View the Spanish version of this post.

Latinos have been historically excluded from banking and financial systems, and recent data suggest they still struggle with high debt burdens, low savings rates, and a lack of access to affordable bank products. But even as this system fails to meet Latinos’ needs, they are still the fastest-growing consumer base in the United States economy.

For Hispanic Heritage Month, we spoke with Barbara Martínez at Heartland Alliance, one of Chicago’s largest human service organizations with various initiatives that advance human rights and promote solutions for a more just global society. As the asset building program manager, Martínez empowers families, many of whom are Latino, to build realistic paths to economic security.

Our conversation with Martínez uplifted better understanding of the barriers Latinos face when trying to insert themselves in the financial system and the policies and industry changes that improve financial inclusion. Expanding tax benefits for mixed-status families and undocumented people or opening opportunities for homeownership could build wealth for Latino communities. Additionally, more data are needed to better understand the experiences of the different segments of the Latino community.

Throughout this post, we use the term “Latino,” but we acknowledge that not every member of the group may identify with this term. We’ve edited this interview for length and clarity.

What are the top three barriers Latinos face when trying to access financial services?

As a financial coach, I’ve had the privilege of working with diverse groups of Latino participants who face different barriers to accessing financial services. I have encountered three main groups of Latinos, each with their own unique experiences and challenges.

The first group is composed of undocumented Latinos who need to obtain an Individual Taxpayer Identification Number (ITIN) to join the financial system because they lack a Social Security Number. Obtaining an ITIN can be daunting, especially when sending official documents via mail to the Internal Revenue Service (IRS). Understandably, many are hesitant to do so. Having more official IRS Acceptance Agents, who are authorized to help people obtain an ITIN, can significantly assist this process. However, in places like Chicago, only one agent offers their services for free. For low-income people, this cost becomes their first hurdle in entering the financial world.

The second group are Latinos who have a Social Security Number but may not be fluent in English, so they rely on intermediaries to manage their finances. This practice, often rooted in their home country’s traditions, involves using a trusted third party for investments, banking, and credit deals. While this may offer a sense of familiarity, it often leads to financial abuse and corruption, resulting in people paying exorbitant fees for these intermediary services. Educating this group about their consumer rights is crucial. Providing access to free, trusted financial coaching with language access and cultural accuracy can empower them to make informed decisions and reduce their reliance on potentially exploitative intermediaries.

Latinos born in the US and more accultured to American society belong to the third group who often lack financial knowledge (PDF). Many Latinos born in the US grow up in households where finances are rarely discussed. Despite being fluent in English, they find themselves in financial trouble at a young age because of a lack of knowledge. When they consider major life decisions like buying a home or starting a business, they are burdened with high debt-to-income ratios and become targets of predatory lending. Early intervention is vital.

What policy changes could best improve financial inclusion for Latino households?

Drawing from state-level innovations, several federal policy changes could significantly affect financial inclusion, especially for marginalized communities. In 2023, Illinois took a commendable step by allowing all ITIN holders to claim the Illinois earned income tax credit (EITC). This move recognized the contributions of ITIN holders, many of whom are Latino immigrants, to the state’s economy. If this policy were adopted at the federal level, it could benefit millions of hardworking people who otherwise cannot claim the federal EITC.

Similarly, the federal government’s decision to expand the child tax credit during the COVID-19 pandemic provided much-needed financial support to families nationwide. Making this expansion permanent or extending it would greatly benefit Latino families and overburdened communities. The additional funds can help cover essential expenses, promoting financial stability and inclusion.

Lastly, many students, especially those under the age of 21, become targets of predatory higher-education lending, which puts them in a cycle of debt early in their lives, hindering their financial growth and stability. Implementing federal policies that protect students, especially those younger than 21, from predatory lending practices is critical. Such protections could include stricter regulations on lenders, mandatory financial literacy courses before loan approval, and caps on interest rates for student loans.

What private-sector industry changes could best improve financial inclusion for Latino households?

Investment opportunities, especially in retirement, and general wealth-building opportunities are often not accessible or well understood by many in the Latino community. The industry could create platforms and educational resources that demystify investments, making them more accessible and appealing to Latinos. This process could include investing in training and certifying financial coaches who can provide high-quality, trusted financial education that caters specifically to the Latino community.

The 2008 financial crisis devastated the Latino community, leading to significant wealth loss. It would be in the interest of the industry to prioritize the financial health of Latinos, which involves ensuring transparency and fairness in loan terms and ensuring Latinos are well prepared and informed before making significant financial commitments.