Financial Planning Tips for the Latino Community

The Hispanic community is taking the U.S. economy by storm.

Projections suggest that Latinos will hold $2.6 trillion in purchasing power over the next three years, a growth that outpaces that of non-Hispanic households. We’ve also seen Latino workers take on a larger portion of professional jobs, with a 25% increase in representation in these roles over the past decade.

Despite these promising statistics, Latino individuals are still behind financially, for a variety of reasons.

Some reasons are hard to change in the short term: For example, Hispanic workers still face an uphill battle in the workplace and may face discrimination. Hispanic families are less likely than white families to receive an inheritance or gifts that can affect long-term wealth. Hispanic household incomes continue to be lower than that of white households. And the gender wage gap is especially apparent with Latinas, who are paid just 54 cents for every dollar paid to white, non-Hispanic men.

Latinos also tend to have some subpar financial tendencies. For example, more Hispanic households are unbanked or underbanked than non-Latino white households. Compared with white households, Latinos also are less likely to contribute to employer-sponsored retirement plans, even after controlling for access. They also have considerably lower amounts in liquid assets for emergency savings. Even when controlling for income, Hispanic households have lower median values in financial investments. Moreover, Hispanic households are more likely to own wealth through tangible assets, such as houses and automobiles, whose rates have been outpaced in recent years by stock equity.

Altogether, these setbacks add up to less savings and investments for the community on the whole: The typical white family has 5 times the wealth of the typical Hispanic family. Although some of these challenges may be hard to overcome in the short term, others can be eased with proper financial planning advice.

For guidance on how to start tackling some of these obstacles, we asked Catalina Franco-Cicero, MS, CFP, CTS, a wealth advisor at Tobias Financial Advisors who works closely with many Hispanic clients, a few pressing questions for Hispanic investors.

How to ‘Catch Up’ Financially

Morningstar: Given the Latina Pay Gap, is there anything Latina women should do in particular to “catch up”?

Franco-Cicero: For Latina women, the key is to think big. To “catch up,” cutting down on daily lattes is not going to be enough. Instead, identify what is required to get a pay increase. For example, consider new training programs, certifications, or even a career change—the goal is to better position yourself for long-term financial stability. If you’re already in the career that you feel is your calling, and you’re not getting the salary comparable to your experience and/or location, then it’s time to negotiate a raise. Start by developing a proposal that demonstrates the value you bring to your organization. This will help guide the conversation when speaking with your manager.

Another way to “level up” in your career is to look outside of your role. For example, join a professional organization in your industry, network with peers, maybe even find a mentor. You’d be surprised how many people are willing to help you along your career journey.

Lastly, don’t forget to look behind you as you climb the ladder. As Latinos, it’s important to pave the way for future Latino generations. If you can impact workplace policies, do so. You may be a leader without a title and your voice can still count. If you do have a title, then it comes with the responsibility to pay it forward.

How Hispanic Households Can View Finances

Morningstar: Research suggests that Hispanic households tend to favor tangible assets (such as real estate) when investing. Is there anything these households should keep in mind when looking at their whole financial picture?

Franco-Cicero: I get it! Many of us or our ancestors had to leave their homes behind, so it’s natural that our culture may value buying a home. At the same time, given the economic histories of our countries where governments and financial institutions didn’t honor their word of keeping our financial assets safe, tangible assets like real estate may seem more secure. Unlike having invested assets, a piece of land or home is something you can see and touch.

Real estate can have a place in an investor’s portfolio, but we need to educate ourselves on the benefits of a diversified portfolio. At the same time, we must consider our ability to access our savings when needed. If you need cash today, you can’t sell a piece of your home to access it today. (There is the option of taking a home equity line of credit, but one must consider interest rates and the tax consequences.)

This is where considering all your assets and getting holistic comprehensive advice is extremely important, either by researching on your own or with the help of a Certified Financial Planner. Yes, buy the home. And heck, even get some investment real estate, but keep in mind that there will be maintenance and tax issues that need to be addressed. Sometimes, what you think you will net out (i.e. via rental income) can get eaten up by expenses. Many times, when we compare returns from tangible assets to the return on a diversified investment portfolio, we often see the portfolio yield is equal or greater.

