Leafing through a typical personal finance magazine, you'll often find tips on getting student loans for a college-bound child, advice on choosing an assisted living center for Grandma, and profiles of young professionals who have saved $250,000 for retirement by the time they're 30. If only everyone were so smart, so sensible, so self-reliant!
Then you hear Saundra Davis, executive director of Sage Financial Solutions in San Francisco, say, "One of the glaring differences I notice in working with Latino and African-American clients is the responsibility they feel to support other family members financially."
As I suggested in last month's "Minority Report," many of us have blind spots in dealing with clients from different cultures. If we want to serve these clients well, we need to understand their background, their history, their attitudes, preferences, and fears.
In this article we'll address some of the differences you may find among clients of Muslim, Jewish, Indian, Japanese, or Chinese origin. Perhaps some of you will be jarred to learn that the American emphasis on "standing on your own two feet" is the exception, not the norm, and that the charitable giving which many of us view as discretionary is regarded by others as a divinely-ordained duty.
Muslims--Privacy and Sharia
Taking care of extended family members is a top priority in Arab cultures, according to Middle East Institute Scholar David Mack, a former U.S. ambassador and Deputy Assistant Secretary of State.
As Mack explains, Arabs are expected to share the profit from commercial activities with members of their family. In addition, Islam reinforces the social safety net by obliging Muslims to care for widows and orphans and provide charity to less fortunate members of the community. These practices help check unbridled accumulation of riches in the hands of a very few.
However, the emphasis on "sharing the wealth" with kinfolk also results in nepotism and other favoritism to relatives or tribal members. "What looks to Western eyes like non-economic and even unethical behavior is generally tolerated or even encouraged by Arab society," Mack says. "Most of the time, corporations are channels through which the wealthy and powerful take care of their family."
Finances stay under wraps though. "As private as money can be for Americans, it's more private for Iranians and others from the Middle East," observes Mohammad Vedadi, a financial advisor with Ameriprise Financial in Minneapolis. "It would be taboo for an outsider to ask how much they make, or what they do for a living. Even within the family, you don't talk about it."
Born in Iran, Vedadi grew up in the U.S. Most of his clients are American-born, but he also attracts newcomers from the Middle East. Despite his Iranian heritage, cultural differences make it hard for him to turn immigrants into investors. "There's a stock market in Iran, but only a small percentage of people know anything about it," he says. "Instead, they invest in gold, silver, or property -- commodities they've been familiar with for thousands of years. My Middle Eastern clients and prospects, especially those who are older, still have that bias ingrained in them. It's hard to get them to think about investments that are conceptual, like mutual funds, or to place a high emphasis on long-term financial planning."
The precepts of Islamic law present a further difficulty for devout Muslims. Vedadi explains that Sharia, which encompasses the body of Islamic religious law, forbids believers to profit from companies that charge interest or are involved in producing or marketing liquor, gambling, pork, or pornography, among other taboos. Fortunately, he has found some Sharia-compliant funds managed by the Amana Mutual Funds Trust (see IA Mutual Fund Spotlight, September 2007 --"Principled Performance") to offer prospective investors.
The mortgage business is thriving for Islamic finance firms, which don't charge interest and aren't involved in the current subprime debacle. According to an article in The Washington Post, firms such as Guidance Residential and University Islamic Financial offer a variety of home financing options that Muslims are comfortable with.
These firms give a homebuyer the same opportunities that conventional lenders do, but with a twist: the finance company buys the house, then resells it to the eventual homeowner at an agreed-upon markup. The markup is kept competitive with the prevailing mortgage interest rate, so the buyer's monthly payment is roughly the same as it would be with a conventional mortgage. An alternative is a lease-to-own contract similar to car leasing. In a third variation, the buyer and the finance company form a limited-liability entity to own shares of the real estate. All of these approaches circumvent the notion of riba or excessive gain that would result from "renting" money (i.e. paying interest).
Although not every religious authority thinks these arrangements are necessary to comply with Sharia, the Federal Home Loan Mortgage Corporation bought more than $250 million worth of Islamic home loans in 2007. That's only a drop in Freddie Mac's $1.77 trillion bucket, but it shows that this kind of mortgage is one way you can help Muslim clients integrate their religious values into their financial life.
