Our nation is often described as a melting pot, but I think it’s also somewhat like a popcorn popper. People from different cultural backgrounds are likely to pop up anywhere in the country, even in places you might never think to find them. For example, there are sizable communities of Somalis in Lewiston, Maine; Latinos in Fargo, North Dakota; and Pacific Islanders in Des Moines, Iowa.
Clearly, investment advisors who are skilled in dealing with clients of a different ethnic, racial, or cultural background have a competitive edge over those who don’t. It’s rare, however, to find any guidance on how to talk to and reach clients from different cultures, and rarer still to come across any information on the distinctive attitudes toward money that they may bring to your office.
In exploring this topic, I went to the source: advisors who specialize in cultivating client relationships with specific ethnic or cultural groups. Some are members of these groups themselves; others are not. With the caveat that my research is neither comprehensive nor statistically valid, I invite you to share what I learned.
In the first of a two-part series, I’ll concentrate on our nation’s two largest minorities: Hispanics (with a particular focus on Mexican-Americans) and African-Americans. A future article will address financial attitudes among Muslims, Jews, Indians, Japanese, and Chinese.
But first a cautionary note. The reporting for this article reminded me that it’s both fascinating and dangerous to examine cultural differences. Fascinating because there is so much that’s interesting about a different population’s history, values, and behaviors; but dangerous because it can lead to prejudging individuals who are always more complex than any stereotype. Regardless of your clients’ cultural or ethnic identity, remember that most of them have the same goals: to create a more secure future for themselves and their loved ones, and to make a difference in the lives of their children and others they care about.
Working to Live
“I don’t have everything I love, but I love everything I have,” Rose Carbonell’s Venezuelan friend told her. In “Dinero vs. Money,” an article published online at www.cheskin.com, Carbonell, a graduate student in Hispanic marketing communications at Florida State University, contrasts her friend’s belief that money is good, but not the most important thing in life, with a typical American attitude that one’s life should be used to build wealth.
The difference in these outlooks may have a religious component. Carbonell points out that in The Protestant Ethic and the Spirit of Capitalism, Max Weber argues that the capitalistic spirit has its roots in the Protestant Reformation’s emphasis on hard work, frugality, and personal responsibility. This conceptual framework encouraged capitalism to flourish in the U.S. In Catholic countries, by contrast, people tend to be wary of unfettered capitalism. (In my view, they may also be more invested in the importance of caritas, or caring–the source of our word “charity.”)
Carbonell’s friend told her, “As long as I’m healthy, my family is around, and I have my friends, I’ll be happy, no matter how much money I have…I’ll work to live, not live to work.”
Money and Fate
International financial planner Raoul Rodr?-guez Walters agrees that cross-cultural differences are often rooted in different historical experiences. Rodr?-guez, whose firm, Mexico Advisor, has offices in Portland, Oregon, and San Miguel de Allende, Mexico, points out that years of dysfunctional regimes have given people in many Latin American countries an adversarial view of government. It’s not unusual for legal and accounting professionals to aid citizens in cheating on their taxes. As a result, Latino immigrants to the United States may put up tremendous resistance to the idea of paying their “fair share” to the IRS. Rodr?-guez often has to educate these clients about the necessity of paying taxes honestly in the U.S.
Repeated political coups and freezings of bank assets in their homeland have made many Latino immigrants equally wary of financial institutions, according to Carbonell. She posits that a discomfort with the concept of interest-bearing debt has its roots in the long Moorish domination of Spain. The association of wealth with iniquity is another legacy of centuries of oppression. Being poor is seen as a better alternative to being wealthy (and hence corrupt).
A fatalistic attitude toward life is also part of the “different mindset” of Hispanic culture, as I was told by Louis Barajas, a financial planner in Santa Fe Springs, California, and author of The Latino Journey to Financial Greatness: The 10 Steps to Creating Wealth, Security, and a Prosperous Future for You and Your Family (HarperCollins, 2003). For example, a farewell to a new Mexican client, “I’ll see you next week with the rest of the paperwork,” is apt to be answered by “Si Dios quiere”–”If God wills.”
Fatalism is also echoed in the belief that “If I’m poor, God must have intended me to be poor.” This may explain why so many Latinos opt to spend their money on present-day needs and wants, instead of investing to improve their situation. Barajas’s answer to fatalistic clients is that God wants them to be happy and secure. He tells them about other immigrants who started with nothing and became wealthy, and sometimes shares his own story of achieving success after growing up poor in a Los Angeles barrio.
Macho, Macho Man
Hispanic machismo offers unusual challenges to an advisor’s ingenuity. The more blue-collar a Latino is, the more macho he tends to be. Louis Barajas, who as “Doctor Dinero” writes a column for Hispanic men in Open Your Eyes magazine, handles hombres like this in an interesting way. Sitting across from them in his office, he says, “There was a very wealthy man at this chi-chi firm, interested in me because I was a poor Hispanic, who wanted me to succeed. He told me, ‘The difference between the poor and the rich is this: the poor know everything; the rich learn everything.’” Barajas continues, “‘I can see that when I work with someone like you, who comes in, willing to learn and wanting to take the best care of his family, and who will listen to me because I was a poor Hispanic who made it, I know I can help you succeed.’” (Because of his skill in aligning himself with his client, I wager that he usually does!)
