Photo by CarbonNYC/Flickr (Creative Commons)
In a series of recent posts, we've looked at how immigrant families build wealth and pass it along, making the ascent from have-nots to haves via wise investments such as the purchase of homes, and building on family financial networks that draw in multiple generations.
But it isn't easy. Retirement is an afterthought for many, especially Latinos, the group least likely to invest in a retirement account, even when provided access to one through work. And they are also one of the groups least likely to invest in that most basic entree to the American financial mainstream, a bank account.
Not doing so deprives of them of opportunities and, when they patronize check-cashing stores, payday lenders and other non-banking financial services, also of hard-earned cash.
First, the statistics: In the results of a 2009 survey, the Federal Deposit Insurance Corporation (FDIC) reported that an estimated 7.7 percent of U.S. households, approximately 9 million, were "unbanked," i.e. lacking checking or savings accounts. Certain minority groups were more likely to be unbanked, notably black Americans (21.7 percent of black households), Latinos (19.3 percent), and Native Americans/Alaskans (15.6 percent). Meanwhile, only 3.5 percent of Asian American households were estimated to be unbanked, and only 3.3 percent of white households.
Then there are the "underbanked," described in the FDIC survey as those who "have a checking or savings account but rely on alternative financial services."
Underbanked households tend to use "non-bank money orders, non-bank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year or refund anticipation loans at least once in the past five years." An estimated 31.6 percent of black American households were underbanked, followed by 28.9 percent of Native American/Alaskan households and 24 percent of Latino households.
Altogether, about 43.3 percent of Latino households were either unbanked or underbanked.
The reasons vary. For those working in the U.S. without legal status, it's tougher to access financial services, although several lending institutions have in recent years extended services to undocumented immigrants with consular identification cards and taxpayer identification numbers, used in place of a Social Security number. But the overarching reasons, including for many who live and work here legally, are a lack of readily available cash, real or imagined, compounded by a general sense of mistrust and lack of information about U.S. banking institutions.
A Pew Hispanic Center report that examined the financial habits of Latino remittance senders, typically first-generation immigrants, described it this way:
Many remittance senders take a skeptical view of banks and other financial institutions. These opinions are often based on impressions rather than firsthand knowledge because many remitters and their families do not have bank accounts or credit cards. Minimum balances and transaction fees are widely viewed as excessively burdensome and too expensive for the services rendered.
Evelyn, an immigrant from the Dominican Republic, explained how she paid bills:
“Because I don’t have a lot of bills, I just pay my light bills and things at the check-cashing store. Because I don’t want to have an account so that they can keep charging me high fees, for two or three checks a month. For that (more expensive things) I use a money order.”
Though some might say it's a wash considering checking account and ATM withdrawal fees, check-cashing store fees are fairly steep. Steeper still is the interest on money borrowed from payday loan shops, which have mushroomed in low-income black and Latino neighborhoods where people have limited access to credit. Earlier this year, an investigative piece in The Nation magazine explored these businesses' predatory lending strategies:
The payday lending business model is straightforward. A customer signs over a personal check and in return collects a small loan, usually less than $500 (state laws vary on the maximum allowed). The loan is due when a borrower’s next paycheck comes. As Advance America’s website assures customers, the process takes just ten or fifteen minutes. Lenders charge varying fees for the loans, but when calculated as an annual percentage rate, as mandated by federal law, they are often as high as 400 percent.
Unbanked and underbanked immigrants are especially prone to financial abuses and scams, among other things, and can benefit from even a modest account. From a piece on Latinos and banking on the Americas Society website last year:
This is a cause for concern not only for the Hispanic population, but for all Americans. Having a banking relationship produces many benefits that go beyond the possibility of writing a check or having access to ATM withdrawals. Studies have shown that it allows families to access other financial instruments, build credit history, and achieve financial security and long-term wealth. Moreover, specialists in immigration affirm that it is one of the key steps to achieving full integration into American society.
To tackle the crisis of unbanked and underbanked Hispanics, there has to be a comprehensive approach that incorporates financial education as well as the development of financial products that respond to the needs and characteristics of the Hispanic population.
Several lending institutions have tried tapping into the Latino market with varying results. A recent University of Virginia study made several recommendations for banks and credit unions trying to reach out to Latinos, including the use of mobile banking, since Latinos lacking Internet access tend to connect to the web via smartphone.
Other advantages to Latinos banking their earnings? Among other things, the University of Virginia report noted a lower rate of robberies targeting cash-carrying Latinos. From the report:
One year after the opening of a credit union focused on serving North Carolina’s growing Latino population, Charlotte police reported that armed robberies against area Latinos had dropped 22.6 percent. Similarly, two years after the opening of a branch in Durham of the same credit union, 163 fewer total robberies per year were reported.
In areas where financial institutions cater to Latino customers, the incidence of robberies is dropping substantially in large part due to fewer Latinos engaging in cash-based transactions (and thus, being targets for robbery).
As with retirement planning, there is work to be done at the institutional level - and conversations to be had at the household level, where the bills hide in the manteca can.