Jews--Family and Justice
As anyone familiar with "The Merchant of Venice" will remember, Jewish minorities in Christian Europe were often restricted to just a few roles in society, one of which was moneylending. This heritage has certainly contributed to the popular perception of Jews as shrewd businesspeople. Less commonly acknowledged is the importance Jews place on giving back to the community.
Larry Gellman, managing director of Private Wealth Management at Robert W. Baird & Co. in Tucson, Arizona, has worked with Jewish clients since launching his career 28 years ago. Back then, he says, "many of my clients had emigrated from Europe or were born to immigrant parents. They worked hard, made a lot of money, and felt tremendously grateful for the chance to create a new life. Lots of people they'd known, people smarter than they were, had never made it out of Eastern Europe."
These hard-working entrepreneurs had no concept of retirement. They would dismiss as meshugah (crazy) the idea of quitting work once they reached some abstract milestone. Play golf for the rest of their life? They wanted to keep working until they died! In the meantime, they gave generously to Jewish organizations and invested in Israel Bonds. Since then, people like these and their families have started foundations and endowments, giving millions of dollars to U.S. colleges, communities, social causes, and medical research.
Stuart Mellan, who heads the Jewish Federation of Southern Arizona (and is also my brother), reminds me that philanthropy has different meanings for Christians and Jews. The Christian word "charity" is rooted in the Latin word for "affection," while the comparable Jewish term tzedekah literally means "justice." To Jews, in other words, giving is not so much an act of love toward one's fellow beings as a responsibility handed down by God. In this respect, Judaic and Islamic laws are not far apart at all. Mellan adds that Judaism teaches that even a poor person should try to provide something for those who are needier, but one should never deprive oneself or one's family of the basic necessities in order to fulfill this commandment.
Another commonality between the two cultures is the focus on helping family members. For Jews, this takes the form of ensuring a good education for one's children. In all the Jewish families I ever knew, paying for the kids' college (in full) was nothing short of an obligation. You might not have enough money to do it, but you'd do it anyway. I recall how worried my father was when I applied to college and later to graduate school. We were far from wealthy, but he was ready to pay the fees somehow. When I received full scholarships for both, he was profoundly relieved.
A generation ago, Gellman says, his Jewish clients invested disproportionately in real estate because "investing in stocks felt like a crapshoot." Since then, Jews have become so well assimilated into American culture that he sees virtually no attitudinal differences between Jewish investors and other clients.
Indians--Money and Karma
In recent decades, India has sent the U.S. a flood of entrepreneurs, high-tech professionals, and other educated immigrants. When I asked Devang Shah, a CFP (India and U.S.) with Right Returns Financial Planning in Mumbai, India, how these newcomers were likely to behave as financial consumers, he described several contrasts between Indians' and Americans' ways of relating to money. "These differences certainly apply to Indians living in America, particularly first-generation immigrants," he cautions. "As they integrate with the mainstream, the differences will become less noticeable."
One of the most notable differences is Indians' huge appetite for saving. They tend to put money aside without compartmentalizing it for a purpose such as education or retirement. Investment choices are usually conservative.
Shah also notes that middle-class Indians aren't quick to spend what they've saved. "Indians are cost-conscious, but not misers," he says. "For example, they may change their cars less often and avoid borrowing for a luxury expense, yet they will spend well for their children's education or a wedding. Overall, the value attached to having financial assets is higher than the value attached to an expensive lifestyle."
If Indians enter your office as prospective clients, don't expect them to divulge personal financial data as readily as most Americans would. On the other hand, it may be easier to elicit qualitative information about family relationships, needs, values, and so on. Also, while an American prospect will often decide whether or not to do business with you in one meeting, Indians often need more time to get a feel for the relationship before they commit.
Shah finishes by saying, "You know, I think this has got to do with the Indian concept of time. Indian philosophy deals with reincarnation as a given. This can be a conversation by itself."
