Study: Citizenship Linked to Financial Engagement

June 5, 2013— -- Right now, Latinos are among the most unbanked residents of the United States, meaning they don't have a traditional bank account. But comprehensive immigration reform might change that.

A new report from the National Council of La Raza (NCLR), the nation's largest Latino advocacy organization, found that immigrants who become citizens are more likely to use financial institutions like banks than those who do not naturalize.

Previous studies have linked citizenship with higher earnings, and the NCLR study, which looks specifically at California Latinos, aligns with that. It shows that Latinos with bank accounts tend to be the Hispanics with the most purchasing power.

"There is no doubt that Hispanics are an increasingly critical consumer base, particularly in times of economic recovery when their full participation helps to stimulate the economy through purchases and savings," Janet Murguía, President and CEO of NCLR, said in a statement.

While Murguía has been a vocal supporter of reform that includes a path to citizenship, her point about Latinos as consumers is worth considering no matter which side of the debate you're on.

The growing number of Hispanics in this country play an undeniably increasing role in shaping the nation's economy, a role that stands to be impacted by any significant immigration reform.

A study from the Association of Hispanic Advertising Agencies, in collaboration with Nielsen, found that the 15 million Latinos -- a quarter of the nation's Hispanic population -- who earn between $50,000 and $100,000 have more than half a billion dollars in spending power. The number of Latinos who fall into that wage bracket is likely to double in the next two years.

Those Latinos invest their money in things like retirement plans, education, credit cards, car loans and mortgages. And while banks might not want to take the time and effort to "bank" more Latinos, NCLR and other Hispanic advocacy groups argue that it would only help the overall economy.

Right now, one in five Latino households in this country is unbanked. These families rely on high-cost, short-term credit from things like payday loans and pawn shops. In other words, they are in the country but banks don't benefit from their presence. Banked Latinos, particularly naturalized immigrants, are more likely to save money and more likely to use credit cards, two boons for banks and credit unions.

Non-citizens, particularly those who are undocumented, can feel like they are in limbo. It's hard to put down roots -- open a bank account, invest in the stock market, start saving -- when you might be deported at any time or you're not sure how long you'll be allowed to stay. A path to citizenship would help alleviate that feeling.

The NCLR report found that young Latinos between the ages of 18 and 25 are already engaged with mainstream financial institutions. That's not surprising since young Latinos are more likely to be citizens than their older peers. As that generation ages and raises younger generations, the number of banked Latinos is likely to increase without banks having to do much.

But there are also ways financial institutions can reach out to those older, unbanked Latinos right now. Targeted marketing and customer service in Spanish would help. So would offering mobile banking -- cashing checks via smartphone, for instance.

"Bringing Latinos into the practice of engaging financial institutions to create savings, make purchases and manage their personal finances will be of huge benefit not just to their long-term success," Murguía said, "but to the nation's short- and long-term economic growth and stability."