While they’re one of the fastest growing population demographics in the country, Hispanic workers face major challenges in allocating enough money to retirement savings compared with other groups. In the report “A Closer Look Into The Finances of Hispanic American Households,” behavioral researchers at Morningstar dug into the underlying causes of the lower savings rates for this group.
The research shows that only 31% of Hispanic households with income (defined as those who had at least a part-time job) report they are currently participating in a workplace retirement plan—compared with 51% of non-Hispanic white income-generating households and 33% of Black income-generating households.
As previous research has found, Hispanic Americans are lagging behind white households when it comes to saving and wealth accumulation. However, while income is a major driver of the wealth gap between Hispanic and white households in the U.S. (existing research finds the median Hispanic household only has $36,100 in wealth, less than 20% of the median white household), Morningstar says there are other factors contributing to the lower savings rates for this group.
Key findings include the following:
Hispanic households are not using other high-return vehicles to offset lower retirement savings at the same rate as white counterparts. Relative to white households, Hispanic households hold more of their wealth in automobiles (11% vs. 5%) and homes (48% vs. 30%). They hold less wealth in brokerage or other nonretirement investment accounts (5% versus 11%) or businesses (4% versus 7%).
Hispanic household savings rates vary by geography, with higher rates in the West versus the Northeast, and higher rates in urban areas. Hispanic households are also far more prevalent in the western part of the U.S., at more than 20% of the population, than the other three census regions, which are each under 8%.
Education is an important factor that increases the retirement savings rate for Hispanic households. Hispanic households led by an adult who completed college have a 1.1 percentage point higher retirement savings rate than those who didn’t finish their high school education, while 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 withdraws from paychecks. “Those will really help families not dip into their retirement savings when they face an emergency,” he explains.
Regarding some Hispanic workers’ lack of access to employer plans, Thompson notes that part of the issue may be the size of the employer they work for. He adds that to address the dearth of workplace retirement plans in smaller businesses, among other solutions, the Setting Every Community Up for Retirement Enhancement (SECURE) Act created pooled employer plans (PEPs), which allow small businesses to band together to offer employees a retirement plan.
When plans are available, automatically enrolling participants can help, Thompson says.