Another frequently encountered cultural difference, according to Barajas, is dual families. It’s not unusual for men to have a wife in one home and a mistress in another, with children by both women. In fact, the civil code of most Mexican states allows a woman from la casa chica to share in her lover’s estate if she is excluded from his will. This means it’s fairly common for a husband to be a financial planning client by himself, while in the U.S. it would be more common to advise a husband and wife together.
Life insurance can be a touchy issue. Barajas told me that a male client often resists buying life insurance, suspecting that the money will go to “El Sancho”–the guy who will take his place when he’s dead. Barajas’s response is forthright. “I know you may fear your money will go to El Sancho,” he tells these clients, “but there are ways we can protect it so it goes right to your kids.”
I asked Barajas whether it’s customary for Hispanics to have a college fund for their children. He told me that when he speaks to a Hispanic audience, he often asks, “How many of you believe that education is the way out?” Everyone in the audience raises their hand. “How many of you are putting away money for your kids’ education?” Out of a thousand people, he says, maybe five hands will go up.
This is a serious problem. Although the high-school dropout rate for Hispanics has been declining, the latest data from the U.S. Department of Education shows that it was still over 22% in 2005. In the barrio where Barajas grew up, more than 60% of teens never complete high school. Nationwide, he says, only 7% of Hispanics graduate from college.
Because many Hispanic immigrants are ill-educated themselves, they often aren’t aware of their role in motivating their children to get a good education. For example, they may not show up for Parents’ Night at school, believing that their kids’ success is completely up to the teacher. Barajas encourages these clients to get more involved by requesting them to bring in their kids’ report cards. He also asks the children’s teachers to write letters home that explain what the child needs to do in order to graduate and succeed. “Sometimes they need tutoring; sometimes they need dental work,” he says.
Raoul Rodr?-guez Walters adds that among Mexicans and other Hispanics, less emphasis is placed on being independent from one’s family. In the U.S., he observes, children can’t wait to turn 18 and leave home. Even if they go to a nearby college, they often rent an apartment of their own. In Mexico, it’s unusual for children to want to leave home, even for college. Most will live at home happily while pursuing their studies, and continue to stay there until they marry. In fact, parents often continue to support their children well after the latter are married. Similarly, older parents often live with los ni??os or very near them. Children who work usually contribute money or pay for services their parents need. The idea of an assisted living facility is scandalous to most Mexicans.
When it comes to spending, the stereotypical Hispanic lays out his or her money on fashionable clothes, souped-up cars, and lots of bling–accessories that give their owner status on the street. There’s some truth to this stereotype, as Wharton finance professor Nikolai Roussanov and two University of Chicago collaborators recently reported in “Conspicuous Consumption and Race: Who Spends More on What,” (as found in the Wharton school’s online business journal, [email protected], May 14, 2008).
Roussanov concludes that the explanation of this behavior–which is also characteristic of many young African-Americans–is economic, not cultural. The determining factor is the need to appear visibly wealthier or more successful than one’s peers. (This display isn’t unique to the barrio or the ghetto, I might add; witness the plethora of oversized McMansions, glitzy Porsches, and the like in high-end neighborhoods populated primarily by European-Americans.)
Whatever the reason, the consequences are serious. Compared to whites at the same income level, Roussanov says, both Hispanics and African-Americans spend as much as 30% more on visible status items, which takes a toll on other budget needs. For example, Latino and black households spend 50% less on healthcare than their white counterparts. Latinos spend 16% less on education than whites do; blacks spend 30% less.
Observing how deeply entrenched status spending is, Roussanov wonders, “How do we promote going to an expensive college rather than buying an expensive watch?”
The Need for Advice
Many Latinos aren’t used to paying for advice. When they need counsel, they go to a person in their family who is successful and ask this compadre what they should do. Often, the closest thing to a financial planner in a Hispanic neighborhood is a storefront advisor who will marry you, divorce you, prepare your tax return, notarize your documents, and even plan your travel.
Clearly, planners like Raoul Rodr?-guez Walters and Louis Barajas are bucking the system. The price they pay is a lot of “handholding” and patient education of their Latino clients. For example, many clients who come from an agricultural background believe in investing only in what they can touch and feel: real estate. To help them feel more comfortable with diversification, Barajas says he rewrote the basic concepts of stock and bond investing so they could be understood by someone like his father, who has a sixth-grade education.
A Matter of Trust
To explore African-Americans’ financial attitudes more fully, I spoke with Walter Gray of Ameriprise Financial Services in Edina, Minnesota. Gray, a member of the black community who has been a financial advisor for 23 years, noted that African-Americans as a group are sometimes very extravagant with their money, and yet can be very private about it. Like Hispanics, they don’t save as much as the average white American; they also tend to be skeptical of the stock market and wary of people promoting financial products.
The roots of this secrecy and distrust are deep, Gray told me. “Going way back, African-Americans had to hide their money so it wasn’t taken from them by the Man. As they accumulated more money, it was stored in a hidden coffee can, buried in the mattress.” Today, Gray notes, many African-Americans still do not have checking accounts. Like Latinos and many other immigrants, they use check-cashing stores instead. Working-class black families usually pay their bills with money orders.