We have all heard the statistics of the huge $1.5 trillion Latino buying power but seldom do we hear or talk about Latino wealth creation. In my book, wealth is a more important long-term indicator than buying power as it is a measure of the long-term progress, well-being and freedom of a community. After all, a wealthier Latino community would have even higher levels of buying power.
I started learning about this very important wealth indicator over the last three years as I launched my Logra Tu Dream podcast and then wrote the book of the same name. I found out that while we are great at consuming, unfortunately, we are not building wealth.
Despite our incredible work ethic, our creativity, and the tremendous progress of our people, many in our community are struggling to achieve their dreams. Many times it is because we are struggling to build wealth. Without sufficient resources, it is hard to have the time and freedom to do what we really love in this, our one and only life.
The state of our finances in the Latino community is very concerning, to say the least. According to Andres Gutierrez a top Hispanic personal finance guru and the former leader of Dave Ramsey’s Hispanic audience outreach, more than 50% of Latinos have $1,000 or less saved. Many in our community have little to no money saved for retirement, which puts a significant financial strain on extended families, limiting the wealth-building potential of younger generations.
A recent 2017 study by the think tank Demos revealed that the median two-parent Latino family has accumulated $18,800 in net wealth while the median single two-parent white family has accumulated $161,300, or nine times more wealth. The authors of the study point to the benefits of intergenerational wealth transfers as one of the main drivers of the big difference in wealth between Latinos and whites. This means that previous and current generations of Latinos are not building wealth as they could.
But why are we not building intergenerational wealth and what can we do about it?
Many of us are familiar with the fact that Latinos have lower incomes. According to the American Immigration Council, Latino immigrants (half of foreign-born U.S. residents) have lower incomes than other immigrants. Immigrants from Mexico and Central America have average incomes of $45K for a family of 3.5 people. Increasing our income will be game-changer but I believe there is another equally powerful lever we can pull.
Personal finance knowledge and habit formation
Personal finance is one of the most important skills that everybody needs to master in order to be able to build wealth and achieve financial freedom. Knowing how to manage your finances effectively is as important as increasing your income.
If you save and invest $300 a month for 40 years at a market average 8% annual growth rate, you’ll accumulate $1 million. You don’t need to have a high income to save and invest $300 a month; what you need is the knowledge, motivation and discipline to do it.
Sadly, most of our kids have not been taught personal finance at school or at home. So they grow up without the basic knowledge of why and how to save, invest and avoid bad debt. This lack of knowledge translates into poor money habits which result in many Latinos not saving or investing enough, spending more than they earn and getting into debt. The outcome is that despite working incredibly hard, we end up like the hamster, spinning our wheels, and we don’t get ahead.
Not knowing how to manage our finances has robbed us of trillions of dollars of wealth creation potential. This why I believe that aside from working hard to increase our incomes, the biggest thing we can do to build wealth in the Latino community is to educate ourselves about why and how we can save, invest and avoid bad debt.
If our community builds significant wealth, we will fundamentally improve the well-being and potential of our people for generations to come. We will give them the gift of financial freedom.
A wealthier Latino community will benefit not only our people and our nation but all of the businesses marketing to them, and the marketers running these businesses.
So, next time you strategize on how to persuade Latinos to consume more of your products, you might also want to consider strategizing on how you can help Latinos build wealth.