Chinese--Savings and Ready Cash
Devang Shah's comment about Indians' commitment to saving also applies to cultures farther east. Federal Reserve chairman Ben Bernanke has argued that a global "savings glut" in countries such as China and Japan sends large amounts of capital overseas to the U.S., financing our enormous trade deficit. China in particular has an astonishingly high combined government, corporate, and consumer saving rate of 50% of GDP.
Tom Doctoroff, CEO of one of Asia's largest ad agencies in Asia, says in the article "Culture influences how many pennies get pinched" on Ezilon.com, "The high saving rate in China is a defense against uncertainty. The Chinese have a deeply entrenched and historically justified sense that the world is unsafe." Contrasting this with Americans' essentially optimistic view of the world, Doctoroff says that we can save more, but we won't have a true "culture of saving" until there's a fundamental change in our worldview.
"Most Chinese, including Chinese-Americans, usually have a good-sized emergency fund in money markets and CDs," Jie (Jane) Huang told me. "They normally don't carry credit card debt, and they'll sometimes prepay their mortgage."
Huang, a financial advisor with Ameriprise Financial Services in Bethesda, Maryland, notes that Chinese tend to be enterprising investors. They may leverage their equity in one property to buy another, which they can then rent out. "I can't speak for all, but they are interested in stock investing on the more speculative side," she observes. "They tend to try for short-term profit, rather than holding a diversified portfolio for the long term."
Marguerita (Rita) Cheng, a financial planner in the same office as Huang, agrees that Chinese are comfortable buying and trading stocks and says that they are more likely to have a self-directed brokerage account at E*Trade or Charles Schwab than to hire someone else to manage their money.
Part of the reluctance to confide in an advisor comes from a strong sense of privacy. "In my experience, Chinese may be less comfortable discussing touchy-feely emotional issues," explains Cheng, who is of Chinese and American descent. "Chinese people don't even see therapists or marriage counselors. To discuss personal issues with outsiders may be seen as a sign of weakness." She views this attitude as part of the makeup of many native-born Chinese, whom she describes as tending to be "very analytical and skeptical by nature" and gravitating toward left-brain professions such as engineering, computer science, and life science.
Huang seconds Cheng's comment about Chinese skepticism, which underlies many people's unwillingness to give up control of their money. "Americans' view is 'I trust you until you prove otherwise,'" she says. "The Chinese attitude is more likely to be, 'I trust you more as time goes by.' There is a positive correlation between time and trust. You have to earn it."
Asians may not appear to be as philanthropic as their Western counterparts, Cheng notes, but that does not mean they are not charitable. They are more likely to have multiple generations to provide for. "In many Asian families, it is not uncommon to support elderly relatives or for Grandma or Grandpa to live with their grandchildren," she points out. "It is absolutely taboo to put one's parents in a nursing home." If they move to America, Asians routinely budget for the expense of traveling to the old country to reconnect with relatives and ancestors.
Japanese--Risk Aversion and Gaman
Rita Cheng, who lived in Japan for four years, points out that in traditional Japanese families, a husband hands over his paycheck to his wife. "Even if she's a stay-at-home spouse, she handles the household finances and controls the purse strings," Cheng says.
There are social and cultural reasons for the tremendously high savings rate that characterizes most Japanese, observes Rick Kagawa, a financial planner in Huntington Beach, California. Socially, there is pressure to amass as much wealth as possible. (In Osaka, he notes, a common greeting is "How's your money today?") The cultural reasons have to do with the tradition of gaman: to persevere, tough it out, suffer through it. Even though Kagawa's family didn't normally speak Japanese at home, he would hear, "You must gaman."
Despite their dedication to saving, Japanese-Americans tend to have less wealth than many Chinese-Americans. When Kagawa asked about this as a youngster, he was told that his family lost a generation of income during World War II. Forced into internment camps for the duration of the war, his grandparents lost their restaurant and their new car, and his mother's hopes of going to college were dashed. Many Japanese-Americans were so scarred by the camp experience, or by their elders' subsequent accounts of it, that they retain a lingering distrust of the government.
After the war, these families returned to a more normal way of life. In fact, Kagawa compares his upbringing to that of his Jewish friends. Japanese-American parents tend to hover over their children (like Jewish mothers, I guess!). And as in Jewish families, education is everything; parents assume they will finance college for their kids.
