The economic state of Latinos in the US: Determined to thrive
November 16, 2022
The economic state of Latinos in the US: Determined to thrive US Latinos are a driving force of the US economy and account for the fastest-growing portion of US GDP.
US Latinos account for the fastest-growing portion of US GDP. So much so, that if we considered US Latinos as their own country, it would be third only to the GDP growth rate of China and India in the past decade. At a time of economic uncertainty with concerns about a possible recession growing, consumers are looking for additional support. Our research estimates that the Latino consumer base has unmet needs of more than $100 billion currently, and this could grow six-fold to $660 billion if we address the parity gap between Latinos and non-Latino Whites based on share of population (see sidebar “The journey continues”).
Latino consumers are driving growth while their needs go unmet
Over the past decade, Latinos have grown their household consumption to reach a cumulative $1 trillion market in 2021—a 6 percent annual growth rate over the last decade. Their household spend is higher compared to other groups at similar income levels, and yet marketing spend directed at Latinos most likely does not reflect this. 2 Latinos are conscious of their impact, choosing brands that value the environment and their employees, all of which makes them more influential than their income levels would suggest.
However, Latino consumers are often highly dissatisfied with the products offered to them—especially compared to their non-Latino White counterparts. This dissatisfaction ranges across product categories, from food and beverages to financial products, which may point to unresolved needs that impact their daily life. If brands address the drivers of dissatisfaction in terms of access and value proposition, there is a collective $109 billion of revenue at stake, when considering current spending and future potential should improved products be offered.
Latino voices remain underrepresented in the C-suites of corporate America where product offerings and capital allocation decisions are made, and this is particularly true of Latina women. As a result, Latino consumers are often overlooked by companies that do not recognize them as a priority demographic. Less than 5 percent of seats in Fortune 500 boards and in C-suites of corporate America are occupied by Latinos despite this community representing 19 percent of the US population. Latina women hold 1 percent of seats in Fortune 500 boards, the smallest percentage of board seats compared to any racial or ethnic demographic in the United States. Furthermore, Latina women may be further marginalized at work as described in our latest Women in the workplace report.
Latinos have been more heavily impacted by COVID-19 and inflation than other populations.
At the same time, Latinos have also been more heavily impacted by COVID-19 and inflation than other populations, and this has exposed their vulnerabilities. Consequently, Latinos are expected to change their consumer spending and take aggressive action to switch to brands that better meet their needs. Companies that support Latino consumers by optimizing value propositions and tailoring their marketing and sales strategies have a singular opportunity to capture the potential this growing market represents.
Closing the Latino wealth gap would strengthen the existing consumer opportunity by more than 500 percent
In a scenario in which Latinos match their spend to their share of population, Latino consumers would spend around $554 billion more than today. Closing this gap would require addressing the underlying income and savings gaps between Latinos and non-Latino Whites. Employers and society at large have much to gain from providing Latinos with better jobs that also provide advancement and leadership opportunities.
In pursuing greater prosperity and fulfilment, Latinos increased their share of professional roles to 25 percent—a five percentage point gain over the past decade. However, Latinos still face barriers in the workplace, through discrimination, implicit biases, or a lack of opportunities for advancement in new roles. In fact, if Latinos were represented at job levels in line with their share of the population, and paid the same as non-Latino Whites, they would receive an additional $281 billion in annual income that could be further deployed to drive economic growth.
Latino savers have only a fifth of the median wealth of their non-Latino White counterparts, and their savings have been depleted; today, almost half of Latinos have little or no retirement savings. Only 23 percent of Latinos are considered financially healthy in 2022 compared to 35 percent of non-Latino Whites. Nevertheless, Latinos’ net wealth is increasing at a faster rate (9 percent for Latinos, versus 4 percent for non-Latino Whites), narrowing—but not yet closing—the gap with non-Latino Whites. If the trend continues, Latino households could reach an average net worth of $47,000 this year.
