How strong family and cultural ties influence financial decision making
Raquel Paulino | Program Associate | The Financial Clinic
The population of Latinos in the United States is growing faster than previously predicted by the United States’ Census. In 2014, The Prudential Foundation conducted a study of 1,023 individuals in the Latino community as part of a commitment to understand and meet the needs of diverse communities in the United States. In the study, the Bureau of Labor Statistics predicts that by 2020, 30.5 million Latinos will have entered the workforce. The Latino community’s financial security is affected by a few factors: Strong cultural ties to families, aversion to debt and an unfamiliarity of retirement plans. What does this mean for a more financially secure community?
Strong cultural ties to families impact Latinos’ financial behaviors. Latinos born in the United States are more likely to place a higher emphasis on reducing debt, building an emergency account, saving for retirement, and protecting any investments. On the other hand, those born outside of the States are more concerned with funding their children’s education, saving to buy a home, funding a small business and supporting elderly family members. According to The Prudential Foundation’s study, 67% of those surveyed reported financially supporting at least one other person in their family. This is compared to 52% of the general population. Therefore, there tends to be higher multigenerational support.
These strong ties lead to a stronger dependence on each other for information. When it comes to financial information, 39% are receiving it from their family and 19% from friends. Furthermore, individuals in this community are more likely to rely on each other for information on financial services and products because there is no language barrier between each other. Language is important to financial access and is often an overlooked key to financial security. Hispanics who described themselves as only speaking Spanish or predominantly speaking it at home recognized having a bilingual financial adviser and financial information in Spanish as important.
An emphasis on family ties is connected to strong cultural values. In the Hispanic community, personal debt is a cultural taboo. United States-born Latinos are more likely to place reducing debt at a higher priority (52%) than building an emergency savings account. Despite this negative feeling towards debt, 69% of individuals think it is almost impossible to live without debt, 35% would prefer to spend all of their savings than go into debt. This is a great opportunity for financial service providers to reach out with possible workshops and dispel that idea since not all debts are equal and considered bad. Some forms of debt, such as student loans, are at times needed to achieve educational goals.
No matter what the aversion to debt may be, individuals still hold saving for emergency funds and retirement high on the priority list. However, a poor understanding of employer benefits such as retirement plans can be detrimental to long-term financial goals. As the population continues to grow, more Latinos are deciding to stay in the workforce longer than other populations. The United States’ retirement system is already complex and daunting, and this is even more so for the Latino community. 17% of those surveyed in the study are unsure whether their employers provide matching contributions.
Strong cultural ties to families, aversion to debt and an unfamiliarity of retirement plan continue to affect the Latino community, and as the population continues to grow and enter the workforce, a closer look at what financial services can be provided to ensure financial security for this population will be needed. With 23.5% of the Latino community living in poverty and with proposed government budget cuts to anti-poverty programs such as Supplemental Nutrition Assistance Program (SNAP), Rental Assistance, Supplemental Security Income (SSI) and other programs, financial services that can provide sustainable long-term financial security for this community are going to be needed more than ever. The Financial Clinic is thrilled to be partnering with leading Latino service and advocacy organization, UnidosUS, on a national financial security ecosystem to provide individualized support to a projected 30,000 vulnerable families and promote systemic change towards a more inclusive economy.