Though Japanese tend to be risk-averse, many have learned the advantages of diversifying. Kagawa's clients, who are predominantly Nisei (the first American-born generation), include gardeners, landscapers, and other service workers who have saved enormous amounts of money. One of them, a librarian, has a net worth fifty times her highest annual salary.
"I wish they would enjoy life more," Kagawa told me. He includes his own father, an insurance agent, in his wish that saving-obsessed Japanese-Americans would relax and enjoy their wealth. Ironically, the next generation is more than willing to spend. These conspicuous consumers can be seen zipping around in Porsches, wearing watches that cost more than their parents' first house.
Cultivating a Beginner's Mind
All in all, an advisor should obviously not take for granted that the saving and spending behavior of a Muslim, Jewish, or Asian-American client will mirror that of the "average" WASP. I would also caution you against assuming that every client from a given background will display all the characteristics discussed here.
The best approach to working with clients from a different culture starts with complete awareness and openness to learning, what Zen practitioners call a "beginner's mind." To help open your mind and heart as fully as you can, consider the following advice:
- Be ready to learn, not just to teach. Don't assume you know all you need to know. Ask yourself what you can discover as a student of your client's culture, not just as a coach and mentor. "If you don't share the same cultural background as your client, these initial discovery conversations become even more important," says Laura Brook, director of international relations of the Financial Planning Association. "It is here that you might learn that for an Indian, saving for the weddings of children is critical, and that an extended household is often found in Chinese families. These facts will help you better understand the ins and outs of their priorities and goals."
- Try to put yourself in their shoes. Be sensitive to the way your questions and comments may sound to people from other cultures. If you find you can't demonstrate the same sensitivity to them that you would to someone from your own background, invite the client to help you understand from their perspective. The "disconnect" may be based on something other than cultural differences. You may also want to talk with a colleague whose background is similar to your client's, or who has more experience serving diverse ethnic and cultural populations.
- Develop a longer-term perspective. As we've seen, many other cultures consider it improper to divulge personal information to strangers. So as you discuss your client's needs, you need to tread lightly and patiently in order to understand the whole picture of their attitudes toward saving, investing, spending, taking care of family, charitable obligations, etc., before recommending actions for them to take.
- Let clients know you've heard them. Once you've finished listening patiently, reflect their comments back to them to be sure you've heard them as they wish to be heard. If they need to take action that runs counter to their cultural traditions, you'll need to empathize fully with the sadness of facing what feels to them like a painful loss.
- Avoid making assumptions. Davis of Sage Financial Solutions points out how easy it is to assume that if clients are not responding, there must be something wrong with them. Davis's experience with Latino and African-American clients also prompts her to say, "When people volunteer to work with low and moderate-income clients, they often expect the client to embrace every recommendation they make and move quickly to adopt it. These are expectations they would not necessarily hold for a high-net-worth client." Cultivate an attitude of respect.
- Practice tolerance, but know your limits. It's important to recognize that your own moral standards and ethical views are not the only ones that have value. On the other hand, you don't have to acquiesce to anything that you find wrong, uncomfortable, or repugnant. Learn how to be true to your principles without communicating disapproval or distaste to a client.
- Don't be a stranger. If you want to serve a particular minority group, involve yourself in as many aspects of its culture as you can. Some examples mentioned in "Minority Report" were setting up a neighborhood office, joining a local church, or becoming active in community organizations. If this meshes with your style of doing business, consider stepping outside your current comfort zone to meet prospective clients where they live.
I'm fond of the saying that "The bonds that unite us are stronger than the differences that divide us." That's certainly true when it comes to helping people live richer and more fulfilling lives. "While the specifics of financial planning can differ from country to country or culture to culture, at its foundation, its motivations are global in nature," Laura Brook says. "People want to have the financial resources necessary to achieve their life goals. And everyone wants the peace of mind that planning can bring."
Amen, I say. And gaman.
Olivia Mellan, a speaker, coach, and business consultant, is the author with Sherry Christie of The Advisor's Guide to Money Psychology, available through the Investment Advisor Bookstore at www.investmentadvisor.com. She also offers money psychology teleclasses for financial advisors and for the general public. E-mail her at email@example.com.