Latinos Lagging On Retirement Savings, Says Pew

Latinos are among the fastest growing demographic groups in the U.S., but the Pew Hispanic Center reports that they're among the least likely to invest in or keep money in retirement savings. Michel Martin explores why with Jaime Levy Pessin, a freelance journalist who reported this for The Wall Street Journal, and financial expert Louis Barajas. They also discuss some pitfalls facing Hispanics and what banks are doing to turn around this trend.

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MICHEL MARTIN, HOST:

And now to matters of personal finance. Most people probably know this: Latinos are now the largest minority group in the U.S. But according to a recent report by a respected research group, they are among the least likely to invest in, or keep money in, retirement savings accounts like 401(k)s. According to the Pew Hispanic Center, just 10 percent of the nation's 50.5 million Hispanics have individual retirement, or Keogh, accounts.

That's compared to 35 percent of non-Hispanic whites. And just 24 percent of Latinos have 401(k), or thrift accounts. That's compared to 45 percent of non-Hispanic whites. Here to tell us more about this is Jaime Levy Pessin. She's a freelance financial journalist who recently reported on this for the Wall Street Journal. Jaime, welcome back. Also joining us is one of our regular contributors on matters of personal finance and the economy, one of our Money Coaches, Louis Barajas. Welcome to you both.

JAIME LEVY PESSIN: Thanks for having me.

LOUIS BARAJAS: Great to be here.

MARTIN: Jaime, you reported on this. You cited in your piece two reasons: culture and wages. And first I wanted to ask - I want to ask you to separate those two. First, on the culture question, you quote people who say that with Latinos, the focus is kind of investing in family, with the understanding that the family would take care of you when you retire. Could you talk a little bit more about that?

PESSIN: Sure. According to several of the researchers I spoke to, in Latino culture, there's a very big emphasis on helping your family and friends, your immediate community. If your nephew needs money to pay for his daughter's wedding, you're much more likely to help him out. You're much more likely to take care of your parents when they're older than putting money away for yourself for retirement.

MARTIN: Well, I'm going to talk a little bit about how much of this is a preference and how much of this is circumstance. So Jaime, what about the whole question of wages, that people who - you know, it's not exactly a secret that, you know, Latinos and African-Americans are more likely to be in a lower-wage end of the spectrum.

And so if they are in the lower-wage end of the spectrum, even if they have access to, you know, retirement accounts through their employers or have opened up their own individual retirement accounts, they're more likely to feel that they have to tap into those accounts. I mean, how much of a role does just lower wages have to play in this?

PESSIN: I think it's definitely a factor. I mean, you can definitely talk about whether, you know, lower-wage employees even have access to the things like 401(k)s. But I think one of the surprising numbers that came out in the Ariel/Hewitt study - which was a very big study of retirement savings across different minority groups - showed that even at the highest salary level, salary of $120,000 or above, Hispanics had the least amount saved for retirement.

It was at that salary level, Hispanics had $150,000 saved for retirement, compared with $155,000 for African-Americans, $161,000 for whites. So I thought that was really number two, is that even though, yes, it's true, that, you know, the further down on the socioeconomic scale you may fall, you know, the less likely you are to even have access to a retirement account, but even as you get higher up that wage scale, you're still seeing a gap.

MARTIN: Let me just clarify this, that what Jaime's talking about is a study by the Ariel Education Initiative. That's the non-profit arm of the Chicago money management firm Ariel Investments in conjunction with Hewitt Associates. And they reported on all income levels, as Jaime just told us, and they said that even the highest income level counted, which was a salary of $120,000 or above, Hispanics had the least amount saved and Jaime just told you that.

Interesting, at the highest end was Asians, at $223,000 saved. But Louis, I want to ask you: Is this a matter of preference? Or is there still a socio-economic component attached to this? How do you read that?

BARAJAS: Well, it's really complex, because at the same time, you have to understand that the Latino community is the least-educated community, and so they lack education, thus they lack, you know, jobs where they're paying more money. Now, what happens is that with most people, especially these days, we have what are called, like, the sandwich generation, where somebody who's making good money is taking care of their parents and taking care of their children.

When you have Latinos that are doing financially well, they're usually one out of maybe three or four kids that is doing well. And they're what I call the club sandwich generation, where you add another layer. They're also helping take care of their nieces and nephews sometimes, and this is not a lot of money to go around. And so you're realizing that instead of spending money on, you know, the 401(k), they're using it to help out family members.

And remember, a lot of Hispanics send money away to the countries of origin to help out other family members there, as well.

MARTIN: If you're just joining us, this is TELL ME MORE, from NPR News. We're talking about new information that shows that Latinos are less likely to invest in retirement accounts when compared to other groups. I'm joined by Louis Barajas - he's one of our regular contributors on matters of personal finance and the economy - and Jaime Levy Pessin, a freelance journalist for the Wall Street Journal who recently reported on this.

Jaime, you also had some interesting findings about initiatives by some financial services companies who are not stupid, who see that there's an opportunity here to perhaps persuade more people to invest. What were some of the techniques that they used to get those numbers up?

PESSIN: Sure. I think that that's exactly right, Michel, that, you know, these banks are looking at the census numbers and saying, whoa. This is a very fast growing population in the U.S., and that's a consumer base for us. You're seeing a lot of kind of initiative on the banks' parts to kind of reach out to employers with large Hispanic employee populations and kind of come up with creative ways to boost their investments in 401(k)s.

So, for example, you have ING Group, who is not just translating documents into Spanish when, you know, you get the mailings about enrolling in your 401(k). They're totally rewriting it to kind of address some of the cultural differences they see. For example, you know, there's not necessarily a baseline assumption that you should put away money for retirement. So they're rewriting materials to explain why it's important to do this before they go on to talk about here's how to do it.

MARTIN: But what about - Louis, let me just ask you about this: Given a lot of what people are seeing in the news about financial institutions who are seen as perhaps less than sound. There are a lot of headlines about kind of global difficulties in...

BARAJAS: A lot of volatility in the market.

MARTIN: ...a lot of volatility in the market. I mean, this is part of your business. Can you really look people in the face and say: This is really where you should put your money? You really do need to do this, and these are the instruments that you really need to put money into?

BARAJAS: Yeah. And that's what you really to do. You need to actually show them that putting money into a retirement plan, especially a 401(k), is really sacred money, that they need to do it, because otherwise, they're not going to have any money for the future when they retire. I mean, I don't need a crystal ball to let someone know what their future's like if they're not putting any money away for retirement.

But, you know, you hit a nerve there, because what happens is - you have to understand that most first-generation people, especially people coming from, like, Mexico, are coming from poor countries with corrupt governments, with corrupt financial institutions. Then they come here, and then they're watching the television and they're listening to everything that you just mentioned. That person is just not as confident anymore. But they're thinking it's just the same as in my country as it is here. Why should I put money that may not be there in the future? So it's a whole issue of trust and confidence.

MARTIN: Now, Louis, why does this matter?

BARAJAS: Well, it matters because even though right now, you know, there's 50.5 million Hispanics living in the U.S., by the year 2050, one out of every three persons living in the U.S. will be Hispanic. And the last thing we want is for this large demographic to be a social burden on America. And it's really important to start doing something about it now.

MARTIN: Louis Barajas is a personal finance expert and author. He's the author of the "Latino Journey to Financial Greatness" among other books. He was kind enough to join us from Costa Mesa, California. Jaime Levy Pessin is a freelance financial journalist for the Wall Street Journal. She was kind enough to join us from our studios in New York. Thank you both so much for speaking with us.

PESSIN: Thank you.

BARAJAS: Always a pleasure.

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