By 2050, says Fred Makonnen, vice president of multicultural sales at ING, African Americans, Hispanics, and Asian Americans will make up the majority of the U.S. population, compared with just over one-third now.
“We need to have, as an industry, products that can speak directly to these consumers. We’re seeing time and time again there is a significant gap between various ethnic groups … and the reasons tend to be embedded in cultural differences,” he says.
While he’s quick to add that the study reveals more similarities than differences, African American and Hispanic respondents tend to use shorter time horizons when it comes to financial planning, which, he says, can get in the way of saving enough for retirement.
A new ING study, which was commissioned by the ING Retirement Research Institute and polled households with incomes over $40,000, found that 31 per cent of African Americans, a higher percentage than any other group, list debt as an obstacle to saving, but they also were more financially prepared in certain areas, such as life insurance coverage.
The study found that 1 in 4 African American respondents had life insurance valued at four to five times their current salary, compared with just 18 per cent of total respondents.
The ING study also found that Hispanic respondents were more likely to sacrifice their own financial future for their children, a choice Makonnen says is most common among first-generation immigrants.
“If you’re first-generation, the family unity is much stronger, especially in the Hispanic community. Over time, you’ll see less and less of that leaning on family as a financial security blanket,” he says.
A recent Washington Post-Kaiser Family Foundation poll similarly revealed that African American women are more likely to loan money to family or friends compared with white women (60 per cent versus 52 per cent) and to help friends or family with child care on a regular basis (36 per cent versus 24 per cent for white women).
In the ING study, Asian American respondents were the most prepared for retirement; on average, they had built savings of $81,000 in employee-sponsored plans, such as 401(k)s and $58,000 in other types of savings vehicles, such as CDs and IRAs.
By comparison, Hispanic respondents reported having just $54,000 saved in retirement savings accounts.
Meanwhile, Asian American respondents demonstrated a different weak spot: estate planning. They were the least likely group to have a last will and testament (26 per cent) compared with 37 per cent of white respondents. Asian-American respondents were also more likely to prioritise splurges such as a nice car or home, over retirement savings.
“Overall, Asians seem to believe that purchasing short-term goods and materials is a sign of success, and having physical possessions is very important,” says Makonnen.
The ING study clearly demonstrated that the challenge of saving for retirement cuts across all ethnic groups. Close to half of all ethnic groups said they feel unprepared for retirement, ranging from 54 per cent of Hispanic respondents to 44 per cent of Asian American respondents.
And when it comes to planning, close to 30 per cent of all groups reported having formal investment plans, ranging from 28 per cent for white respondents to 32 per cent for African American respondents.
These findings suggest to Makonnen than banks can provide better tools and resources to reach out to certain groups to help them plan for retirement, he says. He works with historically black colleges and universities, for example, to launch “culturally-relevant” financial literacy programs.
Because the study found that Hispanic and African American respondents were especially likely to look to their employers for retirement planning assistance, he also wants to investigate how ING can help employers with that. “[Employees] are not going to seek out information if they’re not in their comfort zone,” he says.
Among all groups, Makonnen adds, “We’re seeing less emphasis on planning going forward.” That’s a trend he wants to help reverse.