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Family is everything in Latino culture. They support one another, revere their elders, and take pride in helping the next generation succeed.
As average net worth climbs in the Hispanic American community, then, it is perhaps not surprising that many have set their sights on building wealth for their heirs.
According to MassMutual research, nearly half (49 percent) of Latino households indicated that securing their family’s future was a top financial objective, compared with 44 percent of other households.1
“Latino professionals and higher-income earners are now in a position to accumulate and pass along wealth,” said Andrés Ledesma, managing partner of Ledesma Capital in Dallas, Texas. “This shift is helping to solidify the economic foundation for future generations.”
Indeed, despite the persistent racial and ethnic wealth gap, recent data reveals that median wealth among Hispanic American households reached $63,400 in 2022, the only demographic group to record a threefold increase in wealth since 2013, partly fueled by a spike in homeownership.2
Many other Latino families are building wealth through entrepreneurship, which is widely viewed as a pathway to achieving the “American Dream.” The more than 5 million Latino-owned small businesses in the U.S. deliver more than $800 billion in annual revenue with an economic output of $2.8 trillion.3
Putting plans into action
Hispanic Americans are a large and diverse group, spanning many cultures, ethnicities, languages, and financial statuses. The U.S. is home to more than 63 million Latinos, making up 19 percent of the country’s population.4
Some are further along in their financial planning journey, while others are still learning the financial planning ropes, working through language barriers, and focusing on financial literacy to help them get started. (Click here for digital learning plans from MassMutual Foundation that may help enhance your financial wellness.)
But a 2022 MassMutual survey suggests that many Latino households are already taking proactive steps to build wealth for their loved ones by working with a financial professional and purchasing protection products:5
- Fully 39 percent of the Hispanic Americans surveyed said that they are currently working with a financial professional, compared with a 33 percent average of other respondents.6 Guidance from a professional can be instrumental in helping clients create a personalized road map to reach their financial goals. Find a financial professional here.
- The survey also found that 10 percent of Hispanic Americans (versus an average of 7 percent for other respondents) said that they are looking to purchase life insurance protection to replace a portion of their income in the event that they pass away prematurely, a potentially important financial safety net for those who depend on their income. Indeed, in many American households, the breadwinner’s earnings potential is their greatest asset.
That Hispanic Americans are more inclined to seek financial guidance does not surprise Alejandro Mendieta, president of Coastal Wealth Private Client Group in Miami, Florida, who works closely with the Latino community and sits on the Executive Board of the Directors for the South Florida Hispanic Chamber of Commerce.
“My community takes great pride in managing money well,” he said. “We know what it is to lose it and to work hard for it, and we take financial security very seriously.”
Mendieta said many Latinos in the U.S. emigrated from other countries that were economically less stable, and some saw their assets taken away, noting that his own grandparents from Nicaragua lost everything and were forced to start anew in the U.S.
“At a time when most women didn’t go to college, my grandmother had built a very successful business of pharmacies in Nicaragua and earned her doctorate degree,” said Mendieta. “It was all stripped away during the communist regime. But a family that was successful once will always be successful. Latinos know how to start over and they surround themselves with strong financial advisors to help them make the right decisions when rebuilding their businesses and creating wealth for their families.”
Six steps that may help you build wealth
Putting plans into action is critical to reaching our financial goals. In fact, the choices we make every day to save responsibly and spend wisely are the cornerstone for building wealth.
“Taking small, manageable steps is crucial in positioning oneself to achieve bigger financial goals,” said Ledesma. “Many people, regardless of ethnicity, can feel overwhelmed by the idea of building wealth. Breaking it down into smaller tasks can make it more achievable.”
1. Budgeting.
To get where you’re trying to go, you need to be clear about how much money you have coming in each month and how much is going out. By tracking your spending for six months or more, you’ll be better able to eliminate waste (think memberships you don’t use, luxury car payments, and premium cable TV channels). You can then redirect those savings toward other goals, like saving for a down payment on a home, which may build wealth you can pass to your heirs.
Remember: A a budget is not intended to restrict your fun. It’s a tool to help you prioritize how to put limited resources to best use.
Pro tip: If your housing expenses consume more than 28 percent of your gross (before tax) monthly income, or your total debt obligations exceed 36 percent of your gross monthly income, you may want to reduce your living expenses to free up disposable cash.
“It all starts with cash flow,” said Mendieta. “Look at your income and debts. Do you have a surplus of income every month and, if not, how do you get there? If you do, how do we start dripping it little by little into different investment buckets for growth.” (Learn more: Budgeting and building your financial pyramid)
2. Establishing an emergency fund.
An emergency fund is an important pillar of any financial plan, the safety net that allows you to keep your financial goals on track in the event of a job loss, costly home repair, or sudden illness.
Without an emergency fund, you may be forced to rely on high-interest credit cards, drain your 401(k), or take out a loan to provide for a sudden financial need. That not only perpetuates a cycle of debt, but can also negatively affect your retirement readiness.
Financial professionals recommend setting a minimum of three to six months' worth of living expenses (not monthly income) aside in a liquid, interest-bearing account, such as a money market account. If your income is unstable or you are self-employed, you may need 12 months or more of living expenses saved, said Mendieta. (Related: Don’t have an emergency fund? Get one)
3. Pay down debt.
Debt can be a financial drag that delays your ability to invest for growth, purchase a home, or start a business, all of which can potentially help to generate wealth.
