4 ways to help Hispanic Americans close the racial wealth gap

As a first-generation Latina, I have firsthand knowledge of the unique financial concerns of those within the Hispanic community. In addition to my personal experiences, I have worked extensively with individuals within the Hispanic community to help them combat the effects of the historical racial wealth gap in America.

The wealth gap has notably widened over the past decade, which is due in part to the COVID-19 pandemic. According to the Federal Reserve, the average Hispanic household earned about half as much in 2021 as the average white household and had only 15 to 20% as much net wealth. Despite this disparity, the Hispanic community continues to be a key driver of the U.S. population growth and has significant power in America.

Closing the wealth gap for Hispanic communities is an ongoing conversation that we should be discussing throughout the year and not limited to Hispanic Heritage Month. Although the list of potential obstacles that may impact the wealth gap for Hispanic communities extends beyond this list, here are some examples of obstacles as well as shared ways we as financial professionals can work with our clients to help overcome these barriers.

Combatting the racial pay gap

During the second quarter of 2022, Hispanic men and women earned a median weekly salary of $812, compared to their white counterparts who earned $1,068. The pay gap worsens for Latinas in the U.S., who earn 51% less than white men and 31% less than white women.

The first step a financial advisor should take when helping their Hispanic clients combat this pay gap is to advise their client to build an emergency savings fund. This serves as a financial security blanket to help individuals prepare for unexpected expenses and distributions to income. This also helps avoid getting in debt when an emergency arises.

The next step is to address any existing “bad” debt such as credit cards and come up with a strategy to pay them off as soon as possible. After this foundation is established, a financial advisor can focus on wealth building with the help of diversified investment strategies. These steps can help those within the Hispanic community establish financial security, while simultaneously building wealth for themselves and future generations.

Establishing financial literacy among all generations

According to the TIAA Institute-GFLEC Personal Finance Index, Hispanic individuals have lower levels of financial literacy than white individuals. Spanish-speaking immigrants are especially vulnerable to the financial literacy gap due to the added language barrier.

With this in mind, there’s a sense of responsibility I have as a financial professional to help educate my Hispanic clients with the knowledge and educational tools they need to better understand their finances and pass down this valuable knowledge to their children and future generations.

Creating retirement security

The Hispanic community has historically been faced with great obstacles when planning for retirement. In addition to Hispanic individuals earning less than their non-Hispanic white counterparts, only 36% are covered by a workplace retirement plan, compared to 58% of white individuals. Additionally, only 32% of Hispanic households report having a retirement savings account in 2021.

One way to help close this gap is by helping business owners set up a 401(k) and educating their employees on the value of the 401k(k) plan so they can adapt the “pay yourself first” mindset. Financial advisors can also encourage their clients to strategically plan for their future by increasing contributions to their retirement plan when they are promoted or are given a raise.

Overcoming hurdles to homeownership

Homeownership has historically been an essential way to build generational wealth in America. However, not all Americans have had access to the same resources and opportunities that make purchasing a home possible. Hispanics are twice as likely as white buyers to use Federal Housing Administration loans, yet Hispanics are 81% more likely to be denied. Although the percentage of homeowners within the Hispanic community significantly increased from 2015-2019, this progress was stalled due to the hostile conditions of the 2021 market, combined with the lasting effects of the pandemic. These additional obstacles have made it extremely difficult for those in the Hispanic community to accumulate assets and build generational wealth.

Financial advisors can increase the homeownership rate by helping their Hispanic clients to identify the right mortgage and loan option based on their individual budgets and unique financial planning needs.

Rocio Tapia is a Northwestern Mutual financial advisor in Redwood City, Calif. She may be contacted at [email protected].

© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.