Addressing Disparities in Finance for Hispanics and Latinos
One of the most significant social issues facing Latinos in America is the myriad obstacles preventing them from building a secure financial future. These financial disparities begin with high-interest lending services, insufficient credit history and higher than average student loan debt, among other factors.
The effects of these disparities appear in the demographics of rental and homeownership rates in many areas. While the homeownership rate among Hispanics increased by 47.5% since 2019, many younger Latinos find that their path to homeownership and financial security are hindered by monthly student loan repayments, which in turn prevents many of them from being able to build up their savings. Meanwhile, other more vulnerable members of the Latino community, such as immigrants and non-native English speakers, face challenges with predatory lending practices and unfavorable financing options.
5 Financial Barriers and Solutions
There are a number of obstacles that prevent the Hispanic and Latino community from being able to grow their savings and achieve their financial goals. Learning to save, predatory lending practices and poor or insufficient credit history are just some of the major barriers that prevent the community from reaching financial stability. And when each of these factors compound, many find themselves in a situation where they are unable to invest their money and create generational wealth.
1. Learning How to Save and Make Investments
Many Latino immigrants are unbanked, meaning that they don’t rely on financial institutions to deposit and save money. This practice stems from a lack of distrust in the financial institutions in their home countries, coupled with a lack of financial education in general. It’s also common for individuals to put their funds toward caring for family members or supporting their children through school rather than saving for their own retirement. And while many Latinos are responsible with their finances, they lack money mentors within their communities who can teach them how to properly plan for retirement or provide guidance on making financial investments.
If available, take advantage of your employer-sponsored 401(k) or brokerage account. Also, consider an additional savings vehicle, such as an individual retirement account (IRA), Roth IRA or certificate of deposit (CD), which is a type of low-risk federally insured savings account.
2. Predatory Lending Practices
The Hispanic and Latino community can often have limited access to financial literacy materials, which means the community can be left without the tools necessary to manage finances and build up savings. Limited access to resources coupled with the potential financial implications of maintaining a commercial bank account can push individuals to rely on predatory alternative financial services that may be mortgage scams, which can charge upwards of 400% APR. In 2017, people who relied on alternative financial services such as payday loans, check cashing services and rent-to-own stores ended up spending more than $173 billion in fees and interest charges.
Whenever possible, seek out a commercial banking institution and avoid or limit the use of products that do not actually help you build your credit, such as prepaid credit cards. While you may think that you are banking with an accredited institution, many alternative “banking” entities charge above-average interest rates. They may not carry insurance, thereby putting your investment at risk while at the same time doing nothing to help build your credit-worthiness.
Juntos Avanzamos works with a network of 108 credit unions in 26 states that serve to empower Hispanic and immigrant communities. These credit unions will work with you to open a checking or savings account and establish your credit, even if you don’t have a social security number.
3. Limited Access to Credit and Low Credit Scores
The median FICO credit score for Hispanics was 684 in 2018. Compare that to 742 for non-Hispanic whites and 722 for the overall population. You can get a picture of the discrepancy between each demographic. These lower credit scores can be attributed to limited access to credit-building opportunities as well as limited knowledge and access to information on how to build and maintain a healthy credit score. And because credit-worthiness is taken into account when qualifying for loans and mortgages, aspiring Hispanic homeowners can often find their options for financing a new home limited, or they are unable to secure a conventional home loan or down payment altogether.
The first step to improving your credit score is getting a copy of your credit reports from the three nationwide credit reporting companies — Equifax, Experian and TransUnion. You can easily do this by using an online credit report, like a credit report from Central Source LLC, which grants you access to all three credit reports for free once a year. By knowing your credit score isn’t enough, you’ll also want to understand what that score means, which is where the list of consumer reporting companies from the Consumer Financial Protection Bureau can help. The website offers a broad range of financial education materials in nine languages on topics ranging from how to rebuild your credit to how to get a home loan, all available for free.
4. High Cost of Buying a Home Relative to Income
Because Hispanic populations tend to be more concentrated in high-cost markets, the homes Hispanic and Latinos buy are valued at lower than median market rates. But they are more expensive overall relative to their income level. While the majority of Hispanics finance their homes through traditional methods, they disproportionately have to rely on FHA insured mortgage loans. These loans often end up being costlier and can negatively impact lifetime wealth-building potential. Another instance in which Hispanics and Latinos can find themselves in a high-cost market is due to gentrification. Real estate appreciation can often lead to displacement and sees many families priced out of their own communities. Gentrification drives up housing costs and demand for low wage workers, who then, in turn, cannot afford to buy homes in their very communities.
