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Why do immigrants save so much more money than you?

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Why has “Raj,” an immigrant who’s lived in the USA for 10 years, saved $150,000 in cash, while few of us born here would ever be able to do the same?

I’m fascinated with the differences in how people around the world spend and save money. Having grown up around a lot of immigrants, I can tell you that their spending patterns are wildly different than people who were born and raised in America.

Passport immigration stamp

I was reminded of this a few days ago, when I got this email from an immigrant — let’s call him “Raj” — who’s been in the USA for 10 years.

“I live here in Fremont now and I have about $150K with me in my bank, most of it stored away like that for more than 1 year now because I needed it to buy a house. Now I have stopped thinking hard about the house, since I still dont know where I will settle down, especially after reading your book to avoid buying a house as an investment. I have started diverting most of the money to LifeCycle funds and I also opened an IRA.

In my case , as a Immigrant I still send a lot of money to India where somehow I have good contacts and usually earn much much more than 8% on my money. That is a strong reason I never bothered to learn about investing here. But now I am diversifying and investing both in the US and in India.”

This is extremely common, especially in the Bay Area: You get a single, highly skilled guy who moves from India to a well-paying job in the US. He works his ass off, lives in a small apartment, and sends some of his income back to his family in India. In a few years, he’s saved well into the 6 figures, at which point he either (1) goes back to India to find a bride and returns to continue working, or, less commonly, (2) moves back to India with a nice bit of cash.

This got me thinking. Why do immigrants save so much?

A few easy reasons come to mind:

  • They’re more educated (see the Wikipedia entry on Indian Americans)
  • They earn more (another Wikipedia link)
  • Their culture encourages higher savings rates (see this Atlantic Monthly article). Culture is also why some immigrants are stereotyped as being poor tippers…which is often very true.

I’m especially interested in the cultural factors that affect financial habits. Here’s a fascinating one I didn’t know about from University of Michigan Retirement Research Center (PDF link).

Data from the EBRI Retirement Confidence Survey indicate that Hispanic-Americans who immigrate to the U.S. exhibit different savings behavior than other Americans.

They tend to save more for short-term goals such as education or a home purchase rather than retirement, and are extremely risk averse, placing greater importance on safety than rate of return on investments, relative to others (Kamasaki and Arce, 2000). In addition, they are more than twice as likely as natives to have provided financial assistance to family members (both in and out of the U.S.) and they are more likely to expect their retirement years to be financed by income of other family members (Kamasaki and Arce, 2000)…for many households these intergenerational transfers may be a major component of retirement saving and planning.

If you can’t understand those words, please go find an immigrant and ask him to translate for you.

I’m sure there are several other reasons that are far more complex. We’ve read the New York Times article on how obesity can be contagious, and I’ve long since argued that personal-finance behaviors are contagious, too — suggesting that maybe you should spend time around immigrants so their financial habits rub off.

In your experience, how do spending patterns differ between immigrants and (native) Americans?

Personally, I remember growing up and taking roadtrips to LA. With six of us, lunch at even a fast-food place would be expensive, so my mom packed lunch and we’d stop somewhere to eat it. We never had a summer home — the whole concept was foreign to us. We never had the most fashionable clothes, but my parents would spend a LOT of money on activities for my siblings and me, and didn’t bat an eye at an SAT prep course that cost thousands of dollars.

Like I said, immigrants have incredibly different spending patterns than most of us. What’s your best example of the difference in financial behavior between immigrants and (native) Americans?

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123 Comments

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  1. When I was in 6th grade, I found out that my friend from Pakistan had been paying the family bills and balancing the family checkbook for more than a year. His father said it was important that they learn to handle personal finances and how better than to learn by doing. I thought he was a bit crazy, but my friend handles his money much better than most of the people I know.

  2. As a first-generation Indian-American, I totally agree with the differences…and I can say one reason is that (not even kidding) my mother STILL mentally converts from dollars to rupees when determining whether or not to make a purchase!!! Despite living in the U.S. for nearly 30 years, she still does this! :)

    Perhaps because immigrants often return home to visit their relatives and they’re reminded of the vast contrast between their home country and the U.S. We’ve all heard the “I came to this country with two suitcases and $100 in my pocket”, and luxuries such as vacation homes and nicer clothing don’t even factor into the equation.

