Financial capability improved among Latinos, report shows

Financial capability improved among Latinos, report shows

Latino adults have gotten better over the past 12 years at budgeting, managing debt and building personal wealth, according to a new report by the foundation arm of Wall Street’s brokerage regulator. But the Hispanic community still faces gaps in financial knowledge, the study found. 

Fewer Latinos reported difficulty in paying expenses in 2021 compared to 2009 (50% versus 67%), according to the Financial Industry Regulatory Authority’s educational foundation. Just 34% of Hispanic adults reported an inability to cope with a $2,000 shock bill in 2021, down sharply from nearly 50% in 2012. The percentage of Latino people with too much debt fell from to 35% in 2021 from 45% more than a decade earlier.

The report by the watchdog’s nonprofit found that about half of respondents said they had set aside emergency savings, surpassing the 29% of Latinos who said they had done so in 2009. There was also an increase in the number of Hispanic owners of taxable investment accounts over 12 years, rising to 30% of those surveyed in 2021 from 24%.

Louis Barajas, the co-founder of Business Management LAB, in Irvine, California, has seen a sharp improvement since he started working with a Latino clientele almost 40 years ago. “In the past, I would have to really convince them to participate in retirement plans; now it’s a lot easier for me to get them to open up their 401ks or an IRA plan,” he said. 

According to McKinsey research, Latino wealth has grown by an average of 7% annually for the past 20 years — more than twice the rate of non-Latino white wealth. While Barajas said he saw a growing opportunity for advisors looking to tap into Hispanic clients, professionals need to address the financial education barriers that remain in the community. 

The median wealth of Latino households in 2019 was about $36,000, one-fifth the median $188,200 held by their White peers, the McKinsey report found. About 17% of the gap in the annual flow of net wealth between the two groups came from white households saving more than Latinos. Finra’s report confirmed this trend and showed that retirement account ownership among Latinos has remained roughly stable, nudging up to 51% in 2021 from 48% in 2012.

Cultural differences that impact wealth building among Latinos are numerous. Some 44% of Hispanics financially support family members in the U.S. when they have disposable income, and 32% send up to 30% of their income to family living abroad. 

As an advisor, Barajas said he helps his clients get more comfortable with investing and saving, “educating them on the value of opening an account and what happens long term.””We do a lot more hand holding with the Latino community,” he added.

Despite the gains in managing ordinary financial tasks, financial knowledge among Hispanic adults  — and among the U.S. population as a whole — has been declining since 2009, according to Finra. The watchdog’s report showed that Latino adults with greater financial knowledge were more engaged in wealth building, better able to make ends meet and less likely to report being financially fragile than Hispanic adults with less financial knowledge.

“We do know that financial capability is associated with financial literacy very closely,” Olivia Valdes, a senior researcher at Finra Foundation, said. Valdes explained that while financial knowledge is one component of financial capability, a lack of it is keeping a share of Latinos behind when it comes to improving their finances. Men were twice as likely as women to have high financial literacy, and white Latinos were more than twice as likely as their Black Latino counterparts to exhibit high financial knowledge, according to the report. Income also plays a part: Households that earn more than $50,000 were nearly three times more likely to exhibit high levels of financial literacy compared to those that earned below that amount. Persons with a college degree were more than twice as likely as those without one to have better financial knowledge.

Barajas said advisors should look more closely at the Latino people: They make up 18.4% of the U.S. population and 17.3% of the U.S. labor force, and it’s expected to reach more than 30% of the workforce by 2060. “There’s a lot of wealth in this community,”  Barajas said. “There’s a lot of Latinos who have worked really, really hard, they’ve saved a lot of money and they are really hungry for information.”