Down payment assistance programs exist to help homebuyers find loans and grants that can help drive down the cost of your potential down payment. These programs are typically meant for first-time homebuyers, but depending on the program, some exceptions can be made. You can also contact local community organizations in your state to inquire about homebuyer education programs that can teach you what to expect when buying a home — from how to select a mortgage to how to negotiate the selling price.
5. Student Loan Debt
Many Latinos are first-generation college students who are left to navigate higher education costs without much guidance. And while there are options for financial aid for Hispanic students available, 72% of Latino students take on student loan debt in order to attend university. In fact, 12 years after starting college, the median Latino student borrower still owes 83% of their initial loan. This debt affects their ability to save money well into adulthood, which is further compounded when they become delinquent or default on payments.
This financial literacy handbook is a great place to start learning about managing your money and navigating major expenses. Also, check out The Hispanic Center for Financial Excellence — it offers free financial education services and can teach you how to reduce your debt and develop a savings strategy.
Expert Insight on Navigating Financial Constraints
What are your own observations about the financial disparities within the Latino/Hispanic community? Why do you think these disparities exist?
Ebetuel 'Beto' Pallares:
There tends to be a communal approach to expenses and family sharing, paired with a fantastical view “ay se va,” (which) the idea being that if it is in the cards for you, then great, and if it’s not, it’s not. Investing is seen as something that you do later in life or only via a business, not via retirement. And many people come from backgrounds or countries where banking used to be distrusted, not more accepted.
In the Latinx community, there is not that much information when it comes to money. I've seen within my own family and friends that we don't really know a lot about building general wealth. Our knowledge is pretty stagnant: you save and try to live on less, and that's where it stops. There's a lot of disparities when it comes to investing, building wealth and generating income for their family.
In the Latinx community, we tend to focus on business ownership and homeownership, and we don't look at the stock market as an option to diversify our (income). When there are times of crisis — such as right now with the coronavirus where businesses are shut down, and 2008 when we had the mortgage crisis — the people who were hurt the most were Latinxs because that's where their wealth is placed.
Now the federal government has pumped a ton of money into the stock market, and it's doing fine. It's back to where it was before coronavirus. It's already broken a few records in the last few months. When you don't have that diversity in your wealth, you miss out on that. Latinxs are being left behind because there's this fear of investing.
Student loan debt is seen as a major barrier to financial security for many. Can you offer any advice on how to tackle (or avoid) student loans?
Ebetuel 'Beto' Pallares:
Work-study programs are a good option. And also aim to finish as soon as possible. Really plan out your classes so that you’re not taking classes for more than five years. Some universities use this as a tactic to keep you enrolled and taking out more debt (it helps their numbers, not yours). If you want to go to grad school, focus on getting good grades in undergrad, almost regardless of major. Your major matters for science-focused jobs, but not as much in terms of social sciences.
Also, tap into the Hispanic Scholarship Fund and other organizations. The military also has options to help finance education. For instance, the Marines have a very generous program that pays you during college, even if you don’t end up going through officer candidate school.
I actually am finishing up my bachelor's degree, and I've only generated $3,500 in college debt, and that's because I didn't know any better. What I did was I decided if this is even what I want to do. (I thought about) why am I doing this? Why am I going to school? Am I doing it because my parents are making me? Is this something that I love? (It's important to) figure that out first because a lot of people think they need a degree, and then they study something they don't even like, and then they take on debt.
Find out what it is you want to do and figure out if school is the answer for you. There are so many grants and scholarships available, especially for the Latinx community, for women, (and) first-generation graduates. So definitely do (your) research on scholarships and grants. Finally, a lot of times, when you go to college, you take five to six classes at a time. Maybe reducing that number [of classes] to something you can afford to pay, especially if you're paying out of pocket. It's going to take longer, but you're not taking on debt. If you do have to take on student loan debt, then only take what you need. Don't take the entire loan and spend it on personal purchases.
So as far as avoiding (student loans), what I did to try to reduce my student loans was take a year's worth of AP classes in high school, which was enough to help me skip a year of college. That saved me a year there. Then I went to community college first. The first two years of college are pretty much the same everywhere you go. People look down on community college, but if you do really well there, you can then transfer to a really prestigious school.
That's usually what employers look at, the last school you went to. So that's what I did. I did really well in community college and then transferred to a private school. The combination of those things helped to reduce my undergraduate bill. Of course, then I went to law school, and that was a whole different story.
