An issue brief released by the National Council of La Raza (NCLR) reveals that despite rising income for Latino families in recent years, far too many families are unable to build financial security or climb the economic ladder because so few are able to save money.
The brief, Financial Insecurity Amid Growing Wealth: Why Healthier Savings is Essential to Latino Prosperity, highlights findings from several major studies on the wealth and savings patterns of American families. One study highlighted in the brief found that Latinos maintain just 4% of the wealth of the average White family. While the median net worth - the value of assets minus debt - of White families increased 25%, from $65,200 to $81,700, the median net worth of Hispanic families decreased 43% between 1995 and 1998, from $5,300 to $3,000.
NCLR's paper finds that the principal reason why Latino families have been unable to become more financially secure, even as their incomes have risen, is because few have been able to put enough money aside to purchase wealth-building assets such as a home.
"Saving is important for everyone but for Latinos it is an imperative. Latinos cannot realize their dream of buying their own homes, building a strong business, or sending their children to college, much less weather tough economic times and have a financially secure retirement, without saving at higher levels," noted Raul Yzaguirre, NCLR President. The brief highlights data from the 2001 Retirement Confidence Survey (RCS) which revealed that only one-fourth (26%) of all Latinos surveyed, compared to two-fifths (40%) of all workers surveyed, reported having any money saved besides what they may have put aside for retirement. "Unfortunately, there are several barriers to saving that keep many Hispanic families from becoming financially stronger, even though they're taking home more money from work," continued Yzaguirre.
Not surprisingly, the paper finds that the principal obstacle to saving for many Latinos is low income or simply having little money left at the end of the month to save after paying for basic household and family expenses. Another factor is the relatively slow response of the financial services market to the particular financial needs of the burgeoning Latino community. The brief finds that many financial institutions have set up hurdles that prevent many Hispanics from participating in the formal financial services industry. Financial institutions often lack products that appeal specifically to Latino customers, have not marketed their services effectively to the Latino community, and have, in many cases, continued to apply institutional policies that effectively close their doors to Hispanic customers. As a result, many Latinos do not have a working relationship with a financial institution, which has limited the ability of these families to access important wealth-building products.
However, as the NCLR brief reveals, the problem of low savings and insufficient financial security for Latino families is not intractable. "With the average Latino family working more and earning more money than ever before, now is the time for both policy-makers and financial institutions to come together to assist these hard-working families who want a better, more financially secure, future for themselves and their children but just need a chance," Yzaguirre noted.
NCLR's brief highlights several promising strategies for increasing Latino savings rates. For instance, one strategy would tap into the potential savings opportunities afforded to low-income Latino families through existing tax credits such as the Earned Income Tax Credit (EITC). Many low-income families receive a lump sum tax refund once a year, which serves as a potential savings plan. In many cases, families use these refunds to pay off debt, buy a car, or purchase clothes for their children or needed furniture. However, these refunds also provide a great opportunity for families to begin saving and accumulating assets, if given the opportunity. The NCLR brief suggests that in order to capture the savings potential of these credits, they should be linked to federal savings programs such as the Individual Development Accounts (IDAs) program which provides a match for all saved income.
"Low savings and asset accumulation among Hispanics are not just issues for the Latino community; the implications for the nation are tremendous as Latino workers become an ever more essential part of the American labor force," Yzaguirre stated. "It is critical that both government and financial institutions begin to engage the Hispanic community in a serious way." The issue brief urges financial institutions to create products that meet the needs of low-income consumers, such as low-cost checking accounts or savings accounts that are coupled with check-cashing services or low-cost remittance services. In addition, having more of a presence in Latino communities and implementing institutional policies that recognize the sensitivities and nuances of the Hispanic community, especially around issues of identification and credit history, would increase the likelihood that Latinos would participate in financial institutions.
NCLR's brief also explores the issue of saving for retirement among Latinos. The RCS revealed that less than half (47%) of Hispanic workers reported having personally saved for retirement. With limited disposable income available for everyday savings and the frequent necessity of using any available savings to weather tough economic times, saving for retirement is even more challenging for Latino workers. And because many Latino workers also tend to lack private pension coverage, many Hispanic seniors end up relying heavily on Social Security benefits during retirement. "That Social Security is the only source of income for so many Latinos in their retirement years should sound a cautionary note to all those who are seeking to radically alter our nation's Social Security System," warned Yzaguirre.
But the data also reveal that it is now more important than ever that Latinos significantly increase the rate at which they save for retirement if they are going to truly achieve financial security in their retirement years. "There is great potential in the Latino community for wealth accumulation and financial security. It is just a matter of recognizing and addressing existing barriers and implementing policies and programs that effectively tap this potential. When this occurs, the rewards for the community and the nation will be great," Yzaguirre concluded.