INVESTMENT APP OPENS FINANCE ACCESS FOR LATINOS
NEW YORK» Carlos Garcia was three years into his first job in technology at Merrill Lynch when he first learned what a 401(k) retirement savings account was. He was floored when he learned that a colleague already had saved $30,000 in three years, and the company had matched it.
The concept of making money off money was foreign to Garcia, an MIT graduate who was born in Texas to immigrants from Mexico. His story is not uncommon among U.S. Latinos, who lag behind other demographic groups when it comes to saving for retirement. But for Garcia, the episode became the inspiration many years later for Finhabits, a bilingual digital platform designed to make savings and investment accessible for Latinos.
Finhabits launched last year into a crowded world of roboadvisers, savings apps, online lending platforms and other financialtechnology companies.
But it is one of the few aimed at demystifying stocks and bonds for Latinos, particularly young professionals who have the means to start investing but may have inherited a fuzzy understanding of the financial system from their immigrant parents.
“Hispanics are very hard workers and we are able to generate quick income for our families. Sometimes we are good at savings but we put the money under the mattress,” said Garcia, who previously founded two other companies, including an inter net analytics service for hedge funds.
Other financialtech startups aimed at Latinos have focused on immediate financial needs: paying off debt, building credit and gaining access to loans. Few besides Finhabits are dedicated to encouraging investing and longterm financial planning.
Another is Mi Dinero Mi Futuro, a personal financial planning platform started by Ramona Ortega, a former New York corporate attorney who became preoccupied with the lack of financial literacy among Latinos while working in bankruptcy and securities litigation.
“No one talked to me about money,” said Ortega, the daughter of a Napa Valley farm worker and the first in her family to go to college. “The fact is that our communities have not had a legacy of talking about money.”
Finhabits follows in the footsteps of robo-advisors Betterment, Wealthfront and Acorn, which use computer algorithms instead of a traditional wealth adviser to manage customer funds across various types of invest- ments. Ortega’s platform is similar to more wellknown personal finance apps Mint and Credit Karma; it offers personalized budgeting tools and recommendations for affiliated financial products.
More than competing with established players, the founders of Finhabits and Mi Dinero Mi Future see themselves as creating a new market among Latinos, who they believe are overlooked by traditional financial institutions and even many of the digital newcomers.
It is not an easy market to penetrate, however.
According to a 2014 Prudential Research study, just 19 percent of Latinos had individual retirement accounts and less than 10 percent had investments in individual stocks, bonds or mutual funds. Only about 60 percent of Latinos had a savings account, compared to 80 percent of the general population. The study cited various factors, including uncertainty among immigrants about what will happen to investments if they leave the country, distrust of financial institutions and difficulty understanding products.
Another study, done in 2016 by the Pew Charitable Trusts, found that more than 60 percent of Latino workers lacked access to an employersponsored retirement plan, compared to 40 percent for white workers.
“This demographic has been very tough to crack historically,” said William Trout, head of wealth management research at Celent, a consulting firm focused on financial services technology. “Will that second generation look for a platform that is speaking to a Hispanic population? Well, somebody has to test it. I think it’s worth a shot.”
With Finhabits, beginner investors can start with $5 weekly contributions into traditional IRA, Roth IRAs or taxable investment accounts for shorter-term goals. Finhabits asks users about their priorities and risk tolerance and then recommends investment portfolios. The money goes into low-fee exchange trade funds from Vanguard and BlackRock.
Through its app, blogs and text-messaging services, Finhabits explains financial concepts (portfolio diversification? It’s like ordering different types of tacos) and compound interest to persuade people that investing their money is safer and wiser than trying to “hit the fat one,” as Latinos refer to the lottery jackpot.
Garcia said Finhabits has about 10,000 active clients who invest an average of $40 a week. It is signing up about 1,000 new clients each week and aiming for 50,000 by the end of the year.