Study: COVID Impacts Latino Families’ Ability to Save Toward Retirement

Latinos are experiencing high unemployment rates due to COVID and are facing a long-term challenge; the pandemic is impacting their ability to save toward retirement. Exclusion from the labor market means that their ability to save and plan for retirement is increasingly unattainable, which is concerning.

“Latino communities have been hit hard by the COVID-19 pandemic due to several factors, including the overwhelming number of residents living in multi-generational households in order to make ends meet, as well as the disproportionate number of low-wage earners who are classified as essential workers and largely employed by the service industry,” said Isaias Hernandez, executive Director at Eastmont Community Center (ECC), who participated in the study of the problem with Luisa Blanco.

“However, infection numbers only capture one side of the story. The effects of the COVID-19 pandemic on Latino communities reach beyond the realm of public health and call for an evaluation of the totality of the economic impact of this unprecedented pandemic on low income, working class neighborhoods. For many communities, this pandemic will push them into greater poverty,” Hernandez said.

A study published in “The Journal of Family and Economic Issues” found that adding a financial education component to government-sponsored retirement savings programs like CalSavers (rolled out in July 2019) can help Latinos increase financial knowledge, raise awareness about the need for retirement planning, and solve the retirement crisis that already existed and the pandemic exacerbated.

Moreover, it can close the racial and ethnic gap by boosting retirement savings for Latinos living in the US.

“The labor market has been significantly affected by the surge in COVID19 cases,” said Luisa Blanco, the lead researcher and the study’s author. “Bureau of Labor Statistics (BLS) data for August show that the national unemployment rate was 8.4%, where Latinos had a rate of 10.5% and whites a rate of 7.3%.

“It is critical now more than ever that we look at interventions that will help Latinos, who typically don’t have access to employer-sponsored retirement accounts, prepare toward retirement.”

The community-based study led by Blanco, professor at Pepperdine University School of Public Policy, in collaboration with Kenrik Duru, professor of Medicine at UCLA, Carol Mangione, chief of Division of General Internal Medicine & Health Services Research at UCLA, the Mexican American Opportunity Foundation (MAOF), and New Economics for Women (NEW), conducted research in neighborhoods in LA county including Canoga Park, City of Commerce, Downtown and Van Nuys.

The study is one of the first to consider the impact of an educational intervention toward promoting retirement savings among Latinos who researchers say tend to lag significantly in retirement preparedness when compared to other racial and ethnic groups. It evaluated the impact of an education component in promoting retirement savings among low-and-moderate income predominantly Spanish-speaking Latinos living in Los Angeles who lack access to an employer-sponsored retirement account.

Researchers provided 142 participants (85% foreign-born, 87% women) between the ages of 30-64 information in Spanish about retirement financial planning and utilized “behavioral nudges” to encourage participants to open a government-sponsored “my Retirement Account” (myRA), which is similar to the state’s CalSavers plan.

They discovered that a culturally-sensitive educational program can be an effective tool in helping to solve the retirement savings crisis and ensure greater racial/ethnic equity in older age Latinos.

Blanco’s research found that Latinos face high barriers for retirement preparedness. Even after controlling for age and income, they are less likely to access an employer-sponsored retirement plan in comparison to Whites.

The “Report on the Economic Well-Being of U.S. Households” in 2018 showed that while 21% of whites had no retirement savings, the numbers were much higher for minorities with 36% Blacks and 39% of Latinos. Low levels of Social Security literacy, as well as significant behavioral and cultural barriers toward financial planning, are also part of the problem.

“Through our programs we meet older people who should retire, but because of the lack of financial education and planning, they must stay in the workforce in order to keep shelter and food on the table,” said Susy Contreras, MAOF community development director. “Providing financial knowledge is key to the wellbeing of the Latino community, particularly older Latinos,” she added.

As the first study of its kind, researchers hope their findings will help guide design and implementation of future government-sponsored retirement savings plans like CalSavers.

“While Latinas are living longer, the reality is that their earning potential over a lifetime is still 40% less than that of white men’s earnings,” said Maggie Cervantes, Executive Director at NEW. “Therefore, we need to ensure that good financial habits, through financial education, create results that lead to long-term economic security,” added Cervantes.

In 2021, Blanco, in collaboration with Hernandez, April Thames, associate professor of Psychology at USC, and MAOF will undertake a study that rolls out a mobile intervention that aims at improving the money management skills of 150 Latino participants.

The intervention will replicate the role of a financial coach via a mobile device. Participants will receive text messages with ideas on how to manage their money and set goals.