But for most people, that undergraduate (education) is what really strikes them. As far as paying (student loan debt) off, I think people aren't informed enough about the forgiveness programs. There are so many different both state and federal programs for loan forgiveness, and people don't take the time to learn about them. They just think, "Oh, if I pay it off in 10 years, it will be forgiven," and that's not the case. There's a whole process for it. There's paperwork you need to file, there are hoops you have to jump through, and you have to certify with the company every year.
We're seeing the effect of that now, where people think their debt is forgiven and then they approach their loan provider, (realize) they didn't file a certification and wonder what happened. That (student loan debt) won't get forgiven. If you sign up for a student loan forgiveness program, make sure you're going through all the necessary steps.
Finally, this isn't a good fit for everyone, but consider refinancing (your student loans). If you are really going to tackle your loan and pay for it in X amount of time, and you have a plan that you're going to stick to, think about refinancing it even if it's a federal loan because reducing that interest rate by 2, 3 and 4% is going to save you thousands of dollars over the long run. Just keep in mind that if you are going to remove your loan from that federal program and then put it into a private lender's hand, you're not going to have the protections that you would. Right now, federal student loan debt is frozen, so if you had refinanced with a private lender, you're not getting the benefit of that program. Keep all of that in mind.
What are some tips to start saving and develop a strong relationship with money for Hispanics and Latino?
Ebetuel 'Beto' Pallares:
The best way to save is to not spend frivolously. Leverage the sharing economy, trends like Uber and Lyft, where millennials and Gen Z are not purchasing cars, and thus avoid going into debt with that.
Learn to save money, pay off credit card debt and cut back on consumerism. I feel that our culture (just like any other culture) can get carried away with wanting to buy luxuries or overspend on things in order to portray a certain image. The idea of living below our means and saving money is not "sexy" but is an extremely powerful way to start building wealth. Saving can be the foundation towards other goals, such as investing or buying property, etc. It can also mean peace of mind, freedom and flexibility.
Start by paying off consumer debt. I would never recommend anyone "jump" into investing if they have high levels of credit card debt. I would say invest in getting rid of that first and foremost before starting an investing journey.
Also, invest in building an emergency fund. I also would not recommend anyone invest if they don't have a "cushion" of money they can tap into in the case of an emergency.
Once those foundations are set, here are some steps you can follow:
- Open an investment account.
- Deposit some money (can be $50- $5,000, whatever the person can afford).
- Connect the investment account to a checking account in order to set up automatic monthly transfers. This will ensure the person always has "fresh" money to invest. Automatic transfers can be $10 or more, whatever the person wants.
- Start getting educated on what real, legitimate investing looks like. For example, how to invest in high-quality stocks, funds, ETFs (exchange-traded funds), etc., and to stay away from "trash," such as penny stocks, bitcoin or any other speculative way of "playing" the stock market. Education is extremely important.
- Start investing by buying an index fund, ETF or shares in high-quality stocks, and then move forward one step at the time. Investing is a marathon, not a sprint.
Really hone down on your needs and see what that number is first and compare that to how much your income is. Once you know what your needs are and the amount of money you need on a monthly basis, see what you absolutely have to have. Whatever is not important to you, remove it from your budget. Save! Even if it's $5 or $10, it doesn't matter as long as you're starting to save and building momentum where you're saving every time you get paid or come across an income. Regardless of what's going on, always save into a completely different savings account.
Try to figure out your relationship with money. In my situation, I was an emotional spender, and I realized that. When I was younger, every time I was in a fight with someone or in an argument, the answer to my problem was going to Target. Going shopping and buying something new made me feel better for (about) five minutes, and after that, I was back to square one. Figuring that out and trying to fix it (made it so that) my relationship with money was more positive.
First, find a mentor. Find someone who isn't just a neighbor or relative. Find someone who is an expert in this field, who you trust, who is relatable and willing to teach you these things. There's a lot of self-education (you can do), but it's nice to have a mentor in this space. Beyond that, you need to read a lot of books. You need to expose yourself to new ideas because these are not ideas that we were taught in our community growing up. It's a little bit of a back to school moment.
Now with podcasts and YouTube channels, it doesn't matter what your learning preference is. There's something out there for you. Look for something that you connect with and start learning little by little. Start making small incremental changes in your life. Don't take advice from people who aren't doing well financially. Go look at the people who are succeeding. (Ask yourself) what they're doing, and go follow those people.
