ver el mundo de una manera en la cual ninguna generación anterior había podido.

La razón que se encuentra detrás de este Blog es esencialmente poder aprovechar el poder de las ideas para reducir las barreras de entrada para la gente del mundo.  Me doy cuenta de que hay una línea fina cuando tratas de dar soluciones sobre la perspectiva del mundo del oeste y se tiene la creencia de que las ideas que han creado prosperidad en una parte del mundo, tal vez no llegarán a ser bien recibidas en otra parte.  Pero aquí es donde la idea de ser ciudadano del mundo supera este resultado potencial.  Si todos estamos mirando los problemas del mundo desde la perspectiva de ayudar a nuestros compañeros ciudadanos del mundo, en realidad, todos estamos mirando los problemas del mundo desde la misma lente.  Espero que no dejemos de tratar de ayudar a nuestros compañeros ciudadanos del mundo dándonos cuenta de la importancia de la inclusión financiera.  Cuando la idea de cuidar lo de uno incluye la humanidad entera, la esperanza es que empecemos a comunicarnos libremente entre culturas y fronteras para encontrar soluciones.  Empecemos con un diálogo multicanal para resolver los problemas del mundo, evitando la prescripción, pero aprovechando las lecciones empíricas del mundo.  Podemos resolver el problema de la inclusión financiera juntos como ciudadanos del mundo.


The Why

The Why

A few weeks ago I attended a venture capital conference in Lima, Peru.  I was a panelist at the conference.  I also had the pleasure of meeting a lot of interesting people and heard a lot of great speakers.  Perhaps the most interesting participant in the event was Gastón Acurio.  The night before Gastón spoke I was invited out to eat with some of the participants of the conference to a restaurant called Astrid y Gastón.  When I arrived I was asking people outside where the restaurant was located because I couldn’t imagine it was the sprawling hacienda style building in front of which I stood.  Turns out this was the restaurant.  Everything about this restaurant experience was decadent, I dined with some big names in the venture capital community, there were no prices on the menus, and the food was a combination of absolute flavor explosions.  After dinner the wait staff brought out what looked like a bowling ball of chocolate, then the waitress took a spoon and tapped the top of the chocosphere and it fell open revealing various fruits and syrups.  It was a spectacular food experience.  This is all background to set up the discourse of Gastón Acurio.

Gastón Acurio is a restaurateur who started his first restaurant with a $40,000 loan from his family and friends.  He scraped and clawed his way as he started his business worrying that they wouldn’t make it; worrying that they wouldn’t be able to serve enough people to keep the restaurant going.  To make a long story short, he now has 34 Peruvian restaurants in 11 countries, and that sprawling hacienda of a restaurant Astrid y Gastón, it is the #1 rated restaurant in South America (http://en.astridygaston.com/).

At the venture capital conference when Gastón spoke, he flashed pictures of fast food chains, and global brands, and talked about how Peru had gone through a period of trying to conform to what the world was propping up as the next cool thing instead of sticking to their cultural roots.  He then contrasted these pictures with pictures of traditional Peruvian fashion making its way into mainstream fashion, and images demonstrating that Peruvians and specifically Peruvian food are now moving to the world’s stage because they remembered their cultural roots.  The conference room swelled with pride.  You could feel the energy as the people in the room got behind the message, realizing that it is in all of us to be original and to create products that the world wants; that innovation is not specific to geography, and has much more to do with vision than conformity.  I got caught up in the message, I am not Peruvian, but I loved feeling the energy surge in an audience of people that felt their value swell because of an idea.

I’ve reflected a lot on this experience over the last week or so.  I’m a patriot of my country and I love many of the ideas that my country considers founding ideals.  But, the more that I think about this experience at the venture capital conference, the more that I think about the direction of altruism and the ideals that should transcend nationalism.  Gastón Acurio reminded the audience of their worth, that the ideas that everyone in the room were passionate about could apply to the rest of the world.  He did this through nationalistic dialogue.  Fundamentally this type of provocative nationalistic dialogue can light people up in a way that leads to action, innovation, and creation.  I would like to suggest that similar dialogue should be employed around our responsibilities as citizens of the world.

In my home, growing up, saying that we were citizens of the world was not in line with our nationalist ideals.  As stated, we have a lot of national pride and patriotism and this idea of thinking that we connected with people beyond our borders, in this context, almost threatened our patriotism in a way that seemed to elicit a response of what is most important is to take care of your own.  A fascinating phenomenon of today’s world is that we are so much more connected than ever before.  We can exchange casual conversations with people from other continents on social media or share ideas through thought leading platforms. Diverse perspectives and our access to them allows us to view the world in a way that no other generation before us has been able.

Essentially the reason behind this blog is to harness the power of ideas to reduce barriers of entry for people around the world.  I realize that you walk a fine line when you try to offer up “solutions” from the perspective of the western world and expect that what has brought prosperity to one part of the world may not be well received in another part.  But this is where the idea of being a citizen of the world overcomes this potential outcome.  If we are all looking at global problems from the perspective of wanting to help our fellow citizens of the world, then it would seem that we are all looking at the problems through the same lens.  I would hope that we would not be faulted for trying to help our fellow citizens realize the importance of financial inclusion.  When the idea of taking care of our own includes the whole of humanity, the hope is that we start to freely communicate across cultures and borders about solutions.  We begin a multi-channel dialogue about how to solve the worlds problems, avoiding prescription, but leveraging the worlds empirical lessons.  We can solve financial inclusion together as citizens of the world.