Meeting responsibilities drives Banking relationships among Latinos.

I have been sending my grandmother money every month since I landed my first steady, post college job. On a recent visit, instead of sending the monthly stipend via money order, I brought the cash. My grandmother took the money, went into her room, opened a drawer and piled it on top of what looked like a gangster‚s stash: neatly piled twenties, eight rows across. I almost fell over. Here was this helpless octogenarian with thousands of dollars sitting in her bedroom.

My assumption that she had a bank account was idiocy, I realized. My grandmother came from the school of mattress banks and cookie jar stashes. And just like her, there are untold millions who have yet to establish a banking relationship. In fact, a 2006 survey by the Synergistics Research Corp. found that eight out of ten Hispanics typically visit bank branches to cash checks but only 40% actually have an account. After years of experience with financial service clients, I have some thoughts on why this behavior continues to be prevalent.

Emotional Hang Ups

The unbaked Latino remains severely underserved in the financial services arena. Right now, Hispanics are three times more likely as the average adult to be unbanked. The reasons for this are many, but most influential is the long-standing aversion to debt that is paramount among this community. This need to avoid debt, coupled with the uncertainty of whom to trust, often manifests itself in cash-only behavior. While this does provide the Latino consumer control over their spending, it limits their financial opportunities, including the need to build credit as a necessary element of building wealth. Simply put, Debt Aversion plus Need for Control = Cash Dependency.

Importancia Del Compromiso

Money management for cash-dependent Latinos is also self admittedly difficult. Most note how hard it is for them to save due to the cultural trait of “spending for the family.” The Œimportancia del compromiso‚ (importance of fulfilling commitments) seems to drive these consumers to pay bills first, buy for their kids second and then consider individual needs and the future. That is why, as I have been told by countless consumers, cash is king among Latinos. Many operate month by month on a cash only basis because it allows them to budget out expenses and literally see exactly how much is left over at the end of the month for family indulgences. This is how “discretionary income” is typically assessed among a cash-based target. Banking relationships complicate this methodology and, many feel, often inaccurately portray their resources. To quote one recent consumer I spoke to, “Sometimes your statements are not up to date with your real purchases and that can lead to being overdrawn.”

Cash is Real Time

The confusion regarding fees associated with checking accounts was another key motivator for cash dependent Hispanics to stay out of banks. While most admit that they get hit with fees to cash checks, send money transfers, and pay bills they pay them because they know exactly what the fee amount is and can budget accordingly to absorb those fees month by month. They claim unforeseen banking fees, often dolled out at the end of the month or statement cycle, throw off their planning. Add to this the often hard to understand explanation of banking fees and you get unsatisfied consumers who would rather stick with what is not broke ˆ even if it costs them more.

Plastic Best Bet for Future

The bright spot on the horizon however is the increased curiosity and interest in pre-paid debit or ATM cards. Cash-only consumers are beginning to understand the convenience of having pre-paid cards, along with the “boost” in image that comes with brandishing a Visa or MasterCard logo. Most are attracted to the convenience and overall safety pre-paid cards afford them compared to carrying cash and there is increased interest in lowering fees associated with their monthly transactions. Building paper trails, if the offering afforded them access to credit someday, was also an important motivator to obtaining debit cards.

In the end, this consumer is in need of a partner to help them manage their money, one that understands how to give priority to their obligations. Whether that is through a checking account, loans or pre-paid service, the product is a means to an end. It is in helping them meet their current and future responsibilities to their families at different life-stages that a partner can truly stand out. Thus, companies must design campaign solutions that change behavior by providing Hispanics what they need, in a way that is useful and practical and makes them feel like they are gaining something (knowledge, assistance, the tools and resources to move ahead, etc.) and not lose control over their cash. Only then, will we start seeing more Latinos at the ATM, and not our bureaus, when we need cash.

By Erika Prosper
Director of Strategic Planning
Garcia 360°
er***@*******60.com