11 Dec

Why U.S. businesses should pay attention to Hispanics

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By Griselda Nevarez / December 11, 2014

A new report should have American businesses paying close attention to Hispanic consumers and their buying power.

The report released Thursday by Partnership for a New American Economy shows that Hispanic households, both native and foreign-born, account for a large portion of the country’s overall spending power.

In 2013 alone, Hispanics were responsible for $605 billion in spending power. Foreign-born Hispanics made up a significant portion of that, with their spending power totaling $287 billion. Overall, Hispanic households held one out of every $10 of disposable income in the United States in 2013.

The report also shows that the growing earnings of Hispanics have made them major taxpayers. In 2013, Hispanic households contributed more than $190 billion in tax revenues, including nearly $67 billion in state and local tax payments. Of the total contributions in tax revenues by Hispanics, foreign-born Hispanic households contributed more than $86 billion in tax revenues.

“Hispanics are not only increasing in political clout, but they’re also increasing in terms of their impact on the economy,” said Rudy Fernandez, former special assistant to President George W. Bush.

Fernandez joined a conference call with reporters Thursday to discuss the report findings. He also noted that because the Hispanic population is so young, the $605 billion of purchasing power of Hispanics in 2013 “should be seen as a floor and as a very conservative estimate.”

“Certainly, we should all expect it to rise rapidly as we see that young generation begin to receive college degrees and get educated and enter that demographic that all businesses are after, which is that key 18- to 34-year-old demographic with a lot of disposable income,” Fernandez said.

The report also finds that in some states, Hispanics account for an even larger share of spending power and tax revenues. For example, Hispanic households in Texas and California had more than $100 billion in after-tax income in 2013. That means they accounted for more than one of every $5 available to spend in each of those two states that year.

Hispanics in Florida saw similar results. They contributed more than one out of every $6 in tax revenue paid by residents of the state. And in Arizona, their earnings after taxes accounted for almost one-sixth of the spending power in the state.

Furthermore, the report shows that Hispanics are also major contributors to the nation’s Social Security and Medicare programs. In 2013, Hispanic households contributed more than $98 billion to Social Security and almost $23 billion to Medicare. Foreign-born Hispanics in particular contributed more than $46 billion to Social Security and more than $10 billion to Medicare.

Fernandez said these findings show Hispanics contribute more to Medicare than they take out in terms of benefits.

“When you look at the future of programs like Medicare and Social Security, the growing Hispanic community—which is younger than the average population and thus has many more years of employment and contributions to make to Social Security and Medicare—is key to the sustainability of those programs,” he said.

Other experts who joined the conference agreed that American businesses are taking notice of the purchasing power of Latinos, but added that challenges remain.

Bernie Navarro, president of Benworth Capital Partners, said he believes the companies who want to capture more market share are taking note of the growing demographics and purchasing power of Hispanics. He pointed to Fusion as an example.

But Navarro also said there are still some companies that don’t know how to communicate with Hispanics. One explanation is that Hispanics are not monolithic when it comes to the way they communicate. For example some might find it easier to communicate in Spanish, while others prefer English and some feel comfortable communicating in both languages.

Dr. Arun Sharma, Marketing Professor, University of Miami School of Business Administration, echoed that sentiment.

“I think most people understand the power of the Hispanic customer,” he said. “The issue is that it is not very clear how to communicate with them.”

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