Freedom Advisory is Celebrating National Hispanic Heritage Month: 5 Financial Tips for Hispanic Families

National Hispanic Heritage Month is Sept. 15 to Oct. 15. This month-long celebration is a time to reflect on "the histories, cultures and contributions of American citizens whose ancestors came from Spain, Mexico, the Caribbean and Central and South America."¹ In honor of this important holiday, we want to provide some important facts, figures and financial tips for Hispanic families and communities.

An effective financial plan can help build wealth and create a bright future. But as much as a financial plan needs to focus on goals, to be truly effective it must acknowledge the individual’s unique financial goals, needs and challenges.

In this article, we’re outlining some common challenges Hispanic families face, while providing tips to empower potential solutions. This information is not intended to replace the direct advice of a financial professional, but to provide a general understanding of common financial challenges.

Tip #1: Focus on Financial Literacy

According to the TIAA Institute, there is a nine percent difference between the financial literacy of Hispanic adults compared to all adults.³ Without financial literacy, individuals are ill-equipped to make financial decisions and, in some cases, are vulnerable to unethical and exploitative lending practices.

The solution to financial literacy is not simple and one must be conscious of the multiple factors that affect literacy. For example, there is a significant gap in higher education between foreign-born and U.S.-born Hispanics.² Such nuances call for a holistic approach. As you work to identify potential barriers, a financial advisor can help you and your family develop solutions and grow your financial understanding.

Tip #2: Prepare for Retirement

About 28 percent of Hispanic families own a retirement account, but neglecting to save for financial independence can create clear challenges for the future.² Those without retirement benefits may be required to work additional years or rely on the support of their children, creating a challenge for both generations.

One of the biggest challenges on this front is not only access but participation in employer-sponsored retirement plans. On average, 34 percent of Hispanic employees with access will participate in their employer-sponsored plan.³ This lack of participation could be for a variety of reasons, from a tighter monthly budget to family needs. Your ability to contribute to a retirement account will depend on your individual circumstances, though if your budget allows it, even a small amount contributed towards an employee-sponsored retirement can be beneficial.

Tip #3: Grow Your Savings

According to the U.S. Federal Reserve, Hispanic families have on average $2,000 in liquid savings in the case of an emergency.² Of course, the amount one needs for an emergency fund will depend on their expenses. But, this is still a restrictive amount to last more than a month or two. Limited savings could also exacerbate the other financial challenges on this list. For example, retirement savings may need to be used to supplement a job loss, resulting in significant tax penalties and increasing the difficulty to save for retirement.

Setting aside additional funds for an emergency can help, but only if there is room in the monthly budget. Alternatively, cutting back on some expenses can help build savings to safeguard against unexpected financial emergencies and protect your other assets.

Tip #4: Invest

Based on data from the SEC, 25 percent of Hispanic individuals have taxable investment accounts. By comparison, 46 percent of Asian individuals and 36 percent of White individuals have taxable investment accounts.⁴ Investments can provide long-term wealth potential, and possibly offset some of the financial challenges faced in retirement.

All investments are inherently risky. One way to address this is to seek reliable investment information. Speaking with an investment advisor or other financial professional can help. In doing so, Hispanic families can acquire the resources they need to determine whether investing is right for their personal finances.

Tip #5: Seek Financial Support

Hispanic individuals showed the highest increase in college enrollment amongst all other demographics over a period of 10 years.⁶ However, approximately 74 percent of Hispanic individuals drop out of college to support their family.⁷ This can result in an overall reduction of household income, contributing to other financial challenges.⁵

By working with a financial advisor, Hispanic families can find a holistic approach to money management that takes into consideration everything on this list. And by combining a financial plan with financial aid, Hispanic families can adjust to family needs while still supporting educational goals.

There are some financial challenges all families may face, though everyone’s circumstances will differ. As you reflect this month, consider where your own financial wellbeing stands - and where there may be areas for improvement. As always, reach out to your financial advisor if you have any questions or would like to address any specific concerns.