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Contrary to stereotypes, Latinas long have been the financial managers of their households. But, while white women earn 78 cents for every dollar earned by a white man, Latina women earn only 54 cents. In general, Latinos have the highest labor participation, the lowest retirement security, a relatively younger age, and a longer life expectancy than any other demographic. Researchers in a NEFE-funded study from the University of Notre Dame say that Latinas have a huge appetite for financial education and a strong desire to save. Their savings could provide a critical safety net to America’s largest minority group.
Latinas at Home
Gender dynamics in the traditional Mexican household are more balanced than common perceptions of male-dominated “machismo” culture, according to researchers at the Institute of Latino Studies at the University of Notre Dame. Through data analysis, focus groups and interviews, the researchers found that Latinas have long been the administrators of family finances. Mexican-heritage men and women are equally likely to participate in collective financial practices based on “confianza,” (“mutual trust”). Rather than relying solely on individual earnings, the community — including the extended family, friends and neighbors — help each other to meet financial needs. They share resources through informal lending circles called “tandas.” Men participate in the communal financial system, but women tend to manage these resources.
Rather than investing or saving in institutional accounts, many Latinos, especially first- and second-generation immigrants, invest in people — with the expectation of future return — through contributing gifts, services, money and time. Traditionally, this collective financial system has provided a safety net to support the community, including the elderly once they can no longer work. But the researchers found that by the third generation, Mexican-heritage immigrants tend to be more individualistic and less likely to participate in the confianza network. Increased income also correlates to less engagement in the collective system.
In recent decades, the traditional idea of marriage built on “respeto” (“respect”), which demanded female submission to male authority have been replaced with the idea of “matrimonio de confianza” (“marriage of mutual trust”). In families that migrate to the U.S., Latina women are expected to take larger roles as income contributors and managers of household finances.
Migration to the U.S. opens up opportunities for Latina women in education and employment, while diminishing the dominance of men over public and domestic life. Gender dynamics have been shifting in Mexico as well. A large number of older immigrants describe being raised by hard-working single mothers who either left abusive partners or who took over their households when their husbands migrated north. Latino men are embracing gender equality, but they also are more likely to want to return to Mexico, due to a perceived loss of social status in the U.S. Conversely, Latina women are emboldened by the opportunities to make and manage their own money.
The researchers cite programs such as Chicago’s Resurrection Project, a nonprofit community organization that incorporates traditional tanda communalism into its financial wellness. Students who complete milestones in the Project’s courses on topics such as debt, budgeting and planning are eligible for zero-interest loans from a partnering credit union.
Latinas “have a huge appetite” for financial information, says Karen Richman, Ph.D., the Notre Dame study’s principal investigator. The women, especially foreign-born immigrants, find the Resurrection Project classes empowering and workshops often are full.
“The study demonstrates that if financial information is communicated simply and respectfully, and in culturally and linguistically competent ways, Latinas, especially, will listen,” the researchers write in their final report.
How to Reach Latinas
Latinas are more likely to participate in programs where they already have mutual trust, such as churches and neighborhood organizations. In traditional media, Latinas turn to trusted female radio personalities; and in social media, Facebook is widely used for news as well as communication with distant relatives. Karin Sprow, an expert in adult education, followed a cohort of Mexican female students in an adult financial literacy program in Chicago and discovered three key factors to reaching Latinas:
- A holistic approach, including providing resources and connections, development of leadership skills and local community building
- Use of storytelling and shared experience as a teaching tool
- Tracking and monitoring behavior change
Latinas at Work
- Latinos in general tend to switch jobs more frequently than other demographics, and tend to hold positions that do not provide retirement savings benefits.
- Latinos who do have employer-sponsored retirement plans are 50 percent more likely than whites to make hardship withdrawals, and Latina women are more likely than Latino men to liquidate pensions with a lump-sum payment or to spend rather than reinvest their savings when they change jobs.
- Latinas often see retirement accounts as a source of liquidity. They take loans and early withdrawals, often to help others, and they end up paying large penalties.
Workplace Financial Education
Despite their desire to save, low earnings mean Latinas have much lower retirement account balances than any comparable demographic. Blacks and Latinos lag 10 percentage points behind whites in their propensity to have a retirement account. Latinas, and many other groups, would benefit from workplace financial education, particularly during job transitions when deciding what to do with retirement accounts.
“Many people don’t know that they can leave money in their 401(k)s when they leave a job,” Richman says. It is important to validate Latinas’ experiences, and recognize the constraints many are under when making decisions about taking withdrawals and loans from their retirement savings.
“They are making rational choices given their options,” Richman says. “They’re not being irrational. They just need better options.”
Why Defined Contribution Plans Don’t Work
In the 1980s, many employers replaced defined benefit (DB) retirement plans, which guaranteed a decent living standard for workers after retirement, with defined contribution (DC) plans, which shifted the responsibility to workers to voluntarily save for their own retirements. These employer-based DC plans are not guaranteed and typically are managed by private investment firms.
Created as a tax shelter for higher-paid executives, DC plans became the standard for all employees, even though the complex rules, fund management fees and hefty penalties make them challenging, and even detrimental, to low- and middle-income workers.
MyRA to the Rescue?
The researchers see strong potential for Latinas’ retirement savings with the United States Department of Treasury’s myRA (My Retirement Account) program, which allows workers to save up to $15,000 in a low-cost, Treasury-backed Roth IRA account that is not tied to a specific employer, and is open to those working both full-time and part-time jobs. Once the limit is reached, these funds can be transferred to an IRA.
Why MyRA?
- Easy – Automatically deposited every payday
- Portable – Not tied to an employer
- Accessible – Open to part-time and full-time workers
- Affordable – No cost to open account and doesn’t require large minimum contributions
- Safe – Guaranteed by the U.S. Treasury; not tax-deferred, but no penalty for withdrawal
[As of July 2017, the U.S. Treasury Department discontinued the myRA program. Existing myRA account holders are encouraged to log in to myra.gov and update contact information. Account holders will be notified of the deadline for rolling remaining myRA funds into a Roth IRA. Please visit myra.gov for more information.]
Potential Retirement Savings Path
The researchers envision the evolution of retirement savings for Latinos in the U.S. moving from the informal lending circles imported from Mexican culture, to the safe, simple myRA, and finally to the fully commercial, self-directed IRA.
Losing Confianza
Male and female Latinos say that they do not expect large institutions — and least of all the government — to help them in retirement. Participation in the collectivist financial system decreases dramatically by the third generation. Grandchildren of immigrants often must navigate the formal financial system with little guidance or family support, while the older generation no longer can rely on the social safety net of the multigenerational confianza system.
This is especially worrisome for Latinos, who have a higher life expectancy at age 65 than whites or blacks, and who “tend to have faulty expectations about when they will stop working, the length of their retirement and the standard of living they will be able to afford in retirement,” according to the researchers.
About the Study
The methodologies used in this study to understand the context and meaning of gender in Latino retirement include statistical analysis of national census data from the Survey of Income and Pension Participation (SIPP) and the Health and Retirement Survey, and a qualitative case study of foreign-born Mexican immigrants’ and native-born Mexican-Americans’ retirement savings in metropolitan Chicago. Research was led by principal investigator Karen Richman, Ph.D., and co-authors Wei Sun, Ph.D., Justin Sena and Sung David Chun, Ph.D.