Why Aren’t Hispanics Saving?

Retirement

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?

@pproctor70

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