Why do Mexicans prefer informal savings?
There are various factors why Mexicans save predominantly through informal channels.
Entry barriers
Leonardo Castillo recognizes that, traditionally, formal channels such as banking or investment funds have had entry barriers for most Mexicans: very high minimum amounts for opening accounts, commissions, in addition to the penetration of banks it is concentrated in large cities, leaving populations below 50,000 inhabitants forgotten.
In this sense, he highlights the government’s efforts to set up branches of the Banco del Bienestar, to break down this barrier.
Low financial education
Another cause is the lack of financial education. This is corroborated by the data from the 2021 National Survey of Financial Inclusion, where it is observed that “while only 7% of the population with primary education has savings in an account at a financial institution, this percentage increases to 45% between the population with a degree.
This means that the lack of equitable access to a complete education in Mexico translates into a lack of opportunity when it comes to investing formally.
Low income
34% of adult Mexicans do not have savings or they are so low that they could only cover a week of expenses with them. Only one in 10 Mexicans has enough savings to cover 6 months of expenses, according to ENIF 2021.
In this sense, financial vulnerability is one of the main barriers to formal savings. Another is the lack of access to financial services in an economy with a large proportion of informal jobs.
This is verified by Alejandro, head of the bar in a bar in Puebla, who claims to be one of the Mexicans who has almost all his savings in cash at home, since he is not paid via payroll, but in the classic yellow envelopes. However, he has a bank savings account that pays him a low annual return, compared to other options, such as CETES or investment funds.
“If I could access more information about where to save more profit, of course I would,” he says, but he also says that he continues to save at home to have immediate cash availability.
Disadvantages of informal savings
39% of people have savings through informal means and only 6% through some formal instrument, but according to the Banco Bx+ specialist, the disadvantages of saving through batches or family savings accounts is the lack of security in the safekeeping of money, the lack of performance over time there is also a risk that the counterparty will not pay.
In contrast, formal savings are supported by private and public institutions, where the user can be protected in cases of fraud.
They don’t work in the long run
Although the batches can serve to achieve immediate or short-term objectives, the Fintual specialist says that these methods are not useful for long-term goals that are more important: an educational fund for children, or personal retirement plans.
The power of saving 100 pesos is in time
Finally, both specialists agree that the best time to start saving is now. And Leonardo Castillo, from Fintual, indicates that many Mexicans “underestimate the power of 500, 200 or 100 pesos a month in savings” and therefore decide not to save.
The recommendation is to start saving in formal channels such as cetesdirecto, for example, where you can open an account from 100 pesos with low risks. There, over time, Mexicans will realize how important it is to start a savings habit that generates a return.
It was difficult for Martha to reach the age of 38 to consider the need to save for her retirement on her own, but she does not want it to be repeated with her children, to whom she intends to instill a financial education from now on.