Why are U.S. Latinos funding their retirement and medical needs from their own personal finances?

By: Carlos Garcia

From remote sensing technologies to delicious arepas to craftful digital art, Latino-owned businesses (LOBs) are making their mark in the United States. Despite facing challenges such as high-interest rates and the increasing cost-of-living, LOBs are successfully adapting digital models to their operations and transforming their businesses. However, a significant obstacle remains in their path to financial viability. While LOBs contribute significantly to the US economy, accounting for one in four small businesses (4.65 million businesses), employing 1 million workers, and $800 billion in annual payroll, LOB owners still face a deficit in capital access and fringe benefits like retirement plans and health insurance. While the solutions and products are out there, the lack of education on how these products work and how they can improve financial health for LOBs and their employees persist.

As we reel from the consequences of the COVID-19 pandemic, the significance of retirement funds and health care insurance has become even more evident. As such, a 2021 Morningstar report suggested, 69% of Latinos have no retirement plans through their employers and only 8% have savings from an alternate private investment plan.

There are many reasons behind these disparities, but two significant factors are the lack of financial literacy and language barriers among U.S. Latinos. Only 28% of Hispanic Americans have “high financial literacy” compared to 43% for white Americans. Both the financial literacy and language-access gaps Latinos face are concerning as they prohibit them from understanding the many options available to them that can provide a safety net for themselves and their families. For far too many Hispanic Americans their retirement funds and medical payments come from their own personal finances. The 2022 Stanford University report also suggested that Latinos were more likely to tap into their personal savings and max out on credit cards and their home equity in order to weather the pandemic. Oftentimes the lack of access and awareness can lead Latinos to not invest and spend any available cash in-flow on emergencies. Consequently, 17% of LOBs have reported that their employees are leaving in search for better compensation or benefits.

The moment has met us. The private sector can no longer overlook Latino entrepreneurs and business owners. Latinos are not saving for retirement or are voluntarily uninsured because they lack interest rather because they lack equitable and accessible information on these products. Right now we have an opportunity to enhance the way we reach LOBs. Turning a blind-eye and putting the responsibility on business owners to learn these tools that contain complex jargon is a harm to them and their financial viability. Cultivating and investing in educational tools such as improving financial literacy and breaking language barriers will significantly improve the financial wellness of the Latino workforce. If we close the economic gap between LOBs and their counterparts, they could add an estimated $1.4 trillion to the economy.

At Finhabits we are doing just that. We have expanded our financial services, such as Finhabits 401k plans, designed to offer LOBs and their workers bilingual, affordable, and accessible solutions. This expansion stems from understanding the community and comprehending that LOBs view their workers as an extension of their family. Our plans are aimed to help LOB owners not only build economic security for their future but also for their employees, their extended family.

We need to refocus our attention on how to make these financial wellness tools accessible to LOBs, not only through simply offering them but fortifying the learning and comprehension of these products. By ensuring that Latino entrepreneurs and business owners are experts on accessing capital, saving for retirement, and being insured, they will be able to successfully acquire, retain, and grow their business, becoming as competitive as their non-LOB counterparts.

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