Money Matters
Language, Cultural Barriers, and Predators Present Perils for Immigrants
By Paul Natinsky
Coming to a new country can be daunting. A new language. An unfamiliar culture. Everything is different. On top of all that, add a set of rules, regulations, and customs regarding finances that are strange and confusing.
There are many financial perils facing those new to life in the United States, particularly if immigration takes place under duress. Moving money safely from one country to another, establishing a bank account, securing credit, understanding the terms and policies of loans, credit cards, leases, and other contracts are just the tip of the iceberg when getting financially established in a new country.
An article on the Consumer Financial Protection Bureau’s website (consumerfinance.gov) identifies a few of the obstacles to a smooth transition that immigrants face. The Bureau is a U.S. government website containing resources on financial issues.
One of the difficulties immigrants encounter, according to the Bureau, is access to account and banking services due to a person’s immigration status, even in the presence of good credit scores and other documents that demonstrate ability to pay.
Language is another strong barrier to a smooth financial transition for many immigrants, denying them “fair and competitive access to financial services and products,” according to CFPB. The Bureau further points out that the lack of “in-language communication” is often not available, hobbling availability of many services to immigrants and inhibiting their ability to access services, understand terms and conditions, and resolve disputes.
The CFPB points out that immigrants are vulnerable to “predatory actors,” including service providers who charge exorbitant fees and mislead immigrant consumers with in-language marketing exploiting comfortable cultural norms and incorporating easy-to-use products and convenient access. Often the terms of loans awarded through these portals are predatory, featuring unfavorable conditions and interest rates.
With these dangers in mind, there are resources and practices to help new immigrants become financially established in the United States.
Remitly (remitly.com), a financial services company for immigrants, outlines a number of financial strategies available to newcomers.
Planning for expenses six months in advance, starting off banking with a bank in your home country using international branches, learning how credit and credit cards work, and creating a budget and emergency fund are among the suggestions Remitly makes for new immigrants.
Next Steps
Outside of accommodating language and cultural differences and working to avoid being taken advantage of by predatory companies and unscrupulous actors, much of the financial planning advice directed toward immigrants follows the conventional wisdom offered by financial planners to their clients.
“The first thing I always tell investors is that if you want to build wealth you have to spend less than you earn,” says Michael Acho of Lincoln Financial Advisors. He likens acquiring wealth to losing weight—eat less than you burn.
So, what are the first steps to getting to this healthy formula?
Stephen Yono, CFP, CPA, says that many people are motivated to emigrate to the United States by a desire to achieve financial stability. He says the first step should be to build a budget.
“This can be difficult early on, especially if income and expenses are unpredictable. Emergency savings should also be a consideration. Once those are established, financial goals should be considered such as planning for retirement, education savings, and saving for major purchases.”
Acho recommends targeting a percentage of income for savings, as much as a person can afford and still pay “mandatory” bills such as mortgage or rent and car payment.
“The first thing you want to do is have money in the bank —an emergency fund,” says Acho. “There is little or no interest on these accounts, but it gives you three or six months of income in case you lose your job.” He says the exact amount is flexible and varies from person to person based on how soon a person thinks it will take to replace that income.
“Planning for the unexpected, such as being laid off or unable to work, is a crucial component of the financial planning process. This is why I want my clients to maintain a cushion of at least six months’ worth of living expenses,” says Yono. “Health is also a major component of the financial planning process. Life insurance and disability insurance can protect a family in the event the breadwinner passes or is incapacitated. There is no one size fits all product here, so it’s important to speak with a reputable financial professional to determine what suits your needs.”
If You Have Money, Hire a Professional
If it sounds like a person might need some help with these decisions—and with where to invest any extra money—that’s right. But who should a person with little financial experience talk to?
“Whether it’s an attorney, financial planner, CPA, bank, or insurance agent, an individual should ask the right questions to know what services are provided by that professional and how that professional is compensated,” says Yono.
“Also, it’s important to perform your own research to ensure that a recommendation is suitable for you. For example, some life insurance vehicles and annuities are high commission products that may not be suitable for everyone,” he added.
Once you come into contact with one competent, established professional, that person can be an ally in finding others.
“If a client has a need beyond the scope of a professional’s expertise, the professional will typically have a network of other professionals to recommend,” says Yono. “I have a few CPAs and estate planning attorneys within my network that I rely on to provide my clients with quality service that are outside the scope of what I can offer.”
Acho recommends finding trustworthy specialists and letting them do their jobs. He says he often jokes with his clients: “I don’t fix my own car; I don’t cut my own grass. This is what I do. So if I need somebody to come do some other stuff for me I’m willing to pay money to have somebody do that.”
Once a person’s immediate needs are planned for and a plan is in place for the future, there remains the issue of what happens after you are gone.
“Almost everyone needs some form of estate planning,” says Yono. “A well-designed plan preserves the value of your assets and reduces unnecessary taxes and expenses, all while ensuring your heirs receive what you intended them to receive.”
According to Yono, “These are some key life events that may warrant engaging an estate planning attorney: home ownership, marriage and remarriage, having children, receiving an inheritance, divorce, or even extensive travel plans may facilitate the need to engage an estate planning professional.”
The journey of financial planning starts out simple but gets more complicated as a person’s life expands. Property, family, retirement and estate planning make financial planning a bit like a snowball rolling downhill, gaining size as it goes. Having a plan and the right people in place to help makes it more manageable.