What are the best ways for Hispanics and Latino to get educated on finances? Are there any specific resources you recommend?
Ebetuel 'Beto' Pallares:
(Here are some resources) Tanya Menendez for student debt at Snowball Wealth, Carlos Garcia for investing and retirement planning at Finhabits, Tony Aguilar for student debt at Chipper (and) Ramona Ortega for general financial education at My Money My Future.
I would say that reading books and/or listening to podcasts around this topic would be ideal. Here's a list of some (investing) books I would recommend to start that journey.
Anyone with computer access and some money to allocate towards retirement can open an IRA (individual retirement account) account all by themselves online. My preference is for Roth IRAs simply because they offer better tax benefits. However, it also depends on the individual's specific goals.
The process of opening an IRA is similar to opening a checking account online. The trick is in understanding where to invest the money and how to allocate the money once the account is open. This is why it is so extremely important for our community to educate themselves on high-quality investing options. Just like there's a lot of great investments, there's also a lot of "trash" out there. Education allows us to understand the difference. With that said, the actual process of opening a retirement account is fairly straightforward.
The best resources for me are definitely books. They're the cheapest investment, and you get more bang for your buck. It has all the information you need. Study different types of financial advice books. There are really good ones out there on the market. That's where I learned my information, and it only cost me $15, and the library is free. There's a lot of information online, but you have to be a little careful with that because not everybody's information is built for you.
The lack of resources is the problem. If we're going to talk about podcasts, there's a great podcast called Yo Quiero Dinero. It's an amazing podcast, and the host (Jannese Torres) interviews a lot of Latinxs who are pursuing financial independence or who are running businesses. She's the side-hustle queen. Not to be a shameless plug, but my page is also a resource. Miss Be Helpful is also an educator in this space. To me, those are the resources I go to because there are no traditional resources. I don't see a lot of (Latinxs) publishing books. It's really this informal movement on the internet.
Financial Resources for the Hispanic and Latino Community
There are many resources available to help in your journey to financial success. From debt management programs to scholarships and mortgage financing assistance, these organizations and programs can help you get ahead.
Financial Services and Programs
- Latino Educational Fund: LEF’s financial literacy courses provide Latinos with the knowledge they need to make informed decisions about their futures and their families’ futures related to banking, credit, bankruptcy and mortgage lending.
- Fuente Credito: Fuente Credito, a small-dollar credit pilot program coordinated by UnidosUS, facilitates access to affordable loans. It offers an online credit application designed to provide fast and personalized options for immigrants who need assistance in financing immigration fees related to Deferred Action for Childhood Arrivals (DACA), citizenship or other legal services.
- FDIC Money Smart: Money Smart offers a Spanish-language financial education program to help individuals improve their financial health.
- Free Financial Literacy Course: This six- to 10-hour course from Alison concentrates on the basics of personal finance. From budgeting and saving to debt management and retirement planning, this class aims to improve your overall financial literacy to ensure you can manage your today and plan for tomorrow.
Technical Tools, Apps and Assistance
- Mortgage Calculator: MoneyGeek’s simple and free mortgage calculator helps you estimate your monthly mortgage payment with the principal and interest components, property taxes, homeowner’s insurance and HOA fees. Once you input the numbers, you’ll see a detailed mortgage payment schedule.
- Mission Asset Fund: MAF offers loans to help individuals cover their immigration expenses; part of the process includes a financial education course. You can download their app to track your progress, review your loan and track your payment history and credit score.
- Mint: Mint is a budget tracker and planner that helps you easily manage your finances. One feature that makes this app so appealing is that it allows you to track your credit score for free.
- Association of Latino Professionals in Finance and Accounting (ALPFA): The ALPFA provides professional development and career-building opportunities for Latinos. They partner with several educational institutions to help educate Latino leaders in finance.
- Hispanic Heritage Foundation: The White House founded the Hispanic Heritage Foundation in 1987. It offers a series of free podcasts and videos focused on money management, debt management and wealth mindset, along with programs to promote leadership and education within the Hispanic community.
- Congressional Hispanic Caucus Institute (CHCI): CHCI provides leadership, public service and policy experiences to Latino students and young professionals.
- American Society of Hispanic Economists: This professional association of economists is focused on addressing the under-representation of Hispanic Americans in the economics profession. Its work centers on researching policy and economic issues affecting Hispanics in the U.S.
- National Organization for Hispanic Real Estate Professionals (NAHREP): The NAHREP work to champion homeownership in the Hispanic community. They are advisers and advocates who are available to help Hispanic families create generational wealth.
