December 21, 2007

Protecting Latinos and Their Finances: Reiterating the need for increased financial literacy this holiday season

For Latinos all over the country, the holiday season is an important time for giving and for getting in touch with family. This translates into more remittances sent back home, increased usage of pre-paid phone cards, and increased purchases using credit cards. In fact, Latinos sent $50 billion in remittances to Latin America in 2005 alone. And to communicate with family members abroad, prepaid phone cards are essential. Credit card usage is also on the rise among Latino households, with about 56 percent of Latinos reporting owning one or more credit cards. However, Latinos must be vigilant when engaging in financial transactions so they do not end up losing money or with unmanageable debt.

Latinos Who Send Remittances Are Likely to be Unbanked. The ability to send money to loved ones is a top priority for millions of Latinos nationwide, especially during the holiday season. More than 70 percent of Latinos send money to their families abroad, amounting to about $300 per month on average. However, 65 percent of Hispanics who remit money back home still use traditional money remitters, and fees can add up to more than $200 a year. In fact, over 30 percent of Latinos are unbanked and are more likely to use check cashers, payday lenders and wire transfer companies. That is why it is critical to help Latinos access banking services so they are not paying more than they should for basic financial transactions.

Latinos are More Likely to be Victims of Phone Card Scams. Getting in touch with family members abroad is critical for Latinos during the holiday season. However, many pre-paid phone cards fail to deliver on promised minutes, tack on confusing fees, or round up each call to the nearest three minute mark, costing Latinos millions of dollars a year in rip-offs. In fact, the cost-per-minute rates for prepaid phone cards in 2004 were on average 87 percent higher than those advertised.

Latino Credit Card Use is on the Rise. Just over half of Latino households use credit cards compared to 80 percent of all American households. Nonetheless, as the fastest growing minority group in the country, credit card use among Latinos is on the rise. Unfortunately, Latinos who do use credit cards tend to have fewer assets and could be at risk for predatory lending and high interest rates. In fact, Latinos have credit scores that are 5-25 points lower than non-Hispanic white Americans. Today, nearly 80 percent of Latinos with credit cards report carrying a balance, compared to 45 percent of all credit card users. And nearly 20 percent of Latinos with credit cards report that they do not have enough money to pay down their balance.

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