  3. I realize I didn’t really answer the question. One difference in financial behavior – and I’m generalizing here, I realize that there are exceptions – is that during the holidays, we don’t go crazy buying tons and tons of gifts. I remember being in middle school and feeling totally left out because all my friends had gotten gadgets and clothes AND hundreds of dollars of money! – and I probably got ONE gift from my parents, in the $20-$40 range, if that. It’s not that we couldn’t afford more, it’s just that it wasn’t seen as necessary.

    Even though I felt left out as a teenager, I appreciate that frugality now. I could certainly afford to spend hundreds of dollars on gifts, but we still give one or two small meaningful gifts during Christmas, and don’t get sucked into the huge consumerist frenzy from Black Friday through Christmas! 😛

  4. One factor you missed out is a lot of immigrants are used to a much lower standard of living in their home countries. While their income jumps quite a bit after they get to America, their standard of living adjusts much slower.

    • And what makes you say that? Back in India, I am used to living in a 4 bedroom bungalow for 3 people, 4 cars and staff to take care of every possible chore. Have to say my standard of living has gone down ever since I moved to the U.S (sharing a room in LA, no car etc). And yet, I save money and don’t buy unnecessarily because everyone else is. In addition, the concept of taking a loan for every thing is also an alien concept for us. Most of us believe in buying what we can afford.

  5. My girlfriend was born in Hong Kong, and she wastes NOTHING. This includes washing plastic sandwich bags. Clothes are repaired before they are replaced. Food does not get thrown out (even chicken feet can be eaten)

    Waste not, want not….

  6. I think the most insidious reason for the savings divide is that American culture has steadily encouraged consumption vs. saving more and more each year. If you know what to look for, you can see this in the quality of the persuasive arguments embedded into the advertisements of today versus twenty years ago. I’m sure it’s more observable the further back one goes.

    Maybe I’m wrong, but when the President of the United States is tapped to become a spokesperson to save the travel and leisure industry (think post 9/11), I think the cultural divide between a savings based culture and a consumer driven culture grew by leaps and bounds.

    I would say the biggest difference between cultures (particularly Indian Americans) I’ve noticed is the ability to resist the immediate upgrade. Instead of rushing out to buy something new, they wait to buy it secondhand or do enough research to know when to leapfrog technologies.

  7. My grandmother saves babywipes.

    No, not used ones of course. But you know, when you’re changing a kid and you accidentally pull out more wipes than you use? And then, without much thought, ball it all together and throw it out?

    Somehow, someway, my grandmother (who just got to America 5 years ago), managed to save those extra wipes. And one day when I was tearing up the house finding some wipes to change my nephew, she pulled out a disposable glove, gave me her stock of wipes and saved the day.

    I love this.

  8. You might also mention that immigrants tend to put multiple generations of a family in the same house. 3 generations might live together which not only saves money on housing but also provides free child care (which is often super expensive).

    • The concept is to know parents and grand parents, their wisdom to learn and experience. This is not the point of savings that is a responsible to take care of parents when you are earning as we are taking care by parents when we are not earning. 3 generations in the same home will bring togetherness adjusting to each other, helping in problems and sharing experience and most importantly believing your family. staying as a nuclear family is nothing but you are not adjusted to those who born along with you and whose jeans are close to you. That is the bad thing.

  9. “we never had a summer home. . .” Sorry, this made me chuckle a little, as if most Americans DO have summer homes? That seems like a huge luxury that isn’t part of the discussion.

    Anyway. Back to your real point. I think that more people live in a smaller space when it comes to both roommates and family situations in roommates in immigrant communities. Sort of as others mentioned, the standard of living at home is much lower, so it feels (and is!) extremely wasteful to live in the large living spaces some native born Americans find normal. Housing is most peoples largest bill.

  10. Ramit,

    This particular phenomenon is discussed in the book “The Millionaire Next Door” which I see you have on your reading list. I am assuming that is where you came up with some of your initial reasons as to why this particular savings pattern occurs. Like you, I am very interested to see what other factors may contribute to savings habits of immigrants.

    One very interesting point that was made in the book, is that first generation immigrants often tend to be great savers, but the children of those immigrants tend to break away from the ridiculously hard working/living beneath your means type of behaviors. More often then not, that second generation tends to underachieve in regards to their saving behaviors (as compared to the 1st generation immigrant parents).

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