While they are one of the fastest growing Demographics in the country, Hispanic workers face major challenges in allocating enough money for retirement savings compared to other groups. In the report “A closer look at the finances of Hispanic American households”, Behavioral researchers at Morningstar looked at the underlying causes of the decline in savings rates for this group.
Research shows that only 31% of income Hispanic households (defined as those with at least one part-time job) report that they currently participate in a workplace retirement plan, compared to 51% of non-Hispanic white households. income generators. and 33% of black income-generating households.
As previous research has shown, Hispanics lag behind white households in savings and wealth accumulation. However, while income is a major factor in the wealth gap between Hispanic and White households in the United States (existing research shows that the median Hispanic household has only $ 36,100 in wealth, less than 20% of the median white household), Morningstar says there are other factors contributing to lower savings rates for this group .
The main conclusions are as follows:
Hispanic households are not using other high-yielding vehicles to offset declining retirement savings at the same rate as their white counterparts. Compared to white households, Hispanic households hold a greater portion of their wealth in automobiles (11% vs. 5%) and homes (48% vs. 30%). They hold less wealth in brokerage or other non-retirement investment accounts (5% vs. 11%) or businesses (4% vs. 7%).
Savings rates for Hispanic households vary by geography, with higher rates in the West compared to the Northeast, and higher rates in urban areas. Hispanic households are also much more common in the western part of the United States, at over 20% of the population, than in the other three census areas, which each have less than 8%.
Education is a major factor that increases the retirement savings rate of Hispanic households. Hispanic households headed by an adult who has completed college have a retirement savings rate 1.1 percentage points higher than those who have not completed high school, when this difference is only 0.3 percentage point higher among white households.
Michael Thompson, a Morningstar behaviorist who co-authored the report, says employers can help Hispanic workers who may be struggling with savings by offering emergency savings plans through automatic after-tax withdrawals. paychecks. “It will really help families not to dip into their retirement savings when they are faced with an emergency,” he explains.
Regarding the lack of access of some Hispanic workers to employer plans, Thompson notes that part of the problem may be the size of the employer they work for. He adds that to address the shortage of workplace pension plans in small businesses, among other solutions, the Setting Every Community Up for Retirement Enhancement (SECURE) Act created Common Employer Plans (PEP), which allow small businesses to come together to provide employees with a pension plan.
When plans are available, automatic participant registration can be helpful, explains Thompson.