How Latinos can build generational wealth

Published on Jan 28, 2022

How Latinos can build generational wealth

Latinos make up approximately 18.5 percent of the U.S. population and that figure is expected to nearly double by 2050. Yet, as the Latino presence in the U.S. continues to grow, so does the earnings gap between them and their white counterparts. According to data from the Economic Policy Institute, in 2017, Latino males earned 14.9 percent less in hourly wages than white males. The cards are stacked worse against Latina women who earn 33.1 percent less in hourly wages than white men make.  

For Latinos who want to build generation wealth, the solutions might reside in non-salary-based strategies. Here are four steps to creating a nest egg that will have a lasting impact on your family’s future:

Start learning and never stop learning about finance

Everyone has a different learning style. Take some time to reflect on how you learn most effectively to be able to determine if you’re a visual, auditory, or reading and writing learner. From there, you can decide if a class on YouTube, an audiobook, or a different modality is right for you.

Working to develop a strong understanding of finances isn’t an isolated activity, instead, it should be an everyday practice. To really grasp concepts of investing and budgets, it’s important to see their roles in the real world. Reading the economy section of newspapers or tuning into C-SPAN segments on the Federal Reserve are a couple of easy ways to get a big picture perspective on how financial structures work.

Find bloggers, podcasts, journalists, or professors who regularly publish engaging financial literacy content. For example, SUMA is a digital platform designed for Latinos who want to become more financially savvy, and author and financial advisor Louis Barajas frequently speaks on how Latinos can approach money management on NPR and MarketWatch.

Make long-term investments

According to a Federal Deposit Insurance Corp (FDIC) survey, 12.2 percent of Latino households don’t use a bank, compared to only 2.5 percent of white households. Another study from the National Bureau of Economic Research found that even with strong credit scores Latino homeowners are 78 percent likely to be issued a high-cost mortgage, which only increases their risk for foreclosure.

Facts like that only buoy the misgivings Latinos have towards large financial institutions. Yet, one safe way to challenge your skepticism towards banks is to explore a 401(k), which for many full-time workers is matched by their employer. Whatever amount you choose to invest in your 401(k) is pre-taxed, and you can start off by investing 1 percent of your salary and scale up later depending on your comfort level and other financial obligations.

A 401(k) is a great stepping stone towards eventually opening up a brokerage account. If the idea of handing your hard-earned cash to a big brokerage doesn’t feel right, then an app like FinHabits might be up your alley. The app was created by Mexican-American Carlos Armando Garcia, former Wall Street financier turned serial Fintech founder, and it’s geared towards people who are new to investing and want to build long-term financial habits. Along with diversified portfolios, IRAs, and emergency funds, the app also offers bilingual financial literacy classes geared towards Latinos in the U.S.

Teach your children about money, financial literacy helps close the Latino wealth gap

An Economic Policy Institute study found that in 2013, only 26 percent of Latino families had retirement savings, compared to 65 percent of white families. Regardless of those disconcerting figures, it’s common for first-generation Latinos who work low-wage jobs to come up with ingenious ways for stretching their pennies in order to pay rent and put food on the table, and those tactics are passed down to their children.

Despite inheriting a saver’s mindset, it’s important to master and demonstrate habits that increase your and your family’s financial advantage. One of the best practices for being a financially literate role model include using banking products that help build credit instead of prepaid credit cards or check-cashing services. It’s common for those kinds of institutions to charge high interest rates and they might not be FDIC insured. A study from UnidosUS found that in 2017, people who use alternative financial services instead of traditional banks ended up spending $173 billion in fees and interest charges. 

Creditworthiness is a huge factor in being considered for any kind of loan or mortgage, and that’s why keeping an eye on your credit score is a crucial step when preparing for any big financial decision. A credit score ranges from 300 to 850 and a good credit score is considered to be 670 and higher.

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