- United States Hispanic Chamber of Commerce (USHCC): The USHCC promotes the economic growth and development of Hispanic businesses. It provides support to small and minority-owned businesses.
- The Hispanic Institute: The Hispanic Institute manages several ongoing projects, including the study of Hispanic economic contributions, media monitoring, consumer fraud protection, citizenship education and technology and telecommunication research.
- New America Alliance: This organization of American Latino business leaders promotes the Latino community's economic advancement, focusing on economic and political empowerment and public advocacy to improve the quality of life in the United States.
- UnidosUS: Formerly known as NCLR, Unidos serves the Latino community through nearly 300 affiliates throughout the country. It provides advocacy in civic engagement, civil rights and immigration, education, workforce and the economy, health and housing.
- Mission of the League of United Latin American Citizens (LULAC): LULAC is to advance the economic condition, educational attainment, political influence, housing, health and civil rights of the Hispanic population of the United States.
- Hispanic Federation (HF): Established in 1990, HF is a nonprofit organization to support the Hispanic community, families and institutions. Its work includes education, health, immigration, civic engagement, finances and the environment. HF offers advocacy services, community assistance programs and capacity-building opportunities.
Community Support Groups
- Healthy Hispanic Living (HHL): HHL fosters wellness and quality of life for Hispanics by focusing on all aspects of health — physical, mental, financial and societal. It works to include issues and concerns the community faces from a cultural perspective.
- Arte Sana (Art Heals): Arte Sana is a nonprofit organization dedicated to eliminating sexual and gender-based violence. It offers cyber advocacy and survivor activism, prevention and survivor empowerment through art, and training courses on sexual assault in Spanish and English.
- National Compadres Network: The National Compadres Network is an organization that works to decrease issues such as domestic violence and child abuse, substance use, gang violence, racial inequity, teen pregnancy and issues around heterosexism. Its goal is to enhance and re-root individuals, families and communities by honoring, rebalancing and redeveloping their traditions, values, practices and identities.
- U.S. Dept. of Housing and Urban Development (HUD): HUD offers housing counseling to help consumers make informed housing decisions. HUD works with organizations, such as UnidosUS, in developing and supporting Latino homeownership programs in various states across the country.
- Homeownership Assistance Programs: MoneyGeek’s very own guide to help you better understand the homeownership process. Here, you can find information on grants, loans and home purchasing programs.
- Federal Housing Administration (FHA) Loan Requirements: This MoneyGeek guide provides educational resources to educate home buyers about FHA, VA and USDA government-insured mortgage loans.
Scholarships and Financial Aid
- Scholarships for Hispanic Students: MoneyGeek offers a full, comprehensive guide to finding scholarships and resources for Hispanic students.
- Hispanic Association of Colleges and Universities (HACU): HACU is an advocate for Hispanics in higher education and offers a number of resources, including a scholarship resource list.
- TheDream.US: This is the largest college access program for DACA recipients and undocumented students. They offer scholarships to those who do not qualify for federal financial aid or in-state tuition due to their residency status.
- FAFSA: The Free Application for Student Financial Aid (FAFSA) is a U.S. Department of Education service for applying for federal financial aid for students.
- Medicare Advantage’s Latino Health Resource Guide: Medicare Advantage compiled this resource guide for Latinos and Hispanics to find health care providers by state and categories, such as dental, senior care and caregiving, substance abuse and mental health. This guide is available in Spanish and English.
About the Author
- Demos.org. "Latinos, Student Debt, and Financial Security." Accessed September 2, 2020.
- Federal Reserve.gov. "Exploring the Racial Wealth Gap." Accessed September 2, 2020.
- Fuentes, Nicole Lutes. "Defrauding the American Dream: Predatory Lending in Latino Communities and Reform of California’s Lending Law." Accessed September 2, 2020.
- National Association of Hispanic Real Estate Professionals. "2019 State of Hispanic Home Ownership Report." Accessed August 31, 2020.
- Protected Borrowers.org. "Disparate Debts: How Student Loans Drive Racial Inequality Across American Cities." Accessed September 1, 2020.
- Ramirez, Amelie. "The State of Latino Housing, Transportation, and Green Space: A Research Review." Accessed August 31, 2020.
- Unidos.org. "The Future of Banking: Overcoming Barriers to Financial Inclusion for Communities of Color." Accessed August 28, 2020.
- Washington Center for Equitable Growth. "How the Student Debt Crisis Affects African American and Latinos." Accessed September 2, 2020.