Op-Ed: Past Financial Trauma Keeps Latinos From Investing
Many Latinos living in the United States have suffered severe economic upheaval in their home country. Our troubled experiences influence our financial behavior and economic outlook. It’s like we have financial PTSD.
Our knee-jerk reaction is to save money in places where we feel safe – under the mattress or, at best, in a checking or savings account – rather than investing it to build wealth. Far too many Latinos grew up with parents who did this because they had no faith in banks.
We know firsthand how life changing experiences can lead to financial trauma. During our childhood, one of us lived in Mexico and the other in the Dominican Republic. When the economies of our home countries collapsed without warning, we watched our families lose their savings within hours.
Beatriz remembers the uncertainty on her parents’ faces as her family watched the Mexican president on television in 1976 announce that the peso was being devalued by about 60% with immediate effect; in the following years, inflation reached 125%. Beatriz, then 8, had a fruit tart business that went downhill overnight. She sold them after school in her father’s office building. Suddenly, she couldn’t afford ingredients and her customers couldn’t afford to buy a little girl a treat.
Jacqueline was also 8 years old when her family returned to the Dominican Republic in search of safer streets and schools than they had experienced in Manhattan’s Washington Heights in the mid-1980s. the country was torn apart by political unrest. By 1989, his parents had lost their life savings as the banks seemingly disappeared overnight and the peso was devalued by more than 300%. They returned to New York and stayed with their family for two years until they regained their financial footing.
Stories like ours are no exception. The trauma of acute economic crises compounded by chronic financial uncertainty has influenced our ability to trust financial institutions.
This situation is exacerbated by racist banking policies in the United States that prevent Latinos from getting loans for their homes and businesses. In 2019, Latino applicants were denied a loan at a rate 43% higher than non-Latino white applicants. Additionally, 60% of Latinos have little or no access to banks in the United States, according to data from the Federal Deposit Insurance Corp.
Therefore, we hang on to our money, just in case. We call it emergency bag. Money under the mattress for emergencies. Latinos have too often seen that the next emergency is imminent and no one is coming to help them.
Instead of trusting financial institutions, Latinos trust their own community. Many join whileinformal peer-to-peer savings and loan clubs that redistribute money in the community and collectively pay interest to the member who organizes it.
We Latinos can take steps to rebuild our trust in financial institutions and invest it in places that may seem unfamiliar – but it will make our money grow. To do this, we must take advantage of new technologies that have democratized investing and will help us create generational wealth.
Start small but start investing. Start with $5. Next time invest $10, and so on. By taking gradual steps, you can continue to build confidence and eventually start taking bigger risks.
Take advantage of democratized investments. To invest, you needed serious cash. Not anymore. Apps are now available to help users purchase fractional shares or no-minimum investments in reputable assets. Few apps focus on Latino investors; two that do are Finhabits and Suma Wealth, which was developed by tech startup Beatriz founded in 2020. Online tools designed for people with little financial experience are also available to help build wealth.
Create peer learning communities. Latinos are more likely to trust products and services designed for us and by us. One example: the growing network of Latino Giving Circles — emerging Latino philanthropists pool their resources to invest in local organizations that serve their communities. This type of philanthropy is taking off in the Latino community because it relies on the power of collective giving and a “paying it forward” philosophy widely shared by Latinos.
If Latinos in the United States inhabited their own country, it would have the seventh largest gross domestic product in the world. The purchasing power of Latinos has increased dramatically over the past 30 years, reaching over $1.9 trillion in the United States in 2020.
We have the financial power. We just need to handle it.
With inflation on the rise, it might seem counterintuitive to focus on learning about investing right now, because our dollars don’t stretch that far. But the sooner we start, the more money we will earn in the long run. After all, a dollar will only shrink if it is kept under a mattress.
Beatriz Acevedo is the Managing Director and Co-Founder of Suma Wealth. Jacqueline Martinez Garcel is the CEO of the Latino Community Foundation.