Morningstar: Considering your experience working with Hispanic/Latino households, anecdotally speaking, have you noticed any other common mistakes?

Franco-Cicero: A few things come to mind here. Although I’m speaking from my experience working with Latino households, I’m sure some of these lessons may ring true for other investors.

1. Holding on to too much cash: Holding on to cash on hand or at a bank can impact the potential for taking advantage of current high-yield savings rates. Also, these accounts are easy to set up and FDIC-protected.
2. Don’t know whom to trust in the financial-services industry: In my experience, Latino individuals are commonly targeted by institutions/individuals that are not fiduciaries and who don’t look at the entire picture when providing financial advice. To make sense of the mess of title and professionals, one can keep an eye out for accredited individuals, like those who hold a CFP (Certified Financial Planner) designation.
3. Aren’t maximizing tax-sheltered savings: Often, Hispanic households may not fully understand how to maximize their retirement plans, prompting them to lose out of tax savings.

Where Hispanic Households Are Excelling Financially

Morningstar: Let’s focus less on the negative here: Have you noticed any common “wins” for this group?

Franco-Cicero: Plenty things come to mind here! Again, it’s worth repeating, although I’m speaking from my experience working with Latino households, I’m sure some of these lessons may ring true for other investors.

1. Family comes first: One of the beautiful things about our culture is our steadfast devotion to our families. In my experience, Latino clients are extremely motivated to give back to their families, whether that be their kids, parents, or extended relatives.
2. Eager and excited to start building: Many of my Latino clients are curious, open to feedback, and ready to learn. Given their family history and own experiences, they believe in the opportunities they currently have to build a better future for themselves and their family.
3. Education is key: Many of my Latino clients are big believers of the power of education to progress. This also makes this group prime for advice on college savings, scholarships, and financial aid.

Where to Next?

It’s clear that the Latino community is rising in power in the U.S. economy. As we gain access to wealth, it’s important to learn how to preserve and increase that wealth to help us achieve our goals—be it giving back to family, building a new future, funding education, or something else. The issues we discussed here are based on general issues that Franco-Cicero has noticed while working with Latino clients, but your situation may be different. It’s worth doing your due diligence regarding your personal situation before making any changes to your financial plan.

Investing Checklist: Additional Resources for Financial Planning

Based on the items discussed above, we created a short checklist to help you identify and address each, regardless of your demographic background:

1. Are you using a high-yield savings account?

Having cash on hand is a great practice, but make sure it is working for you! High-yield savings accounts allow you to keep money readily available while it’s still accruing value. Also, remember that cash should only take up a part of your larger diversified portfolio; otherwise, you may be losing out on market returns by not investing. Try considering your time horizon and emergency savings plan when deciding how much to have in cash.

2. If you are investing (or thinking of investing) in real estate, have you calculated your net rental income, considering all the expenses?

Remember to incorporate both real costs—money spent on renovations and repairs—as well as time spent. Paying attention to the total costs of owning real estate can help ensure that your investment isn’t a money pit. Meanwhile, considering the investment of your own time can help you weigh the pros and cons of the investment (for example—what else would you rather be doing instead of managing tenants?)

3. Are you getting trusted, unbiased advice?

Given that many of us may not have real-world experience in making these types of decisions—like how much to save in our 401(k) or how much cash to have on hand—whom we look to for advice matters. In other words, don’t believe everything you see on the internet (except this article, of course!), and, when hiring a financial advisor, look for an accredited professional who is a fiduciary.

4. Are you maxing out your 401(k)?

The tax and employer match benefits (if available) that you get from investing in your 401(k) are easy wins; make sure you take advantage of both. This will save you money during tax season each year and put more money in your account to grow over the long run.

5. Are you getting paid according to the value you bring to your company?

Look at comparable positions and their salary ranges. Even if you’re not looking for a new job, reviewing comparable job descriptions will keep you up to date on what is out there, which can help you when you go to negotiate a raise.