American Latinos contributed trillions to the economy in 2020. So why are they so underserved by financial services?

By Emma Ockerman

Latinos remain underserved when it comes to inclusive banking, advocates say

When it comes to banking, Mireya Olvera knows that Latino consumers want to feel understood — or, at the very least, like the person on the other end of the interaction respects them.

She’s been in this vulnerable position before. Olvera immigrated to the United States from Mexico 27 ​​years ago and, although she grew up with a father who worked for a financial institution, she remembers how afraid she was to go to banks, because of both a language barrier and his fears of not making it. understand how accounts and loans worked in the United States

Today, she is an area manager at a branch of Notre Dame Federal Credit Union in South Bend, Indiana, where she serves a predominantly Latino community. And for Olvera, truly catering to this population means offering free financial courses, lots of patience, and plenty of bilingual services; Although American-born Latinos are overwhelmingly proficient in English, only 37% of Latino immigrants are fluent in English, according to the Pew Research Center.

His credit union also offers loans at rates of 12.99% to help cover immigration costs and legal costs associated with arriving in the United States, as well as mortgages for immigrants who do not only have an individual tax identification number, rather than a social security number. Without those kinds of opportunities, immigrants could face higher rates, she said.

“Once we open the doors to the Hispanic community, and once we give them opportunities, they will always commit to paying on time,” Olvera said.

The Hispanic population in the United States has grown by leaps and bounds in recent decades to at least 62.1 million people, largely thanks to immigrants and their descendants. They are also an essential component of the American workforce, as well as the country’s small business ecosystem: A 2020 research report from the Stanford Latino Entrepreneurship Initiative found that the number of businesses owned by Latinos had grown 34% over the past few years. decade, compared to 1% for all other small businesses.

Additionally, Latinos had a total economic output of $2.8 trillion in 2020, according to a September report from the Latino Donor Collaborative in partnership with Wells Fargo (WFC). This means that if they were their own independent nation, they would have the fifth largest gross domestic product in the world, behind Germany, Japan, China and the United States, according to the report.

Yet despite being an economic powerhouse in their own right, Latinos remain woefully underserved financially, proponents say: 9.3% of all Hispanics in the United States were unbanked in 2021 — up from 12.2% in 2019, but still significantly higher than the 2.1% of whites who are still unbanked, according to a Federal Deposit Insurance Corporation survey.

According to the National Community Reinvestment Coalition, there also remains a large – albeit narrowing – gap between Latinos and whites in homeownership, as well as disparities in wealth, inheritance, education and income.

It’s no surprise, then, that Latinos are also much more likely to say they’re unhappy with banking and financial services compared to their white peers, according to a December 2021 report from McKinsey & Company.

“We have a financial system that has been structured in a way to encourage some of these inequalities that we see, where minority populations do not have access to the tools that the white majority has had access to, through which they have built their wealth,” said Pablo DeFilippi, executive vice president of Inclusiv, a network of 500 credit unions that have been certified as community development financial institutions and minority deposit-taking institutions.

In order to remedy this, the members of the Inclusiv network are trying to open a non-traditional way in terms of banking services. Many offer mortgages to people who have an individual tax ID number instead of a Social Security number, DeFilippi said. Member credit unions also offer credit-building loans so that customers may be able to access other services they may not otherwise be entitled to.

The big banks haven’t really caught up in offering these types of services, he said.

“We like to talk about financial inclusion as not just being sustainable, but as an engine of growth for financial institutions, especially small and medium-sized institutions,” DeFilippi said.

Financial Literacy

Fintech companies have also stepped up to create products specifically for Latinos. SUMA Wealth, for example, is a digital platform for young American-born Latinos that Beatriz Acevedo, co-founder and CEO of the company, worked to create during the pandemic after seeing how the community was struggling. economically, all without the kind of culture-relevant resources that could help them.

Today, the platform’s community numbers 615,000 people, she said. The company offers free financial education, as well as an app that can provide personalized financial coaching and advice in a way that might seem more accessible to younger Latinos. (The basic app, which tracks users’ savings and debt-to-income ratios, among other features, is free, while the custom aspect that comes with targeted insights and robo-coaching has a fee. subscription fee of $14.99 per month.)

SUMA Wealth also partners with employers to provide its premium product as a benefit, she said.

“To me, success means we’ve really helped shake things up when it comes to closing the wealth gap in our community, not just having a high valuation for my business,” said Acevedo.

The role of industry and government

Yet while there have been valuable conversations about financial literacy and education as a way to bring more Latino consumers into the fold, these can only go so far, according to analyst Susana Barragán. of economic policy at UnidosUS, a Hispanic civil rights and advocacy organization. organization. Many Latinos are very familiar with how the financial system works, Barragán said — they’re just more likely to face discrimination within it. It will take both industry and government to address this issue, she added.

“When we look at credit scores or access to credit in general, Latinos really show a great understanding of how the credit system works,” Barragán said. “Yet they have credit scores well below the national average, they’re much more likely to be denied access to credit, and they’re much more likely to be ‘invisible credit,’ meaning that they have absolutely no credit on file with any of the credit reporting agencies.”

A survey of 1,200 Latinos in Arizona, California and Texas, commissioned by UnidosUS and released last month, showed that 20% of Latinos had no credit history, while only 56% had a credit card. , compared to a national rate of 84% among adults. When it comes to getting extra money to cover basic expenses, 32% of Latinos said they mostly rely on loans from friends or family, according to UnidosUS.

Olvera also said addressing these issues must go beyond providing basic bilingualism and good customer service: people working in the financial services industry must be willing to stick with their customers. for the long term, offering compassion and understanding throughout their financial journey. Bilingualism also cannot be limited to communications with bank tellers alone, Barragán added: A 2017 report from the Consumer Financial Protection Bureau noted that many financial institutions said they only offer contracts and written agreements in English.

At some point in her career, Olvera said, she met two credit union members who were married and had been saving for years and years to buy a house — but all of their savings were in cash and they didn’t. had no credit history. They had also taken Olvera’s financial literacy courses.

Olvera told the couple they needed to establish credit. Two years later, they were able to apply for a mortgage and buy a house.

“Most of these stories make me feel like we have a purpose here to keep coming to work,” Olvera added.

-Emma Ockerman


(END) Dow Jones Newswire

11-06-22 1032ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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