When immigrants come to the United States, they frequently must learn how to navigate new financial systems. Some immigrants come from countries where banks are both trusted and common, some have only experienced weak or corrupt banks, and others have interacted primarily with cash-based markets. They must learn to navigate new financial institutions and products.
Immigrants face unique barriers to accessing financial institutions and products. First, immigrants whose native countries have weak or corrupt financial instructions may distrust banks. Immigrants from countries with weak financial institutions (those that do not effectively protect private property or offer incentives for investment) are less likely to participate in United States financial markets (Osili & Paulson, 2008). Additionally, immigrants may face language and cultural barriers in accessing financial products. Banks may not have employees who speak the immigrant’s native language or who are familiar with specific cultural customs surrounding finances.
One of the first steps to establishing financial security is the ability to utilize financial products and services available to both protect and increase one’s assets. The most important and basic of these financial tools are checking and savings accounts. Having checking and savings accounts allow individuals to keep their money safe, dramatically reduce the fees associated with financial transactions (e.g., cashing pay checks), efficiently and safely pay bills and other obligations, and establish credit worthiness (Rhine & Greene, 2006).
Immigrants are much more likely than native-born peers to be “unbanked,” or have no bank accounts of any kind. The incidence of being unbanked in immigrant communities is 13% higher than the native born population (Bohn & Pearlman, 2013). Among immigrant communities in New York, as much as 57% of Mexican immigrants and 35% of Ecuadorian were unbanked (Department of Consumer Affairs, 2013). Immigrants who create bank accounts are able to access financial benefits. For example, immigrants with bank accounts in the United States are more likely to own than to rent or live for free, suggesting that this is an important correlate of homeownership (McConnell & Akresh, 2008).
Research investigating the differences between banked and unbanked immigrants found unbaked immigrants tended to live in enclaves (Bohn & Pearlman, 2013), arrived in the United States at a later age, and have less education, lower English proficiency, lower income level, and larger families (Paulson, Singer, Newberger, & Smith, 2006; Rhine & Greene, 2006). Immigrants who are unsure about the length of stay in the United States also more likely to be unbanked (Department of Consumer Affairs, 2013). Furthermore, those who are unbanked experience more structural barriers such as understanding the banking system, documents, and process. Having direct, physical control over cash rather than keeping it in a bank was found to deter Hispanic consumers from using financial products and services (Federal Reserve Bank of Kansas City, 2010).
Immigrants are less likely than native-born citizens to have a savings account, even after accounting for socio-economic status (Paulson, Singer, Newberger, & Smith, 2006). However, many immigrants are saving money, using both savings accounts and less formal methods. In a study of Southeast Asian refugees in Canada, Johnson (1999) found that 80% of the participants were saving money. A study of later-age, low-income Asian immigrants in the United States found much lower rates; only 15% saved regularly (Nam, Lee, Huang, & Kim, 2015). The most common reasons quoted for saving money include emergencies (Johnson, 1999; Solheim & Yang, 2010), children’s education, and home purchases (Johnson, 1999).
Immigrants who are more acculturated tend to be more open to using credit cards. Likewise, individuals who are younger, employed, higher-income, and have greater English proficiency are more likely to use credit cards (Johnson, 2007; Solheim & Yang, 2010). The reasons for using credit cards range from everyday purchases (e.g. eating out, buying clothes, buying furniture or appliances, etc.) (Johnson, 2007), to emergencies (Johnson, 2007; Solheim & Yang, 2010), to building credit (Solheim & Yang, 2010). It is worthwhile to note that although individuals that are less acculturated (e.g. first generation Hmong parents) tended to prefer to use cash for purchases rather than credit card, these individuals also recognized the importance of building credit. This recognition motivates older, less acculturated individuals to use credit cards (Solheim & Yang, 2010).
Remittances are money sent by migrants to spouses, children, parents, or other relatives in their country of origin. These funds are typically sent through money transfer agencies (e.g. MoneyGram, Western Union) for a fee, through banks, or via friends or relatives visiting the country of origin. According to the World Bank, in 2013 international migrants sent $404 billion in remittances to their counties of origin (Tuck-Primdahl & Chand, 2014). Approximately a quarter of these funds originated from the United States. The top four countries to receive funds were India ($70 billion), China ($60 billion), Philippines ($25 billion) and Mexico ($22 billion).
Remittances have a significant impact to both individuals and families. Remittances make it possible to meet basic needs such as purchasing food and clothing, and paying for rent and utilities. Furthermore, remittances allow families to pay down (or pay off) debt as well as provide family members access to healthcare (Solheim, Rojas-Garcia, Olson, & Zuiker, 2012).
For immigrants in the United States, the obligation to send money home can create stress and hardship. The urgent need for financial support adds pressure to gain employment. It can be difficult to make enough money to meet the individual’s personal financial obligations (e.g. pay for rent, food, utilities, etc.) and to send money home. In some cases, the need to take care of the financial obligations associated with the trip to the new country (e.g. paying back borrowed money needed to for shelter and food upon first arrival) drains the finance so much that it is difficult to send money home (Martone, Munoz, Lahey, Yonder, & Gurewitz, 2011). For many immigrants, the knowledge that one is contributing to the improved living standard of one’s family makes the hardship worthwhile.
Culturally Appropriate Services
In order to meet the financial needs of immigrants, some community-based organizations are offering financial services that are culturally tailored. In research among Asian Americans, receiving financial services from other Asian Americans led to better financial outcomes; the clients were more likely to obtain loans and to save more and longer (Zonta, 2004). This may be because there is greater trust and fewer language barriers (Zonta, 2004). Culturally competent financial service providers can frame their materials and products in appropriate ways. For example, one bank offered loan counseling tailored to Vietnamese clients. To deal with clients’ fears of losing face over taking out a loan, the loan counselors stressed that their information and application was confidential and would not be shared with anyone in the community. The counselors also explained why they needed information, saying that the institution needed to vouch for the client in front of their loan committee (Patraporn, Pfeiffer, & Ong, 2010). Such adaptations can increase accessibility and usability of financial services for immigrants.