Every time I teach a financial education class to immigrants, I start by asking the participants what made them attend the class. I usually get an answer similar to the one from Pedro, a Mexican day laborer in New York: “We come to this country to make money. But nobody tells us what to do with the money we earn. I want to learn how to manage my money because after many years of hard work, I still don’t have anything.”
Pedro’s case highlights the importance of teaching financial education to Hispanic immigrants—a population that would benefit tremendously from learning how to better access the mainstream American financial system. Recent research revealed that a large percentage of this population remains unbanked. A 2007 report by Appleseed Foundation concluded that 63 percent of first-generation immigrants from Latin America do not have a bank account. Immigrants that have a bank account often don’t have access to other financial products such as credit cards, certificates of deposit, insurance, or mortgages. The number of Hispanic immigrants investing in stocks or bonds is next to nothing.
This lack of access to the mainstream financial system forces immigrants to use alternative providers such as check-cashing establishments, pawnshops, or loan sharks. They pay high fees for simple transactions like cashing a check or sending money abroad, and face abusive rates for loan products that don’t generate credit history. They also become easy prey for scam artists who lure unknowing immigrants into Ponzi schemes and other fraudulent investments.
In the last few years, financial institutions have started aggressive initiatives to attract unbanked Hispanic immigrants. Many banks developed marketing campaigns to inform this group about the benefits of having a relationship with their institutions. They also developed products that responded to the specific needs of immigrants. One example is the creation of accounts that link international money transfers to checking.
But the response to these strategies has been limited. Some Hispanic immigrants opened an account, but they continued having a hard time navigating the financial system and acquiring other products. Language barriers, fear of American institutions, lack of trust in banks, a complex system, and misinformation hindered the effectiveness of these initiatives.
What can be done? Lessons learned from past experiences and research indicate that to be effective, financial education programs for underserved groups should be tailored to the specific audience and implemented as part of a long-term community empowerment process.
Two actions are critical. First, educators must develop innovative curricula that takes into consideration the needs and characteristics of this population. It is not enough to translate information into Spanish. Specialists must take into consideration cultural factors and the context surrounding Hispanic immigrants when designing materials to teach them about the financial services industry.
Second, long-term partnerships between community-based organizations, nonprofits working on economic development, and financial institutions must be established to reach out and financially educate Hispanic immigrants. Partnerships should seek to empower the community by organizing seminars, workshops, and events on financial education. They should also implement an effective and affordable system that offers ongoing guidance and counseling and develop local leadership that can spread the word and advocate about the advantages of having a bank account or a good credit score. This empowerment process will give Hispanic immigrants needed support to access the financial mainstream and make the best possible use of it. It would help first-generation immigrants and future generations of Hispanics.
The challenge of providing financial education to Hispanic immigrants is monumental, but the benefits are plenty. Studies have demonstrated that it leads to economic stability, asset accumulation, long-term wealth building, and easier integration into American society. Helping someone like Pedro to access the financial system would allow him to manage better his money and give him and his family a future with financial security. A greater focus on teaching financial education would allow the entire U.S. Hispanic population to improve its standard of living.
Adrián Franco is Executive Director of Qualitas of Life, a nonprofit organization in New York focused on the financial education of Hispanic immigrants. For more information, visit: http://www.qualitasoflife.org