The use of high interest credit cards to purchase consumer goods, such as furniture, clothes, and household appliances, causes you to overpay due to the interest charges you incur. According to WalletHub, U.S. households carry an average credit card balance of $10,479.7
When tackling multiple credit card balances at once, try paying as much as you can toward your highest interest card first while continuing to make the minimum monthly payment on your other cards. Then move on to the next highest interest balance.
And don’t incur new debt along the way. Not all debt is bad, of course. Loans tied to a potentially appreciating asset, such as a home mortgage or a student loan that may boost your earnings potential, are generally considered to be good debt. Just be sure that you only borrow what you can repay. Failure to make on-time payments can lower your credit rating and make it harder to qualify for the most favorable interest rates on future loans. (Learn more: Good debt vs. bad debt)
4. Saving for retirement.
Funding your retirement is key to building wealth and, the sooner you get started, the more your account balance could potentially benefit from compound growth — in which you earn interest on both your savings and the interest you’ve already earned.
Consider: A 35-year-old earning $100,000 per year could amass savings of nearly $1.3 million by age 67 by contributing 10 percent of their income annually to a pretax retirement account. That assumes a 7 percent annual rate of return. (Calculator: How much retirement savings do I need?)
When saving for retirement, the best rule of thumb is to “pay yourself first” by putting your savings on autopilot. Sign up for monthly payroll deductions to your 401(k) or set up recurring contributions to your IRA. If you never see it, you’ll never miss it. (Learn more: How interest rates work and affect you)
Financial professionals recommend saving at least 10 percent to 15 percent of your annual pretax income for retirement each year. But don’t sweat it if you can’t put that much away at first. Consider saving 5 percent of your income this year and commit to increasing your contribution by 1 percent annually as raises and bonuses allow. The important thing is to establish a discipline of saving — and to start saving today.
5. Homeownership.
Homeownership among Hispanics in the U.S. hit an all-time high of 51 percent in 2022, a 5 percent jump over 2012.8
And many more are actively saving toward that goal. MassMutual’s 2022 survey found that 22 percent of Hispanic households indicated that saving for a down payment on a home was a financial priority, versus 16 percent of other households. (Learn more: 5 ways to build a home down payment)
“Owning a home can potentially build equity, which can be leveraged for further investments,” said Ledesma. “In some cases, it can also provide stability and can be a valuable asset to pass along to future generations.”
According to the National Association of REALTORS®, on average, middle-income homeowners gained more than $120,000 in wealth from home appreciation in the 10 years from 2012 to 2022. Those who benefitted from home value appreciation were able to reduce their debt by 21 percent. That said, real estate doesn’t always appreciate in value, and past performance is no guarantee of future returns.
6. Paying for college.
Helping your children pay for college is a worthy goal. The return on investment of a college education is well-documented, assuming students finish their degree, borrow responsibly, and choose a marketable degree. By retirement age, workers with a bachelor’s degree earn an annual average of $76,100, while those with a high school diploma earn a projected average of about $43,000 per year, according to the College Board.9
Many Latino families express a desire to help their children pay for tuition, and tax-friendly tools, such as a 529 college savings plan, can help. But financial professionals stress that saving for yourself comes first.
Indeed, the best gift you can give your kids is to save for your retirement so that you can cover your own expenses as you age. Scholarships, grants, and low-interest loans are available for eligible students. Remember that you can still support your children on their higher education journey by helping them research scholarships for which they may qualify, educating them about the importance of minimizing student loan debt, and helping them chip away at their student loan balance as your disposable income allows. (Related: Is student loan debt worth it? A cost-benefit analysis of college)
Conclusion
Building multigenerational wealth is a growing financial priority for Hispanic American families. And it’s attainable for most. But it doesn’t happen overnight.
By setting small, achievable goals, saving consistently, and working closely with a financial professional who understands your unique objectives, you can help lay the groundwork for a more secure financial future for yourself and those you love.
“As the Hispanic community thrives, the interest we’ve seen over the last 10 years in building wealth for themselves and transferring it effectively to the next generation is significant,” said Mendieta. “It’s all about day-to-day consistency — setting small goals and sticking with holding yourself accountable.”
Discover more from MassMutual…
Is student loan debt worth it? A cost-benefit analysis of college
How to set and prioritize debt elimination goals
Need a financial professional? Find one here
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1 MassMutual, “2022 MassMutual Hispanic/Latino American Consumer Research."
2 Hispanic Wealth Project, “2023 State of Hispanic Wealth Report,” Feb. 8, 2024.
3 U.S. Department of the Treasury, “Treasury Department Report Card: Latino Business Ownership Up, Pandemic Recovery Efforts Helped Grow Latino-Owned Businesses,” Oct. 12, 2023.
4 Stanford Latino Entrepreneurship Initiative, “2023 State of Latino Entrepreneurship,” March 2024.
5 MassMutual, “2022 MassMutual Hispanic/Latino American Consumer Research,” 2022.
6 MassMutual, “2022 MassMutual Hispanic/Latino American Consumer Research,” 2022.
7 WalletHub, “Credit Card Debt Statistics,” Aug. 21, 2024.
8 National Association of REALTORS®, “Asian, Hispanic Homeownership Surges to Record Highs,” Feb. 21, 2024.
9 College Board, “Trends in Higher Education Series: Education Pays 2023.”