While Latinos have about half as much debt as non-Latino White counterparts, this may be because they find it difficult to access appropriate financial products. Latinos are 1.7 times more likely than non-Latino Whites to be turned down for a loan, and 30 percent are unbanked or underbanked compared to 12 percent of their non-Latino White counterparts. For financial institutions, this is a significant opportunity to address an underserved consumer market.
Investing in Latino entrepreneurs is a key part of the answer
Latinos are the most entrepreneurial group in the US economy, but they face significant barriers in access to capital—including lower approval rates than non-Latino White-owned businesses for bank loans, private-equity funding, and factoring. Less than 5 percent of venture capital is directed toward Latino entrepreneurs. These obstacles, along with Latino businesses’ lower representation in fast-growing economic sectors, limit their expansion and their opportunity to contribute to a more diversified product offering that meets the needs of American consumers.
If Latino businesses’ access to capital were improved, and their representation in growing sectors increased, they would contribute an additional $2.3 trillion in revenue to the economy and create 750,000 new employer firms, resulting in more than six million jobs. Interventions to improve access to funding, both from financial institutions and procurement-led organizations, and investments in digital capabilities for Latino businesses can help realize this potential.
Latinos’ proven resilience through the pandemic indicates strong fundamentals for economic mobility
Latinos play a crucial and growing role in the US economy and have demonstrated resourcefulness, hard work, and creativity—despite being challenged by lower-paying jobs, less education, and widespread bias. Over the past year, it has become clear that Latinos are also uniquely vulnerable to income disruption. When COVID-19-associated lockdowns began to be implemented, Latinos found themselves in a precarious position: they were more concentrated in low-wage occupations than non-Latino Whites. As a result, almost 60 percent of Latinos—who are overrepresented in industries most impacted by COVID-19, such as hospitality—lost their jobs or had to take a pay cut, and they are now more vulnerable to high inflation than other groups.
The longer-term challenges Latinos face have been compounded recently by the triplicate effects of COVID-19, supply chain disruptions, and high inflation affecting Latino businesses’ operations. Altogether, 60 percent of Latino-owned businesses had to reduce or modify their operations during the pandemic—to such a degree that some could not survive without government assistance. Fortunately, 80 percent of Latino businesses had stabilized their sales back to 2019 levels by the second half of 2021.
Our latest findings point to other welcome signs of agility among economically active Latinos. Over the past year, they have increased their share in professional occupations, raised their net worth faster than their non-Latino White counterparts, and shown their mettle as the fastest-growing minority entrepreneurial group. As consumers, Latinos already represent a $1 trillion market, and their spending power is rising (6 percent compounded annual growth in the last decade, compared to 3 percent for the non-Latino White population).
Latinos have been making significant strides over the past decade, and even more recently in the aftermath of the disruption presented by the COVID-19 pandemic. Nevertheless, deliberate intervention is necessary to close the gap and fuel a stronger US economy. If companies, investors, nonprofits and philanthropists, and policymakers act now, they can address the barriers that hinder full economic participation by Latinos.
The right combination of structural and immediate interventions can accelerate Latino economic advancement and prosperity. Action is needed in several key areas: improving Latino representation and inclusion in decision-making bodies; expanding product portfolios, optimizing value propositions and targeting marketing and sales strategies for Latino consumers; increasing access to capital for Latino entrepreneurs; improving access to education, reskilling opportunities, and better jobs for Latino workers; and removing bias and discrimination.
Winning the US Latino consumer, worker, saver, and entrepreneur is an outsize opportunity for organizations that act now and invest in the right people, processes, and systems to serve a market that has not been as visible as its numbers would foretell.
About the author(s)
Ana Paula Calvo is a consultant in McKinsey’s Miami office, where Carolina Mazuera is an associate partner; Lucy Pérez is a senior partner in the Boston office; and Bernardo Sichel is a partner in the Chicago office.