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1 Savings & Wealth Accumulation Trends of the Hispanic / Latino U.S Population Victor M. Ramirez Citibank, Community Relations October 3, 2005 “Asset Building:

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Presentation on theme: "1 Savings & Wealth Accumulation Trends of the Hispanic / Latino U.S Population Victor M. Ramirez Citibank, Community Relations October 3, 2005 “Asset Building:"— Presentation transcript:

1 1 Savings & Wealth Accumulation Trends of the Hispanic / Latino U.S Population Victor M. Ramirez Citibank, Community Relations October 3, 2005 “Asset Building: The Perspectives of People of Color” Convened by the National Economic Development & Law Center Tuskegee, Alabama. Funded by the Ford Foundation

2 2 Current Hispanic / Latino Population 41.3 million Hispanic / Latinos in the U.S : 14% of Population If Latinos in U.S formed a country, it would be the 5 th largest Latin American country Includes recent immigrants, their children, and multiple generations 69% of population concentrated in Southwest California, Nevada, New Mexico, Texas, Florida, New York Comprise 52% of annual immigrants into the U.S 700,000 per year; 40% undocumented Constant supply of first generation immigrants ensures retention of culture, language and behavior patterns longer than other immigrant groups Buying power grew by 194% from 1990 to 2003 reaching $653 billion From 1987 to 1995, business ownership grew 288%! Increasing presence in politics: fastest growing and most important voting blocs courted by both parties Source: “Hispanization of the U.S : The Growing Influence of the Hispanic and Latino Communities in the United States Economy,” David J. Kostin Selig Center for Economic Growth

3 3 Future Trends Census Bureau forecasts Latino population will grow 3 times more than national average (20% of population by 2030) Population growth driven by: Continued immigration rates Higher fertility rates Younger population (25.9 median age vs. 35.3 years general population) Economic Impact: as population surges, income expected to rise Generation Effect: 2 nd generation immigrants will have higher incomes Current Economic Momentum: closing the income gap over past several years Low Income Base: have lowest level of groups, so easiest to grow from Younger Population: more potential for earning, spending, childbearing As income levels increase, higher savings rates are expected in: (1)Health care, (2) Transportation, (3) Homeownership

4 4 The Wealth Gap Widens Federal Reserve’s Survey of Consumer Finances between 1995 and 1998 Net worth of average Latino family dropped 43%, from $5,300 to $3,000 Net worth of average White family increased 25% from $65,200 to $81,700 While Latino families experience income surges and poverty reductions in 1990’s, many lack long term financial security reflected by decrease in net worth Latinos were only able to accumulate 4% of the wealth of the average White family

5 5 Bridging the Gap of Economic Disparity In White population, income and savings rate are not the only indicators of financial security Leveraging of existing assets to accumulate other assets Ex: Equity in inherited real estate or investments used to purchase more assets Ex: Interest and capital gains used for income generation Net Worth = Assets – Liabilities Net Worth can decrease even as income increases due to increased debt (liabilities) and purchases of depreciable assets (cars, clothes, jewelry) instead of appreciable assets (house, investments, etc.) Since many Latinos are asset poor, savings rates are vital indicators to our financial stability Need to better understand barriers to savings, banking, and how to improve net worth

6 6 Barriers to Banking, Savings & Assets 2004 Homeownership Alliance Focus Group Study of First Generation Unbanked Latino / Hispanic Immigrants Sense of Economic Instability Largest debts: credit card bills, car payments, medical bills “Right now, I can’t save money. Everything is so expensive, especially food. I pay $4 for a carton of eggs. Sometimes I say to myself, ‘Wow, these eggs must really be special to cost $4.’” Barriers to Opening an Account Language barrier “I’m afraid to go into a bank. I am afraid that they might misunderstand me and what I may need.” Fear of bank fees “Bank fees are my biggest problem when I think of opening a bank account.” “I used to pay bank fees for using certain ATM machines. That’s stupid…it’s like I’m paying to get my own money out of the bank.”

7 7 Barriers to Banking, Savings & Assets Barriers to Opening an Account cont’d Lack of money for minimum opening deposits “Saving all of the money for an initial deposit is a big problem for me. I just don’t have $500 lying around, just waiting to open an account.” Lack of proper identification documents “My first obstacle in opening a bank account is having a social security number.” “I have my foreign IDs, but they don’t accept those.” Negative banking experience in their countries of origin “I lost all of my life savings in a bank once. It went bankrupt.” “In my country, you don’t have the actual amount of money in your bank account that you may think you do.“ The “American Dream” of Homeownership Strong desires to become homeowners, but see it beyond their reach “While America gives you some advantages, it is more difficult to own a house in the U.S” “It’s simple: In Mexico I owned by own home. In America, I do not.”

8 8 Barriers to Banking, Savings & Assets Don’t understand how banking history relates to homeownership Have not been exposed to how credit works or the homeownership process Once they make the connection between banking history, credit, and homeownership, they became enthused with opening bank accounts “I would encourage a person to open an account by saying that it will help them buy a home in the future.” Other barriers to homeownership Low income…low savings Home sellers prefer to sell to buyers with high cash downpayments Real estate agents know subsidized loans (IDAs, soft seconds, etc.) take longer to close due to complexity of loan package, therefore discriminate against LMI buyers High cost of housing Example: median home price in LA County: $454,000 Latino families are beginning to purchase duplexes and triplexes with other families Cultural barriers to Asset-building Rather pay rent for a home with a backyard than purchase a condo (space vs. equity) Rather invest in “La Loteria” than in a retirement fund Seek the wrong advisors: Notary / Tax preparer/ Compadre vs. Attorney / CPA/ CFP Suffer from the “Who Moved My Cheese?” Syndrome “My children and social security will take care of me at retirement…why should I save?”

9 9 Spending Patterns Spend 93% of pre-tax income (versus 82% U.S average) 10% of income sent abroad via remittances Have lowest: Health care insurance coverage rates Homeownership rates Savings rates of large ethnic groups Current buying patterns: follow low-income groups (1)Rental expense (2)Food (3)Transportation Spending Attitude: Spend now, Save later! Prefer immediate gratification: car, clothing, jewelry versus delayed gratification: prefer renting a home with a large backyard, than purchase a condo with potential of building equity through appreciation Low rates of retirement and long-term investment savings Prefer tangible versus intangible: lack of insurance

10 10 Impact of Savings Patterns Low savings rates of Latino population has economic impact on nation due to growing segment of population Even though homeownership rates for Latinos is low compared to Whites, the number of homes purchased by Latinos has increased recently LA County Recorder reported top 10 surnames of homebuyers are Latino

11 11 Barriers to Savings Lower Income = Lower Savings Rates Latino median income was $33,000 in 2003 (25% below US median) More financial dependents than Whites = Less Income to Save 10% of income (after-tax) sent to families in Latin America Younger working families supporting older parents Approximately 30% of Latinos are unbanked; currently using fringe services: check cashers, payday lenders, money remittance Underutilization of Earned Income Tax Credit (EITC) and Volunteer Income Tax Assistance Program (VITA) Low Risk Takers = Less Likely to Invest in Stock Market

12 12 “There is no such thing as a poor community, rich in people. Our greatest resources and assets are our families.”

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